[Federal Register Volume 89, Number 138 (Thursday, July 18, 2024)]
[Rules and Regulations]
[Pages 58505-58535]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15093]


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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.

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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, [email protected]; Thomas Smith, Deputy Director, 202-418-5495, 
[email protected]; Rafael Martinez, Associate Director, 202-418-5462, 
[email protected]; Warren Gorlick, Associate Director, 202-418-5195, 
[email protected]; Liliya Bozhanova, Special Counsel, 202-418-6232, 
[email protected]; Justin McPhee, Risk Analyst, 202-418-6223, 
[email protected], 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\
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    \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'').
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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

[[Page 58506]]

derivatives clearing organization (``uncleared swaps'').
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    \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).
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    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\
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    \7\ 7 U.S.C. 6s(e)(2).
    \8\ 7 U.S.C. 6s(e)(1) and (2).
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    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\
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    \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.
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    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\
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    \12\ 7 U.S.C. 6s(f).
    \13\ 7 U.S.C. 6s(f)(1)(A).
    \14\ 85 FR 57462.
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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\
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    \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).
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    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.
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    \17\ 17 CFR 23.106(a)(3)(ii). See also 85 FR 57462 at 57521.
    \18\ See 85 FR 57462 at 57521.
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    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

[[Page 58507]]

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\
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    \19\ 17 CFR 23.106(a)(2).
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    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.
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    \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.
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    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\
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    \21\ 17 CFR 23.106(a)(3) and 85 FR 57462 at 57520-57522.
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    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\
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    \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.
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    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.
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    \23\ 17 CFR 23.106(a)(5).
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    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\
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    \24\ 17 CFR 23.106(a)(4).
    \25\ Notices must be filed in electronic form to the following 
email address: [email protected].
    \26\ 17 CFR 23.106(a)(4)(ii) and 17 CFR 140.91(a)(11).

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    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.
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    \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.
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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\
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    \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.
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    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.
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    \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.
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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

[[Page 58509]]

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\
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    \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.
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    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\
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    \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.
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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\
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    \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\
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    \48\ See 2022 Proposal at 76381.
    \49\ 85 FR 57462 at 57521.
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    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

[[Page 58510]]

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\
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    \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.
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    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.
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    \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.
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    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\
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    \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.
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    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

[[Page 58511]]

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.
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    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

[[Page 58512]]

(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

[[Page 58513]]

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\
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    \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).
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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

[[Page 58514]]

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\
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    \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).
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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

[[Page 58515]]

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.

---------------------------------------------------------------------------

[[Page 58516]]

    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\
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    \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-

[[Page 58517]]

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\
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    \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

[[Page 58518]]

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\
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    \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.
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    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\
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    \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.
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    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\
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    \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.
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    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

[[Page 58519]]

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\
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    \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 x .15 standardized market risk factor). The 
nonbank SD is required to maintain regulatory capital equal to or in 
excess of full market risk exposure amount of $37,500 (risk exposure 
amount of $37,500 x 8 percent regulatory capital requirement equals 
$3,000; the regulatory capital requirement is then multiplied by a 
factor of 12.5, which effectively requires the nonbank SD to hold 
regulatory capital in an amount equal to at least 100 percent of the 
market risk exposure amount ($3,000 x 12.5 factor equals $37,500)).
---------------------------------------------------------------------------

    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\
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    \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

[[Page 58520]]

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 CFTC Capital Rules are comparable in 
purpose and effect with respect to the computation of minimum capital 
requirements based on a nonbank SD's risk-weighted assets. In this 
regard, the Commission finds that notwithstanding the differences 
discussed above, the Mexican Capital Rules and the CFTC Capital rules 
have a comparable approach to the computation of risk-weighted asset 
amounts for market risk and credit risk for on-balance sheet and off-
balance sheet exposures, which are intended to ensure that a nonbank SD 
maintains a sufficient level of regulatory capital to absorb decreases 
in firm assets, absorb increases in firm liabilities, and meet 
obligations to counterparties and creditors, without the firm becoming 
insolvent.
c. Minimum Capital Requirement Based on the Uncleared Swap Margin 
Amount
    As noted above, prong (ii) of the CFTC Capital Rules' Bank-Based 
Approach requires a nonbank SD to maintain regulatory capital in an 
amount equal to or greater than 8 percent of the firm's total uncleared 
swaps margin amount associated with its uncleared swap transactions to 
address potential operational, legal, and liquidity risks.\164\ The 
Commission stated that the intent of the requirement was to establish a 
method of developing a minimum amount of required capital for a nonbank 
SD to meet its obligations as a SD to market participants, and to cover 
potential operational, legal, and liquidity risks.\165\
---------------------------------------------------------------------------

    \164\ More specifically, in establishing the requirement that a 
nonbank SD must maintain a level of regulatory capital in excess of 
8 percent of the uncleared swap margin amount associated with the 
firm's swap transactions, the Commission stated that the intent of 
the uncleared swap margin amount was to establish a method of 
developing a minimum amount of capital for a nonbank SD to meet its 
obligations as a SD to market participants, and to cover potential 
operational risk, legal risk and liquidity risk, and not just the 
risks of its trading portfolio. 85 FR 57462 at 57485.
    \165\ See id.
---------------------------------------------------------------------------

    The Mexican Capital Rules differ from the CFTC Capital Rules in 
that they do not impose a capital requirement on Mexican nonbank SDs 
based on a percentage of the margin for uncleared swap transactions. In 
the 2022 Proposal, the Commission described, however, how certain 
Mexican capital and liquidity requirements may compensate for the lack 
of direct analogue to the 8 percent uncleared swap margin amount 
requirement.\166\ Specifically, the Commission noted that the Mexican 
Capital Rules require a Mexican nonbank SD to account for operational 
risk in computing their minimum capital requirements.\167\ In this 
connection, the Mexican Capital Rules require a Mexican nonbank SD to 
calculate an operational risk exposure amount equal to 15 percent of a 
Mexican nonbank SD's average annual net positive income for the last 
three years, on a rolling basis.\168\ The Mexican nonbank SD is then 
required to multiply the operational risk exposure amount by a factor 
of 12.5 and add the resultant amount to the total operational risk-
weighted assets, which has the effect of requiring the Mexican nonbank 
SD to hold regulatory capital equal to or greater than 100 percent of 
its operational risk exposure amount.\169\
---------------------------------------------------------------------------

    \166\ See 2022 Proposal at 76389-76390.
    \167\ 2022 Proposal at 76387 and Article 161 Bis of the General 
Provisions.
    \168\ The amount of the operational risk exposure is also 
subject to a floor equal to 5 percent and a ceiling equal to 15 
percent of the monthly average sum of market and credit risk 
exposure amounts, calculated over the prior 36 months, also on a 
rolling basis. Article 161 Bis 3 of the General Provisions.
    \169\ See 2022 Proposal at 76387 and Article 161 Bis 5 of the 
General Provisions.
---------------------------------------------------------------------------

    In addition, the Mexican Capital Rules require Mexican nonbank SDs 
to meet quantitative liquidity requirements, whereby a Mexican nonbank 
SD must hold or invest at least 20 percent of the firm's total capital 
in liquid assets comprised of: (i) bank deposits; (ii) highly liquid 
debt securities registered in Mexico; (iii) shares of debt investment 
funds; (iv) reserve funds created to maintain funds available to cover 
contingencies; and (v) high and low marketability shares subject to 
market value discounts of 20 and 25 percent, respectively.\170\
---------------------------------------------------------------------------

    \170\ See 2022 Proposal at 76390 and Article 146 of the General 
Provisions.
---------------------------------------------------------------------------

    Addressing the Commission's request for comment regarding the 
comparability in purpose and effect between the requirement under the 
Mexican Capital Rules for a Mexican nonbank SD to account for 
operational risk by holding qualifying capital in an amount equal to 15 
percent of its average annual net positive income from the last three 
years and the CFTC's capital requirement based on a nonbank SD's 
uncleared swap margin amount, one commenter, Better Markets stated that 
the requirements are not

[[Page 58521]]

comparable.\171\ In this connection, Better Markets asserted that the 
inclusion of operational risk as an additional risk exposure element in 
the calculation of the nonbank SD's total risk-weighted assets, the 
Mexican approach does not specifically address potential operational 
risks for uncleared swaps. More specifically, Better Markets argued 
that the approach mandated by the Mexican Capital Rules, which 
addresses the nonbank SD's total operational risk in the calculation of 
risk-weighted assets, provides for a lower capital amount to cover 
uncleared swaps margin.\172\
---------------------------------------------------------------------------

    \171\ Better Markets Letter at pp. 10-11.
    \172\ Id. at 10.
---------------------------------------------------------------------------

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

    \173\ Associations Letter at pp. 2-3.
    \174\ Id.
---------------------------------------------------------------------------

    In conclusion, the Commission finds that the Mexican Capital Rules 
and the CFTC Capital Rules are comparable in purpose and effect with 
respect to the requirement that a nonbank SD's minimum level of 
regulatory capital reflects potential operational risk exposures in 
addition to market risk and credit risk exposures. The Commission 
emphasizes that the intent of the minimum capital requirement based on 
a percentage of the nonbank SD's uncleared swap margin is to establish 
a minimum capital requirement that would help ensure that the nonbank 
SD meets its obligations as an SD to market participants, and to cover 
potential operational risk, legal risk, and liquidity risk in addition 
to the risks associated with its trading portfolio.\175\ The Commission 
further notes that the minimum capital requirement based on a 
percentage of the nonbank SD's uncleared swap margin amount was 
conceived as a proxy, not an exact measure, for inherent risk in the 
SD's positions and operations, including operational risk, legal risk, 
and liquidity risk.\176\ As the Commission noted in adopting the CFTC 
Capital Rules, although the amount of capital required of a nonbank SD 
under the uncleared swap margin calculation is directly related to the 
volume, size, complexity, and risk of the covered SD's positions, the 
minimum capital requirement is intended to cover a multitude of 
potential risks faced by the SD.\177\ The Commission understands that 
other jurisdictions may adopt alternative measures to cover the same 
risks. In this regard, the Mexican Capital Rules address comparable 
risks albeit not through a requirement based on a Mexican nonbank SD's 
uncleared swap margin amount. Specifically, Mexican nonbank SDs are 
required to maintain a minimum level of regulatory capital based on an 
aggregate of the firm's total risk-weighted asset exposure amounts for 
market risk, credit risk, and operational risk exposures. The 
Commission finds that, notwithstanding the differences in approaches, 
the Mexican Capital Rules and CFTC Capital Rules are comparable in 
purpose and effect in requiring nonbank SDs to maintain a minimum level 
of regulatory capital that addresses potential market risk, credit 
risk, and operational risk to help ensure the safety and soundness of 
the firm, and to ensure that the firm has sufficient capital to absorb 
decreases in firm assets, absorb increases in firm liabilities, and 
meet obligations to counterparties and creditors, without the firm 
becoming insolvent.
---------------------------------------------------------------------------

    \175\ See 2022 Proposal at 76384-76385 (referencing 85 FR 57462 
at 57492).
    \176\ 85 FR 57462 at 57497.
    \177\ 85 FR 57462 at 57485 and 57497.
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3. Final Determination
    Based on its analysis of comments and its holistic assessment of 
the respective requirements discussed in sections II.C.2.a., b., and c. 
above, the Commission adopts the Comparability Determination and 
Comparability Order as proposed with respect to the minimum capital 
requirements and the calculation of regulatory capital, subject to the 
condition that Mexican nonbank SDs must maintain a minimum level of 
regulatory capital in the form of fundamental capital that equals or 
exceeds the equivalent of $20 million U.S. dollars.

D. Nonbank Swap Dealer Financial Reporting Requirements

1. Proposed Determination
    The Commission detailed the requirements of the CFTC Financial 
Reporting Rules in the 2022 Proposal.\178\ Specifically, the 2022 
Proposal notes that the CFTC Financial Reporting Rules require nonbank 
SDs to file with the Commission and NFA periodic unaudited and annual 
audited financial reports.\179\ The unaudited financial reports must 
include: (i) a statement of financial condition; (ii) a statement of 
income/loss; (iii) a statement demonstrating compliance with, and 
calculation of, the applicable regulatory minimum capital requirement; 
(iv) a statement of changes in ownership equity; (v) a statement of 
changes in liabilities subordinated to claims of general creditors; and 
(vi) such further material information necessary to make the required 
statements not misleading.\180\ The annual audited financial reports 
must include the same financial statements that are required to be 
included in the unaudited financial reports, and must further include: 
(i) a statement of cash flows; (ii) appropriate footnote disclosures; 
and (iii) a reconciliation of any material

[[Page 58522]]

differences between the financial statements contained in the annual 
audited financial reports and the financial statements contained in the 
unaudited financial reports prepared as of the nonbank SD's year end 
date.\181\ In addition, a nonbank SD must attach to each unaudited and 
audited financial report an oath or affirmation that to the best 
knowledge and belief of the individual making the affirmation the 
information contained in the financial report is true and correct.\182\ 
The individual making the oath or affirmation must be a duly authorized 
officer if the nonbank SD is a corporation, or one of the persons 
specified in the regulation for business organizations that are not 
corporations.\183\
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    \178\ 2022 Proposal at 76391-76392.
    \179\ Id. and 17 CFR 23.105(d) and (e).
    \180\ Id. and 17 CFR 23.105(d)(2).
    \181\ Id. and 17 CFR 23.105(e)(4).
    \182\ Id. and 17 CFR 23.105(f).
    \183\ Id.
---------------------------------------------------------------------------

    The CFTC Financial Reporting Rules also require a nonbank SD to 
file the following financial information with the Commission and NFA on 
a monthly basis: (i) a schedule listing the nonbank SD's financial 
positions reported at fair market value; \184\ (ii) schedules showing 
the nonbank SD's counterparty credit concentration for the 15 largest 
exposures in derivatives, a summary of its derivatives exposures by 
internal credit ratings, and the geographic distribution of derivatives 
exposures for the 10 largest countries; \185\ and, (iii) for nonbank 
SDs approved to use internal capital models, certain model metrics, 
such as aggregate value-at-risk (``VaR'') and counterparty credit risk 
information.\186\
---------------------------------------------------------------------------

    \184\ Id. and 17 CFR 23.105(l) and Schedule 1 of appendix B to 
subpart E of part 23 (``Schedule 1''). Schedule 1 includes a nonbank 
SD's holding of U.S Treasury securities, U.S. government agency debt 
securities, foreign debt and equity securities, money market 
instruments, corporate obligations, spot commodities, and cleared 
and uncleared swaps, security-based swaps, and mixed swaps in 
addition to other position information.
    \185\ Id. and 17 CFR 23.105(l) and schedules 2, 3 and 4, 
respectively, of appendix B to subpart E of part 23.
    \186\ Id. and 17 CFR 23.105(k) and (l), and appendix B to 
subpart E of part 23.
---------------------------------------------------------------------------

    The CFTC Financial Reporting Rules further require a nonbank SD to 
provide the Commission and NFA with information regarding the 
custodianship of margin for uncleared swap transactions (``Margin 
Report'').\187\ The Margin Report must contain: (i) the name and 
address of each custodian holding initial margin or variation margin on 
behalf of the nonbank SD or its swap counterparties; (ii) the amount of 
initial and variation margin required by the uncleared margin rules 
held by each custodian on behalf of the nonbank SD and on behalf its 
swap counterparties; and (iii) the aggregate amount of initial margin 
that the nonbank SD is required to collect from, or post with, swap 
counterparties for uncleared swap transactions subject to the uncleared 
margin rules.\188\
---------------------------------------------------------------------------

    \187\ Id. and 17 CFR 23.105(m).
    \188\ Id.
---------------------------------------------------------------------------

    A nonbank SD electing the Bank-Based Capital Approach is required 
to file the unaudited financial report, Schedule 1, schedules of 
counterparty credit exposures, and the Margin Report with the 
Commission and NFA no later than 17 business days after the applicable 
month-end reporting date.\189\ A nonbank SD must file its annual report 
with the Commission and NFA no later than 60 calendar days after the 
end of its fiscal year.\190\
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    \189\ 17 CFR 23.105(k), (l), and (m).
    \190\ 17 CFR 23.105(e)(1).
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    The 2022 Proposal also detailed relevant financial reporting 
requirements of the Mexican Financial Reporting Rules.\191\ The Mexican 
Financial Reporting Rules require a Mexican nonbank SD to submit to the 
Mexican Commission quarterly consolidated financial reports.\192\ The 
reports must contain a balance sheet, a statement of income/loss, a 
statement of changes in equity, a statement of cash flows, and a 
statement showing the firm's compliance with minimum capital 
requirements.\193\ The quarterly consolidated financial reports must be 
for the quarters ending March, June, and September of each year, and 
must be filed with the Mexican Commission within the month following 
the last day of each quarter.\194\
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    \191\ 2022 Proposal at 76392.
    \192\ Id. and Article 203 of the General Provisions.
    \193\ Id. and Article 180 of the General Provisions.
    \194\ Id. and Article 203 of the General Provisions.
---------------------------------------------------------------------------

    A Mexican nonbank SD is also required to submit an annual 
consolidated financial report.\195\ The annual report must contain the 
same statements that are required to be included in the quarterly 
consolidated financial report and must further include appropriate 
footnote disclosures relating to, among other topics, nominal amounts 
of derivatives contracts by type of instrument and by underlying 
valuation results, as well as the results obtained in the assessment of 
the adequacy of the firm's regulatory capital in relation to credit, 
market, and operational risk requirements.\196\ The annual consolidated 
financial report must be filed within 90 calendar days of the Mexican 
nonbank SD's fiscal year end, and must contain an audit report issued 
by an independent external auditor.\197\
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    \195\ Id.
    \196\ Id. and Article 180 of the General Provisions.
    \197\ Id. and Article 203 of the General Provisions.
---------------------------------------------------------------------------

    In addition to the above consolidated financial reports, a Mexican 
nonbank SD must provide the Mexican Commission, on a monthly basis, 
with a balance sheet and income statement, along with additional 
financial information.\198\ Such reports are due within 20 days 
following the end of the respective month.\199\ On a quarterly basis, a 
Mexican nonbank SD also must provide the Mexican Commission with 
additional financial information regarding deferred income taxes, 
consolidation with respect to balance sheet and income statements, 
stockholders equity statements, and cash flow statements.\200\
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    \198\ Id. and Article 202 of the General Provisions.
    \199\ Id.
    \200\ Id. and Exhibit 9 of the General Provisions.
---------------------------------------------------------------------------

    A Mexican nonbank SD licensed to enter into derivatives 
transactions for its own account is also required to file with the 
Mexican Central Bank, during May of each year, a written communication 
issued by the Mexican nonbank SD's internal audit committee evidencing 
compliance in the performance of its derivatives transactions with each 
and all applicable legal provisions and, when required by the Mexican 
Central Bank, a Mexican nonbank SD also must provide the Mexican 
Central Bank with all the information related to the derivatives 
transactions performed by the firm.\201\ Furthermore, a Mexican nonbank 
SD licensed to perform derivatives transactions is required to file a 
report with the Mexican Central Bank on a daily basis containing all 
the derivatives transactions performed by the Mexican nonbank SD.\202\
---------------------------------------------------------------------------

    \201\ Id. and Provision 3.1.3 of the Rule 4/2012 issued by the 
Mexican Central Bank.
    \202\ Id., and Mexico Application at p. 19.
---------------------------------------------------------------------------

    Based on its review of the Mexico Application and the relevant 
Mexican laws and regulations, the Commission preliminarily determined 
that, subject to the conditions specified in the 2022 Proposal and 
discussed below, the Mexican Financial Reporting Rules are comparable 
to the CFTC Financial Reporting Rules in purpose and effect.\203\ The 
Commission noted that both rule sets provide the Mexican Commission and 
Mexican Central Bank, as applicable, and the Commission and NFA, 
respectively, with financial information to monitor a nonbank SD's 
compliance with capital requirements and to assess a nonbank SD's 
overall safety and soundness. Specifically, both the CFTC Financial 
Reporting Rules and the Mexican Financial Reporting Rules

[[Page 58523]]

require nonbank SDs to file statements of financial condition, 
statements of profit and loss, and statements of regulatory capital 
that collectively provide information for the Mexican Commission, CFTC, 
and NFA to assess a nonbank SD's overall ability to absorb decreases in 
the value of firm assets, absorb increases in the value of firm 
liabilities, and cover losses from business activities, including swap 
dealing activities, without the firm becoming insolvent.\204\
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    \203\ 2022 Proposal at 76392.
    \204\ Id.
---------------------------------------------------------------------------

    The proposed conditions in the proposed Comparability Order were 
intended to ensure that the Commission and NFA receive appropriate and 
timely financial information from Mexican nonbank SDs to monitor the 
firms' compliance with the Mexican Commission's capital requirements 
and to assess the firms' overall safety and soundness. The proposed 
conditions would require a Mexican nonbank SD to provide the Commission 
and NFA with copies of the monthly financial information, including a 
copy of its balance sheet and income statement, that the firm files 
with the Mexican Commission pursuant to Article 202 and Exhibit 9 of 
the General Provisions, as well as copies of the quarterly consolidated 
reports and annual audited financial reports that the firm files with 
the Mexican Commission pursuant to Article 203 of the General 
Provisions.\205\ In addition, the Commission proposed a condition to 
require a Mexican nonbank SD to provide as part of its monthly filing, 
a statement of regulatory capital.\206\ The proposed conditions would 
also require the annual audited and the unaudited monthly and quarterly 
financial reports to be translated into the English language.\207\ The 
unaudited monthly and quarterly financial reports also must have 
balances converted from Mexican pesos to U.S. dollars.\208\ Although 
the unaudited monthly and quarterly financial reports must have 
balances converted from Mexican pesos to U.S. dollars, the Commission 
stated that it would permit the annual audited financial report to be 
presented in either U.S. dollars or Mexican pesos to avoid potential 
negative impacts that such conversion may have on the firm's annual 
audit and the audit opinion expressed by the external auditor.\209\ The 
proposed conditions also would require a Mexican nonbank SD to file 
with the Commission and NFA the requisite information and financial 
reports within 15 business days of the earlier of the date the reports 
are filed with the Mexican Commission or the date the reports are 
required to be filed with the Mexican Commission.\210\ The Commission 
stated that, in its preliminary view, the proposed filing dates 
provided sufficient time for the respective reports to be translated 
into the English language with balances converted from Mexican pesos to 
U.S. dollars, as applicable.\211\
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    \205\ 2022 Proposal at 76393.
    \206\ Id.
    \207\ Id.
    \208\ Id.
    \209\ Id.
    \210\ Id.
    \211\ Id. and proposed Conditions 9 and 10.
---------------------------------------------------------------------------

    In the Commission's preliminary view, its approach of requiring 
Mexican nonbank SDs to provide the Commission and NFA with copies of 
the monthly financial information, and the quarterly and annual 
financial reports, that the firms file with the Mexican Commission 
struck an appropriate balance of ensuring that the Commission receives 
the financial reporting necessary for the effective monitoring of the 
financial condition of the nonbank SDs, while also recognizing the 
propriety of providing substituted compliance based on the existing 
Mexican financial reporting requirements and regulatory structure.\212\
---------------------------------------------------------------------------

    \212\ Id. at 76393.
---------------------------------------------------------------------------

    The Commission also proposed a condition to require Mexican nonbank 
SDs to file with the Commission and NFA, on a monthly basis, Schedule 1 
showing the aggregate securities, commodities, and swap positions of 
the firm at fair market value as of the reporting date.\213\ The 
Commission explained that Schedule 1 provides the Commission and NFA 
with detailed information regarding the fair market value of nonbank 
SD's financial positions as of the end of each month, including the 
firm's swaps positions, which allows the Commission and NFA to monitor 
the types of investments and other activities that the firm engages in 
and would assist the Commission and NFA in monitoring the safety and 
soundness of the firm.\214\ The Commission proposed to require that 
Schedule 1 be filed by a Mexican nonbank SD along with the firm's 
monthly financial information filed pursuant to Article 202 and Exhibit 
9 of the General Provisions.\215\ The Commission also proposed to 
require that Schedule 1 be prepared in the English language with 
balances reported in U.S. dollars.
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    \213\ Id. and proposed Condition 11.
    \214\ Id.
    \215\ Id.
---------------------------------------------------------------------------

    The Commission also proposed a condition to require a Mexican 
nonbank SD to submit a statement by an authorized representative or 
representatives of the Mexican nonbank SD that, to the best knowledge 
and belief of the person(s), the information contained within the 
monthly financial information, the quarterly financial report, and the 
audited annual report, is true and correct, including as it relates to 
the translation of the reports into the English language and the 
conversion of balances to U.S. dollars.\216\ The statement by an 
authorized representative or representatives of the Mexican nonbank SD 
was intended to be the equivalent of the oath or affirmation required 
of nonbank SDs under Commission Regulation 23.105(f),\217\ to ensure 
that reports filed with the Commission and NFA were prepared and 
submitted by firm personnel with knowledge of the financial reporting 
of the firm who can attest to the accuracy of the reporting and 
translation.\218\
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    \216\ Id. and proposed Condition 12.
    \217\ 17 CFR 23.105(f). Commission Regulation 23.105(f) requires 
a nonbank SD to attach to each unaudited and audited financial 
report an oath or affirmation that to the best knowledge and belief 
of the individual making the affirmation the information contained 
in the financial report is true and correct. The individual making 
the oath or affirmation must be a duly authorized officer if the 
nonbank SD is a corporation, or one of the persons specified in the 
regulation for business organizations that are not corporations.
    \218\ 2022 Proposal at 76393.
---------------------------------------------------------------------------

    The Commission further proposed a condition that would require a 
Mexican nonbank SD to file a Margin Report with the Commission and NFA 
on a monthly basis.\219\ The Commission noted that a Margin Report 
would assist the Commission and NFA in their assessment of the safety 
and soundness of the Mexican nonbank SDs by providing information 
regarding the firm's swaps book and the extent to which it has 
uncollateralized swap exposures to counterparties or has not met its 
margin obligations to swap counterparties. The Commission explained 
that this information, along with the list of custodians holding both 
the firm's and counterparties' swaps collateral, would assist with 
identifying potential financial impacts to the nonbank SD resulting 
from defaults on its swap transactions.\220\
---------------------------------------------------------------------------

    \219\ Id. and proposed Condition 13.
    \220\ 2022 Proposal at 76394.

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[[Page 58524]]

2. Comment Analysis and Final Determination
    The Commission received comments regarding the comparability of 
financial reporting and specific comments addressing several of the 
financial reporting issues on which the Commission solicited feedback. 
Better Markets expressed a general disagreement with the Commission's 
preliminary finding of comparability, arguing that the number and 
variety of conditions regarding financial reporting are the most 
compelling evidence that the requirements are not comparable.\221\ More 
specifically, Better Markets asserted that the 2022 Proposal did not 
provide a sufficient analysis supporting the Commission's preliminary 
finding of comparability between the various reports required under the 
Mexican Financial Reporting Rules and their U.S. counterparts.\222\ In 
support of its statement, Better Markets noted that the Commission did 
not provide its basis for determining that the financial reports 
submitted by Mexican nonbank SDs would be useful to the Commission in 
monitoring the firms' financial condition.\223\ In this regard, Better 
Markets stated that the Commission did not mention or describe whether 
the Mexican nonbank SDs must comply with the U.S. Generally Accepted 
Accounting Principles (GAAP), the International Financial Reporting 
Standards (IFRS), or another accounting standard adopted by Mexican 
authorities and that without knowing this important information, it is 
impossible to comment on whether the financial reports would be useful 
to the Commission.\224\
---------------------------------------------------------------------------

    \221\ Better Markets Letter at p. 12.
    \222\ Id.
    \223\ Id.
    \224\ Id.
---------------------------------------------------------------------------

    Better Markets also noted that the proposed comparability 
determination was conditioned on a Mexican nonbank SD submitting a 
statement by an authorized representative that, to the best knowledge 
and belief of the person, the information contained in reports 
submitted to the Commission is true and correct, in lieu of the oath or 
affirmation required by Commission Regulation 23.105(f).\225\ Better 
Markets stated that there are material legal differences between a 
statement and the oath or affirmation required by the CFTC Financial 
Reporting Rules, further highlighting the differences between the 
regulatory reporting requirements of the U.S. and those of Mexico.\226\
---------------------------------------------------------------------------

    \225\ Id.
    \226\ Id.
---------------------------------------------------------------------------

    As discussed in section I.E. above, the Commission does not believe 
that the inclusion of conditions in the Comparability Order 
demonstrates that the Mexican Financial Reporting Requirement are not 
comparable to CFTC Financial Reporting Requirements in achieving the 
overall objectives of ensuring the safety and soundness and effective 
monitoring of nonbank SDs. In addition, with respect to the comment 
related to the proposed Comparability Order's conditions regarding 
applicable accounting standards, the Commission notes that, as 
discussed in the 2022 Proposal, the quarterly and annual financial 
reports submitted by Mexican nonbank SDs will be prepared in accordance 
with the Accounting Criteria for Broker-Dealers.\227\ For purposes of 
clarity, the Commission confirms that Mexican nonbank SDs may present 
the financial information required to be provided to the Commission and 
NFA under the final Comparability Order in accordance with generally 
accepted accounting principles that the Mexican nonbank SD uses to 
prepare general purpose financial statements in Mexico. This 
clarification is consistent with proposed Condition 8, which the 
Commission adopts subject to a minor modification in the final 
Comparability Order, requiring that the Mexican nonbank SD prepares and 
keeps current ledgers and other similar records ``in accordance with 
accounting principles permitted by the Mexican Commission.'' \228\ In 
taking the position that Mexican nonbank SDs may provide financial 
reporting prepared in accordance with the accounting standards 
applicable in their home jurisdiction, the Commission considered the 
nature of the financial reporting information that the Commission 
requires from nonbank SDs for purposes of monitoring their overall 
financial condition and compliance with capital requirements. 
Specifically, the Commission notes that calculating a firm's risk-
weighted assets and capital ratio follows a rules-based approach 
consistent with the Basel standards and, consequently, the Commission 
does not anticipate that a variation in the applicable accounting 
standards would materially impact this calculation.\229\ In this 
regard, the Commission notes that Mexican nonbank SDs currently submit 
financial reports, including a statement of financial condition and a 
statement of regulatory capital, pursuant to CFTC Staff Letter 22-
10.\230\ The reports provide the Commission with appropriate 
information to assess the

[[Page 58525]]

financial and operational condition of Mexican nonbank SDs, as well as 
the firms' compliance with the capital ratios imposed on Mexican 
nonbank SDs under the Mexican Capital Rules.
---------------------------------------------------------------------------

    \227\ See 2022 Proposal at 76392.
    \228\ 2022 Proposal at 76399. Proposed Condition 8 stated that 
Mexican nonbank SDs must prepare and keep current ledgers and other 
similar records ``in accordance with accounting principles required 
by the Mexican Commission.'' To promote consistency across the 
Comparability Determinations the Commission is adopting with respect 
to several other jurisdictions and to reflect the fact that certain 
jurisdictions may not issue a formal approval of the accounting 
standards used by nonbank SDs, the Commission is replacing the 
adjective ``required'' with the adjective ``permitted'' to refer to 
the accounting standards to be used by Mexican nonbank SDs.
    \229\ Furthermore, the Commission's approach to permitting 
Mexican nonbank SDs to maintain financial books and records, and to 
file financial reports and other financial information, prepared in 
accordance with local accounting standards is consistent with the 
SEC's final comparability determinations for non-U.S. SBSDs. See 
Amended and Restated Order Granting Conditional Substituted 
Compliance in Connection with Certain Requirements Applicable to 
Non-U.S. Security-Based Swap Dealers and Major Security-Based Swap 
Participants Subject to Regulation in the Federal Republic of 
Germany; Amended Orders Addressing Non-U.S. Security-Based Swap 
Entities Subject to Regulation in the French Republic or the United 
Kingdom; and Order Extending the Time to Meet Certain Conditions 
Relating to Capital and Margin, 86 FR 59797 (Oct. 28, 2021) at 59812 
and Order Specifying the Manner and Format of Filing Unaudited 
Financial and Operational Information by Security-Based Swap Dealers 
and Major Security-Based Swap Participants that are not U.S. Persons 
and are Relying on Substituted Compliance with Respect to Rule 18a-
7, 86 FR 59208 (Oct. 26, 2021) (``SEC Manner and Format Order'') at 
59219. Specifically, the SEC stated that the use of local reporting 
requirements will avoid non-U.S. SBSDs ``having to perform and 
present two Basel capital calculations (one pursuant to local 
requirements and one pursuant to U.S. requirements).'' SEC Manner 
and Format Order at 59219. The SEC noted, in this regard, that the 
Basel standards are international standards that have been adopted 
in the U.S. and in jurisdictions where substituted compliance is 
available for capital under the SEC comparability determinations and 
that, therefore, requirements for how firms calculate capital 
pursuant to the Basel standards generally should be similar. Id. In 
addition, if a Mexican nonbank SD becomes registered with the SEC as 
an SBSD and is required to file an unaudited SEC Form X-17A-5 Part 
II (``FOCUS Report''), the Commission's approach to permitting 
Mexican nonbank SDs to maintain financial books and records, and to 
file financial information, prepared in accordance with local 
accounting standards would facilitate financial reporting by such 
dually-registered entity. In such case, dually registered entities 
would not have to perform multiple calculations under different 
accounting standards or submit two different FOCUS Reports.
    \230\ CFTC Staff Letter No. 22-10, Extension of Time-Limited No-
Action Position for Foreign Based Nonbank Swap Dealers domiciled in 
Japan, Mexico, the United Kingdom, and the European Union, issued by 
MPD on August 17, 2022. CFTC Staff Letter No. 22-10, which extended 
the expiration of CFTC Letter 21-20, provides that MPD would not 
recommend an enforcement action to the Commission if a non-U.S. 
nonbank SD covered by the letter, subject to certain conditions, 
complied with their respective home-country capital and financial 
reporting requirements in lieu of the Commission's capital and 
financial reporting requirements set forth in Commission Regulations 
23.100 through 23.106, pending the Commission's determination of 
whether the capital and financial reporting requirements of certain 
foreign jurisdictions are comparable to the Commission's 
corresponding requirements.
---------------------------------------------------------------------------

    With respect to the comment related to the requirement for Mexican 
nonbank SDs to submit a statement from an authorized representative, 
the Commission notes, for completeness, that the proposed condition 
requires that an authorized representative of the Mexican nonbank SD 
provide a statement that, to the best of the knowledge and belief of 
the representative, the information contained in the financial reports 
filed with the Commission and NFA is true and correct, including the 
applicable translation of the reports to the English language and the 
conversion of balances to U.S. dollars. The proposed condition was 
based on current Commission Regulation 23.105(f), which provides that a 
nonbank SD must attach to each unaudited and annual audited financial 
report filed with the Commission and NFA an oath or affirmation that to 
the best knowledge and belief of the individual making the oath or 
affirmation the information in the financial reports is true and 
correct. Similar to the intent of Commission Regulation 23.105(f), the 
purpose of the proposed condition is to obtain a formal attestation 
from a representative with the appropriate knowledge and authority that 
the information provided in the requisite financial reports is accurate 
and properly translated. The Commission's choice of language in using 
the term ``statement'' was not intended to make a legal distinction 
between this term and the terms ``oath'' or ``affirmation,'' but rather 
to select a generic term that is universally understood across 
jurisdictions to reflect the above-referenced purpose. In practice, the 
Commission does not believe that there is a material legal difference 
between the language of the proposed condition and the required oath or 
affirmation required under Commission Regulation 23.105(f). Instead, 
the Commission is of the view that the proposed condition would have 
the same legal effect as Commission Regulation 23.105(f) of providing 
the Commission with a stronger basis to take legal action if a Mexican 
nonbank SD files erroneous information.
    Finally, the Associations addressed the Commission's request for 
comment on the compliance dates for the reporting conditions that the 
proposed Comparability Order would impose on Mexican nonbank SDs.\231\ 
The Associations requested that the Commission set the compliance date 
at least six months following the issue date of the final Comparability 
Order to allow Mexican nonbank SDs to adequately prepare for compliance 
with the reporting conditions imposed by the Comparability Order.\232\
---------------------------------------------------------------------------

    \231\ Associations Letter at p. 4.
    \232\ Id.
---------------------------------------------------------------------------

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

    \233\ See Notice of Proposed Order and Request for Comment on an 
Application for a Capital Comparability Determination Submitted on 
Behalf of Nonbank Swap Dealers Domiciled in the French Republic and 
Federal Republic of Germany and Subject to Capital and Financial 
Reporting Requirements of the European Union, 88 FR 41774 (June 27, 
2023) and Notice of Proposed Order and Request for Comment on an 
Application for a Capital Comparability Determination Submitted on 
Behalf of Nonbank Swap Dealers Subject to Capital and Financial 
Reporting Requirements of the United Kingdom and Regulated by the 
United Kingdom Prudential Regulation Authority, 89 FR 8026 (Feb. 5, 
2024).
---------------------------------------------------------------------------

    In summary, the Commission adopts the final Comparability Order and 
conditions substantially as proposed with respect to the comparability 
of the CFTC Financial Reporting Rules and Mexican Financial Reporting 
Requirements. The Commission also specifies, in final Conditions 9, 11, 
and 13, that the conversion of balances to U.S. dollars must be done 
using a commercially reasonable and observable Mexican peso/U.S. dollar 
spot rate as of the date of the respective report. Finally, the 
Commission grants an additional compliance period for the new reporting 
obligations imposed on Mexican nonbank SDs under the final Order set 
forth below.

E. Notice Requirements

1. Preliminary Determination
    The Commission noted in the 2022 Proposal that the CFTC Financial 
Reporting Rules require nonbank SDs to provide the Commission and NFA 
with written notice of certain defined events.\234\ Commission 
Regulation 23.105(c) requires a nonbank SD to file written notice with 
the Commission and NFA of the following events: (i) the nonbank SD's 
regulatory capital is less than the minimum amount required; (ii) the 
nonbank SD's regulatory capital is less than 120 percent of the minimum 
amount required; (iii) the nonbank SD fails to make or to keep current 
required financial books and records; (iv) the nonbank SD experiences a 
reduction in the level of its excess regulatory capital of 30 percent 
or more from the amount last reported in a financial report filed with 
the Commission; (v) the nonbank SD plans to distribute capital to 
equity holders in an amount in excess of 30 percent of the firm's 
excess regulatory capital; (vi) the nonbank SD fails to post to, or 
collect from, a counterparty (or group of counterparties under common 
ownership or control) required initial and variation margin a 
counterparty, and the aggregate amount of such margin equals or exceeds 
25 percent of the nonbank SD's minimum capital requirement; (vii) the 
nonbank SD fails to post to, or collect from, swap counterparties 
required initial and variation margin, and the aggregate amount of such 
margin equals or exceeds 50 percent of the nonbank SD's minimum capital 
requirement; and (viii) the nonbank SD is registered with the SEC as an 
SBSD and files a notice with the SEC under applicable SEC Rules.\235\
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    \234\ 2022 Proposal at 76395 and 17 CFR 23.105(c).
    \235\ 17 CFR 23.105(c).

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[[Page 58526]]

    The notices are part of the Commission's overall program of helping 
to ensure the safety and soundness of nonbank SDs and the swaps markets 
in general.\236\ Notices provide the Commission and NFA with an 
opportunity to assess whether there is an actual or potential financial 
and/or operational issue at a nonbank SD. In situations where there is 
an underlying issue, Commission and NFA staff engage with the nonbank 
SD in an effort to minimize potential adverse impacts on the firm, swap 
counterparties, and the larger swaps market.\237\
---------------------------------------------------------------------------

    \236\ Id.
    \237\ See 2022 Proposal at 76395.
---------------------------------------------------------------------------

    With respect to Mexican nonbank SDs, the Commission noted that the 
Mexican Financial Reporting Rules do not include explicit, predefined 
notice provisions that require the firms to file prompt notice with the 
Mexican Commission, or other relevant Mexican regulatory authority, in 
a manner that is comparable to the notice provisions set forth in 
Commission Regulation 23.105(c).\238\ Therefore, the Commission 
proposed to condition the Comparability Order to require Mexican 
nonbank SDs to file certain notices mandated by Commission Regulation 
23.105(c) with the Commission and NFA.\239\ Specifically, the 
Commission proposed to require a Mexican nonbank SD to file notice with 
the Commission and NFA, within the timeframes set forth in the proposed 
conditions, if the firm: (i) fails to make or keep current the books 
and records required by the Mexican Commission; (ii) is informed by the 
Mexican Commission that the firm is not in compliance with any 
component of the Mexican Capital Rules or Mexican Financial Reporting 
Rules; (iii) maintains regulatory capital at a level that is below 120 
percent of the minimum capital requirement set by the Mexican Capital 
Rules; (iv) experiences a 30 percent or more decrease in its excess 
regulatory capital as compared to the excess capital last reported in 
its financial forms filed with the Mexican Commission pursuant to 
Article 202 and Exhibit 9 of the General Provisions; (v) fails to post 
or collect initial margin or variation margin required under Mexican 
law and/or regulations or CFTC margin rules to be exchanged for 
uncleared swaps and non-cleared security-based swaps in amounts that 
exceed defined thresholds; and (vi) has received the approval of the 
Mexican Commission to a change in the firm's fiscal year end date.\240\ 
The notices would have to be translated into English prior to being 
filed with the Commission and NFA.\241\
---------------------------------------------------------------------------

    \238\ Id.
    \239\ Id.
    \240\ The Commission noted that it was aware of the Mexican 
Commission's intent to issue final rules addressing the margin 
requirements for uncleared swaps. See 2022 Proposal at 76396 (n. 
237). As further noted in the 2022 Proposal, however, Mexican 
nonbank SDs are currently subject to the CFTC margin requirements 
for uncleared swap transactions as set forth in Commission 
Regulation 23.160 for cross-border transactions. Id. Commission 
Regulation 23.160 governs the cross-border application of the CFTC 
margin requirements for uncleared swaps depending on the category of 
entities involved in the transactions and the availability of 
substituted compliance.
    \241\ Id. at 76396.
---------------------------------------------------------------------------

    The Commission proposed these conditions so that it and NFA would 
be alerted to the occurrence of any of the defined events in a prompt 
manner, which would allow the Commission and NFA to communicate with 
the impacted Mexican nonbank SD to assess the seriousness of the matter 
and the effectiveness of any actions that the Mexican nonbank SD may 
have taken to remediate the matter. As previously noted, the notices 
provide the Commission with ``early warning'' of potential adverse 
financial and operational issues at a nonbank SD. The receipt of 
``early warning'' notices are an important component of the 
Commission's and NFA's programs for effectively overseeing the safety 
and soundness of nonbank SDs.
2. Comment Analysis and Final Determination
    Better Markets stated that the proposed notice provisions in the 
proposed Comparability Determination and proposed Comparability Order 
represent regulatory gaps between the Mexican Financial Reporting Rules 
and the CFTC Financial Reporting Rules.\242\ The Commission recognized 
that the Mexican Financial Reporting Rules do not include regulatory 
notices in a manner comparable to the CFTC Financial Reporting Rules. 
To address the lack of regulatory notices under the Mexican Financial 
Reporting Rules, the Commission included proposed conditions in the 
proposed Comparability Order that are consistent with the notice 
provisions imposed by the Commission on nonbank SDs under Commission 
Regulation 23.105(c). The proposed notice conditions are intended to 
ensure that the Commission and NFA receive necessary information to 
conduct ongoing monitoring of Mexican nonbank SDs for compliance with 
relevant capital and financial reporting requirements.
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    \242\ Better Markets Letter at p. 12.
---------------------------------------------------------------------------

    As discussed in section I.E. above, in issuing a Comparability 
Order, the Commission is not ceding its supervisory and enforcement 
authorities. The Comparability Order permits Mexican nonbank SDs to 
satisfy the Commission's capital and financial reporting requirements 
by complying with certain laws and/or regulations of Mexico that have 
been found to be comparable to the Commission's laws and/or regulations 
in purpose and effect. The Commission and NFA, however, have a 
continuing obligation to conduct ongoing oversight, including potential 
examination, of Mexican nonbank SDs to ensure compliance with the 
Comparability Order, including its conditions. To that effect, the 
notice conditions set forth in the Comparability Order provide the 
Commission and NFA with information necessary to monitor for Mexican 
nonbank SDs for compliance with the Comparability Order and to evaluate 
the firms' operational and financial conditions.
    Furthermore, to the extent that the notice conditions impose new 
obligations on Mexican nonbank SDs beyond what is currently in Mexican 
laws or regulations, the imposition of such conditions is consistent 
with Commission Regulation 23.106 and the Commission's established 
policy with regard to comparability determinations. As discussed in 
section I.E. above, the Commission contemplated that even in 
circumstances where the Commission finds two regulatory regimes 
comparable, the Commission may impose requirements on entities relying 
on substituted compliance where the Commission determines that the home 
jurisdiction's regime lacks comparable and comprehensive regulation on 
a specific issue.\243\ The Commission's authority to impose such 
conditions is also evident from the language of Commission Regulation 
23.106(a)(5), which states that the Commission may impose ``any terms 
and conditions it deems appropriate, including certain capital adequacy 
and financial reporting requirements [on SDs].'' \244\ Therefore, the 
Commission believes that the imposition of conditions in the 
Comparability Order to require Mexican nonbank SDs to file notices of 
certain events with the Commission and NFA in a manner consistent with 
requirements imposed by the Commission on nonbank SDs under Commission 
Regulation 23.105(c)

[[Page 58527]]

appropriately addresses the fact that the Mexican Financial Reporting 
Rules do not include comparable regulatory requirements.
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    \243\ Guidance at 45343.
    \244\ 17 CFR 23.106(5).
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    The Associations recommended in their joint comment letter that 
with respect to the proposed conditions to require that Mexican nonbank 
SDs provide notice if the firm experiences a 30 percent or more 
decrease in excess regulatory capital or if the firm fails to make or 
keep current books and records, that the Commission require a Mexican 
nonbank SD to file a notice within a defined period of time of when the 
firm ``knows'' or becomes ``aware of'' the reportable event instead of 
when the firm ``experiences'' or ``should have known'' of the 
reportable event.\245\ In support of the recommendation, the 
Associations noted that it was practically challenging for a firm to 
submit a notification prior to the discovery of the relevant 
failure.\246\
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    \245\ Associations Letter at p. 4.
    \246\ Id.
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    With regard to the proposed requirement that a Mexican nonbank SD 
notify the Commission and NFA if the firm ``experiences'' a 30 percent 
or more decrease in its excess regulatory capital, the Commission 
believes that it is appropriate to impose the condition as proposed to 
ensure consistency with Commission Regulation 23.105(c)(4).\247\ In 
this regard, a nonbank SD will be expected to maintain diligent 
recordkeeping allowing it to become aware of substantial reductions in 
capital in a timely manner and to establish procedures for the timely 
provision of the requisite notification. As to the proposed requirement 
in Condition 17 (renumbered Condition 19 in the final Comparability 
Order) that a Mexican nonbank SD notify the Commission and NFA within 
24 hours of when it ``knows or should have known that it has failed to 
make or keep current the books and records required by the Mexican 
Commission,'' the Commission will align the language of the condition 
with the timing standard of Commission Regulation 23.105(c)(3), while 
also granting additional time for the notice to be translated into 
English. As such, the Commission will require the notice to be provided 
within 24 hours ``if [the firm] fails to make or keep'' current the 
books and records. Although the Commission is adjusting the language in 
Condition 19 of the final Comparability Order, the Commission 
emphasizes that this condition imposes a requirement to provide a 
prompt notice upon the occurrence of the reportable event. Maintaining 
current books and records of all financial transactions is a 
fundamental recordkeeping requirement for a registered nonbank SD, and 
is essential to provide management with the information necessary to 
ensure that transactions are timely and accurately reported and that 
the firm complies with capital and other regulatory requirements. The 
Commission believes that it is necessary for a nonbank SD to maintain 
internal controls and procedures to affirmatively monitor that books 
and records are being maintained on a current basis. For further 
clarification of this condition, the Commission confirms that the 
notice requirement will apply with respect to books and records 
addressing the Mexican nonbank SD's financial condition and financial 
reporting requirements, and has revised the condition to so specify.
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    \247\ 17 CFR 23.105(c)(4). For clarity, by ``excess regulatory 
capital,'' the Commission refers to the capital ratio by which the 
firm's capital exceeds the core capital ratio requirement of 8 
percent of the firm's risk-weighted assets. For instance, if a firm 
maintains a capital ratio of 20 percent, its excess regulatory 
capital would be 12 percent. In this example, 30 percent of the 
excess regulatory capital would equal 3.6 percent.
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    Separately, to promote consistency across the Comparability 
Determinations the Commission is adopting with respect to other 
jurisdictions, the Commission will revise the proposed early warning 
notice condition requiring a Mexican nonbank SD to provide a notice to 
the Commission and NFA if its regulatory capital falls below 120 
percent of the minimum capital requirement.\248\ Instead of requiring a 
notice if the Mexican nonbank SD's capital falls below 120 percent of 
the minimum capital requirement, the Commission will require that the 
Mexican nonbank SD provide a notice to the Commission and NFA if it 
breaches its capital conservation buffer requirement.\249\ The notice 
must be prepared in the English language. The Commission believes that 
this condition, combined with the condition requiring that a Mexican 
nonbank SD provide notice to the Commission and NFA if it experiences 
30 percent or more decrease in its excess regulatory capital, would 
provide a timely opportunity to the Commission and NFA to initiate 
conversations and fact finding with a Mexican nonbank SD that may be 
experiencing operational or financial issues that may adversely impact 
the firm's ability to meet its obligations to market participants, 
including customers or swap counterparties. Given that Mexican nonbank 
SDs are subject to the requirement to maintain a capital conservation 
buffer pursuant to the Mexican Capital Rules, the condition requiring 
notice in case of a breach of the buffer requirement will not have a 
material operational impact on Mexican nonbank SDs.
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    \248\ 17 CFR 23.105(c)(2).
    \249\ As noted in Section II.C.2.b., Mexican nonbank SDs are 
required to maintain a capital conservation buffer of 2.5 percent of 
the Mexican nonbank SD's risk-weighted assets that must be met with 
fundamental capital. Articles 172 and 173 of the Law and Articles 
162 and 162 Bis of the General Provisions.
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    The Associations also requested that the Commission set the 
compliance date at least six months following the issue date of the 
Comparability Order to adequately prepare for compliance with the 
notice reporting obligations imposed by the Comparability Order.\250\ 
Similar to its position with regard to the financial reporting 
obligations, the Commission believes that it is appropriate to grant an 
additional period of time to allow Mexican nonbank SDs to establish and 
implement the necessary systems and processes to comply with the newly 
imposed notice reporting obligations that require monitoring of 
thresholds for which Mexican nonbank SDs do not have an established 
process. Accordingly, the Commission is setting a compliance date of 
180 calendar days after publication of the final Comparability Order in 
the Federal Register with respect to the notice obligations under final 
Conditions 18 and 20 of the Comparability Order. Given the nature of 
the remaining notice obligation, the Commission believes that Mexican 
nonbank SDs should be in a position to comply with all other notice 
obligations, including those requiring Mexican nonbanks SDs to provide 
notice to the Commission and NFA if they fail to make or keep current 
financial books and records, or if they fail to maintain regulatory 
capital equal to, or in excess of, the U.S. dollar equivalent of $20 
million, immediately upon effectiveness of the Comparability Order.
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    \250\ Associations Letter at p. 4.
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    With regard to Condition 20, which requires a Mexican nonbank SD to 
provide notice if it fails to post or collect initial or variation 
margin exceeding certain thresholds, the Commission notes, for clarity, 
that in proposing a notice condition based on thresholds of 
``required'' margin, the Commission's intent was to set the notice 
trigger by reference to margin amounts that are legally required to be 
exchanged under the applicable margin requirements. To determine the 
applicable margin requirements, the Commission will consider the

[[Page 58528]]

framework set forth in Commission Regulation 23.160.\251\ To the extent 
Mexican nonbank SDs intending to rely on the Comparability Order have 
inquiries regarding the scope of uncleared swap margin transactions to 
be monitored for purposes of complying with final Condition 20, MPD 
will discuss such inquiries with the Mexican nonbank SD during the 
confirmation process referenced in final Condition 6 of the 
Comparability Order.
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    \251\ 17 CFR 23.160.
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    The Commission did not receive any comments with respect to the 
following proposed notice conditions: (i) the Mexican nonbank SD files 
notice with the Commission and NFA within 24 hours of being informed by 
the Mexican Commission that the firm is not in compliance with any 
component of the Mexican Capital Rules or Mexican Financial Reporting 
Rules (proposed Condition 14); (ii) the Mexican nonbank SD provides 
notice to the Commission and NFA if it initiates the process of seeking 
the approval of the Mexican Commission to use internal models to 
compute market risk and/or credit risk (proposed Condition 7); or (iii) 
the Mexican nonbank SD files notice of the Mexican Commission approving 
a change in the firm's fiscal year-end date, which must be filed with 
the Commission and NFA at least 15 business days prior to the effective 
date of the change (proposed Condition 19).
    The Commission, having considered the 2022 Proposal, is adopting 
the above conditions as proposed.\252\ The Commission is also revising 
the final conditions by adding Condition 17 to the Comparability Order, 
which requires a Mexican nonbank SD to file notice with the Commission 
and NFA within 24 hours if the firm fails to maintain regulatory 
capital in the form of fundamental capital, as defined by Article 162 
and Article 162 Bis of the General Provisions, equal to or in excess of 
the equivalent of $20 million. The requirement to provide such notice 
will impose a consistent condition and obligation on non-U.S. nonbank 
SDs across the non-U.S. jurisdictions that are the subject to 
Commission Comparability Orders, and will provide the Commission and 
NFA with information to monitor the financial condition of non-bank 
SDs.
---------------------------------------------------------------------------

    \252\ The Commission is renumbering proposed Conditions 14, 18, 
and 19 as Conditions 15, 20, and 21, respectively, in the final 
Comparability Order.
---------------------------------------------------------------------------

    The Commission is also adopting a compliance date for certain 
notice requirements as discussed above in the final Comparability 
Order.

F. Supervision and Enforcement

1. Preliminary Determination
    The 2022 Proposal contained a discussion of the Commission's and 
NFA's ongoing supervision of nonbank SDs to assess their compliance 
with the CEA, Commission regulations, and NFA rules by reviewing 
financial reports, risk exposure reports, and other filings submitted 
by nonbank SDs with the Commission and NFA.\253\ As discussed, the 
Commission and NFA also conduct periodic examinations as part of their 
supervision of nonbank SDs, including routine on-site examinations of 
nonbank SDs' books, records, and operations to ensure compliance with 
CFTC and NFA requirements.\254\
---------------------------------------------------------------------------

    \253\ 2022 Proposal at 76396.
    \254\ Section 17(p)(2) of the CEA (7 U.S.C. 21(p)(2)) requires 
NFA as a registered futures association to establish minimum capital 
and financial requirements for non-bank SDs and to implement a 
program to audit and enforce compliance with such requirements. 
Section 17(p)(2) further provides that NFA's capital and financial 
requirements may not be less stringent than the capital and 
financial requirements imposed by the Commission. See 2022 Proposal 
at 76396.
---------------------------------------------------------------------------

    The Commission also referred to the financial reports and notices 
required under the CFTC Financial Reporting Rules, noting that the 
reports and notices provide the Commission and NFA with information 
necessary to ensure the nonbank SD's compliance with minimum capital 
requirements; assess the firm's overall safety and soundness and 
ability to meet its financial obligations to customers, counterparties, 
creditors, and general market participants; and identify potential 
issues at a nonbank SD that may impact the firm's ability to maintain 
compliance with the CEA, Commission regulations, and NFA 
requirements.\255\ As discussed, the Commission and NFA also have the 
authority to require a nonbank SD to provide any additional financial 
and/or operational information as the Commission or NFA may specify to 
monitor the safety and soundness of the firm.\256\
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    \255\ See 2022 Proposal at 76396.
    \256\ 17 CFR 23.105(h). See also 2022 Proposal at 76396. 
Regulation 23.105(h) provides that the Commission or NFA may, by 
written notice, require a nonbank SD to file financial or 
operational information on a daily basis or other basis with the 
Commission and/or NFA.
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    The Commission further noted that it has authority to take 
disciplinary actions against a nonbank SD for failing to comply with 
the CEA and Commission regulations. In this regard, section 4b-1(a) of 
the CEA \257\ provides the Commission with exclusive authority to 
enforce the capital requirements imposed on nonbank SDs adopted under 
section 4s(e) of the CEA.\258\
---------------------------------------------------------------------------

    \257\ 7 U.S.C. 6b-1(a).
    \258\ 7 U.S.C. 6s(e).
---------------------------------------------------------------------------

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

[[Page 58529]]

Capital Rules and to assess the firm's overall safety, soundness, and 
ability to meet financial obligations to customers, counterparties, and 
creditors.\263\ As discussed in the proposed Comparability 
Determination, the Mexican Commission also uses financial reporting 
from Mexican nonbank SDs as a component of its risk-based methodology 
in setting the frequency and scope of its examinations of Mexican 
nonbank SDs.\264\ The Mexican Commission generally conducts an 
examination, including on-site visits, of each firm at least once every 
two years. The Mexican Commission will also conduct an examination of a 
firm, including an on-site visit, to the extent that its daily, routine 
surveillance indicates a need for an immediate review.\265\
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    \259\ 2022 Proposal at 76396 and Article 350 of the Law, 
Articles 5 and 19 of the Mexican Commission Law and the Supervision 
Regulations of the Mexican Commission.
    \260\ Provision 3.1.3. of the Rule 4/2012 issued by the Mexican 
Central Bank. See also 2022 Proposal at 76392.
    \261\ Id.
    \262\ Pursuant to Article 358 of the Law, the Mexican Commission 
and the Mexican Central Bank are authorized to provide foreign 
financial authorities with information that they deem appropriate 
within the scope of their competence, such as documents, records, 
declarations and other evidence that the authorities have in their 
possession by virtue of having obtained the information in the 
exercise of their powers and duties, provided that there is an 
agreement with the relevant foreign financial authorities for the 
exchange of information, in consideration of the principle of 
reciprocity. See 2022 Proposal at 76396.
    \263\ Id.
    \264\ Id.
    \265\ Id.
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    As noted in the proposed Comparability Determination, the Mexican 
Commission may also impose fines against Mexican nonbank SDs for 
failing to comply with relevant Mexican laws and regulations \266\ and 
may order a Mexican nonbank SD that fails to comply with the applicable 
regulatory capital ratios, including the 2.5 percent common equity tier 
1 capital buffer, to take corrective measures.\267\ The Mexican 
Commission may also revoke a Mexican nonbank SD's license to operate as 
a broker-dealer if the firm fails to comply with the above corrective 
measures or if the firm reports losses that reduce its capital to a 
level below the minimum required.\268\
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    \266\ Id. Fines may range from approximately $130,000 to 
$432,000 for failing to maintain sufficient regulatory capital in 
relation to the risks in the Mexican nonbank SD's operations and 
from approximately $43,000 to $432,000 if a Mexican nonbank SD for 
failing to comply with applicable information or documentation 
requirements made by the Mexican Commission or to provide the 
required periodic informational filings. Article 392 paragraphs I, 
subparagraph (a) and paragraph III, subparagraph (v), of the Law.
    \267\ Corrective measures may include the following: (i) a 
prohibition on entering into transactions whose execution would 
cause a total capital ratio to be less than 8 percent of the risk-
weighted assets; (ii) a requirement that the Mexican nonbank SD 
submit for the approval of the Mexican Commission a recovery capital 
plan; (iii) a suspension of the payment of dividends; (iv) a 
suspension of the programs of acquisition of shares of the capital 
stock of the Mexican nonbank SD; (v) a suspension of payments of 
compensation, extraordinary bonuses, or other remuneration in 
addition to the salary of the chief executive officer (``CEO'') and 
officials of the two hierarchical levels below the CEO, as well as a 
requirement to refrain from granting new compensation in the future 
for the CEO and officials; (vi) an engagement with external auditors 
or other specialized third parties to carry out special audits on 
specific issues; and (vii) a limitation on the execution of new 
transactions that may cause an increase in risk-weighted assets and/
or cause greater impairment in the Mexican nonbank SD's regulatory 
capital ratios. See 2022 Proposal at 76396 and Article 153 of the 
Law.
    \268\ Id.
---------------------------------------------------------------------------

    Based on its review of the Application and its analysis of the 
relevant laws and regulations, the Commission preliminarily found that 
the Mexican Commission has the necessary powers to supervise, 
investigate, and discipline entities for compliance with its capital, 
financial and reporting requirements, and to detect and deter 
violations of, and ensure compliance with, the applicable capital and 
financial reporting requirements in Mexico.\269\ Furthermore, the 
Commission also noted that it retains supervision, examination, and 
enforcement authority over Mexican nonbank SDs that are covered by a 
Comparability Order.\270\ Specifically, the Commission noted that a 
non-U.S. nonbank SD that operates under substituted compliance remains 
subject to the Commission's examination authority and may be subject to 
a Commission enforcement action if the firm fails to comply with a 
foreign jurisdiction's capital adequacy or financial reporting 
requirements.\271\ The ability of the Commission to exercise its 
enforcement authority over a Mexican nonbank SD is not conditioned upon 
a finding by the Mexican Commission of a violation of the Mexican 
Capital Rules or Mexican Financial Reporting Rules. In addition, as 
each Mexican nonbank SDs is a member of NFA, the firm is subject to NFA 
membership rules, examination authority, and disciplinary process.\272\
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    \269\ 2022 Proposal at 76397-76398.
    \270\ 2022 Proposal at 76377.
    \271\ Id. See also, 17 CFR 23.106(a)(4)(ii), which provides that 
all nonbank SDs, regardless of whether they rely on a Comparability 
Order or Comparability Determination, remain subject to the 
Commission's examination and enforcement authority.
    \272\ 7 U.S.C. 21(p).
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2. Comment Analysis and Final Determination
    In response to the request for comment, Better Markets asserted 
that while the 2022 Proposal states that the Mexican Commission has the 
necessary powers to supervise, investigate, and discipline Mexican 
nonbank SDs for compliance with applicable capital, financial, and 
reporting requirements, the Commission does not provide details 
regarding the demonstrated past effectiveness of the Mexican 
Commission's supervision and enforcement of Mexican nonbank SDs.\273\ 
The Commission does not believe that Commission Regulation 23.106 
requires the Commission to perform an assessment of the historical 
effectiveness of the foreign jurisdictions' supervision and enforcement 
programs.
---------------------------------------------------------------------------

    \273\ Better Markets Letter at p. 13, citing 2022 Proposal at 
76397.
---------------------------------------------------------------------------

    The Commission's evaluation of the laws and regulations granting 
the Mexican authorities' supervisory and enforcement authority, as 
discussed in section II.F.1. above, is consistent with the standard of 
review articulated in Commission Regulation 23.106(a)(3). Specifically, 
Commission Regulation 23.106(a)(3) provides that the Commission may 
consider all relevant factors in performing the comparability 
assessment, including the ability of the relevant regulatory authority 
to supervise and enforce compliance with the relevant foreign 
jurisdiction's capital adequacy and financial reporting requirements.
    The Commission's assessment of the Mexican Commission's supervisory 
program included an evaluation of the Mexican Commission's ability to 
supervise Mexican nonbank SDs based on current Mexican laws and 
regulations, as discussed in section II.F.1. above. This evaluation 
included an assessment of the financial reporting that Mexican nonbank 
SDs are required to provide to the Mexican Commission, the authority of 
the Mexican Commission to conduct examinations, including onsite 
inspections of Mexican nonbank SDs, and the authority of the Mexican 
Commission to impose sanctions or take other action to address 
noncompliance with applicable laws and regulations. Based upon its 
evaluation, the Commission preliminarily determined that Mexican laws 
and regulations are comparable in purpose and effect to the CEA and 
Commission regulations, and that the Mexican Commission has appropriate 
authority to supervise Mexican nonbank SDs for compliance with 
applicable Mexican Capital Rules and Mexican Financial Reporting Rules. 
The Commission further determined, based on applicable Mexican laws and 
regulations, that the Mexican Commission has the ability to sanction 
Mexican nonbank SDs for failing to comply with regulatory requirements. 
Specifically, as discussed in section II.F.1. above, the Mexican 
Commission has the authority to impose fines \274\ and may order a 
Mexican nonbank SD that fails to comply with the applicable regulatory 
capital ratios to take corrective measures, including the suspension of 
payment of compensation to senior officials and a limitation on the 
execution of new transactions that

[[Page 58530]]

may cause an increase in risk-weighted assets.\275\ The Mexican 
Commission may also revoke a Mexican nonbank SD's license to operate as 
a broker-dealer if the firm fails to comply with the above corrective 
measures or if the firm reports losses that reduce its capital to a 
level below the minimum required.\276\
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    \274\ Article 392 paragraphs I, subparagraph (a) and paragraph 
III, subparagraph (v), of the Law.
    \275\ Article 153 of the Law.
    \276\ Id.
---------------------------------------------------------------------------

    Better Markets further stated that an information sharing agreement 
is necessary for the Commission to communicate and consult with the 
Mexican Commission to facilitate cooperation and information sharing 
regarding the supervision of Mexican nonbank SDs.\277\ Better Markets 
further stated that the proposed Comparability Order does not contain a 
draft of the terms and conditions of an information sharing agreement, 
include a discussion of the timing of entering into an information 
sharing agreement, or condition the Comparability Order on the 
Commission entering into an information sharing agreement with the 
Mexican Commission.\278\ Better Markets further asserted that given 
that enforcement is a critical component of any comparability 
determination, any comparability determination must be conditioned upon 
first executing an appropriate information sharing agreement.\279\
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    \277\ Better Markets Letter p. 13.
    \278\ Id.
    \279\ Id.
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    The substituted compliance framework set forth in Commission 
Regulation 23.106 allows a Mexican nonbank SD to satisfy the 
Commission's capital and financial reporting rules by complying with 
Mexican capital and financial reporting rules that the Commission has 
found comparable in purpose and effect and has specified in the 
Comparability Order, subject to conditions that are also specified in 
the Comparability Order. Commission Regulation 23.106 does not 
precondition the Commission's ability to issue a Comparability Order on 
the Commission and the authority or authorities in the relevant foreign 
jurisdiction entering into a formal MOU or similar arrangement.
    As discussed in this Comparability Determination, by issuing a 
Comparability Order, the Commission is not ceding its supervision and 
enforcement authorities. Mexican nonbank SDs that are subject to a 
Comparability Order are registered with the Commission as SDs and are 
members of NFA, and, as such, are subject to the CEA, Commission 
regulations, and NFA membership rules and requirements. Mexican nonbank 
SDs covered by a Comparability Order also remain subject to the 
Commission's examination and enforcement authority with respect to all 
elements of the CEA and Commission regulations, including capital and 
financial reporting.\280\ In this regard, Mexican nonbank SDs are 
required to directly provide the Commission with additional information 
upon the Commission's request to facilitate the ongoing supervision of 
such firms.\281\ Furthermore, section 17 of NFA's SD Financial 
Requirements rule provides that each SD member of NFA must file the 
financial, operational, risk management and other information required 
by NFA in the form and manner prescribed by NFA.\282\ The ability to 
obtain information directly from Mexican nonbank SDs ensures that the 
Commission and NFA have access to the information necessary to monitor 
the financial condition of such firms and to assess the firms' 
compliance with applicable capital and financial reporting 
requirements.
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    \280\ 17 CFR 23.106(a)(4)(ii).
    \281\ 17 CFR 23.105(h).
    \282\ NFA Financial Requirements, Section 17. Swap Dealer and 
Major Swap Participant Reporting Requirements, available at NFA's 
website: https://www.nfa.futures.org/rulebooksql/index.aspx.
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    In addition, as detailed in section I.E. above, the conditions set 
forth in the Comparability Order reflect that the Commission and NFA 
have a continuing obligation to conduct ongoing oversight, including 
potential examination, of Mexican nonbank SDs to ensure compliance with 
the Comparability Order. Specifically, as part of this oversight, the 
conditions require Mexican nonbank SDs to file directly with the 
Commission and NFA financial reports and notices that are comparable to 
the financial reports and notices filed by nonbank SDs domiciled in the 
U.S. In addition to requiring Mexican nonbank SDs to maintain current 
books and records reflecting all transactions,\283\ the conditions 
further require each Mexican nonbank SD covered by the Comparability 
Order to file directly with the Commission and NFA: (i) notice that the 
firm was informed by the Mexican Commission that it is not in 
compliance with any component of the Mexican Capital Rules or Mexican 
Financial Reporting Rules; \284\ (ii) monthly, quarterly, and annual 
financial reports; \285\ (iii) notice that the firm has experienced a 
decrease of 30 percent or more in its excess regulatory capital as 
compared to the last excess regulatory capital reported in filings with 
the Commission and NFA; \286\ (iv) notice that the firm has breached 
its capital conservation buffer; \287\ (v) notice that the firm has 
failed to maintain regulatory capital in the form of fundamental 
capital in amount equal to or in excess of the equivalent of $20 
million; \288\ and (vi) notice that the firm has failed to make or keep 
current financial books and records required by the Mexican 
Commission.\289\ The Comparability Order further requires the 
Applicants to provide notice to the Commission of any material changes 
to the information submitted in the application, including, but not 
limited to, proposed and final material changes to the Mexican Capital 
Rules or Mexican Financial Reporting Rules and proposed and final 
material changes to the Mexican Commission's supervisory authority or 
supervisory regime over Mexican nonbank SDs.\290\ The financial 
information and notices required to be filed directly with the 
Commission and NFA under the Comparability Order, and through the 
Commission's and NFA's direct authority to obtain additional 
information from Mexican nonbank SDs, will allow the Commission and NFA 
to conduct ongoing oversight of such firms to assess their overall 
safety and soundness.
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    \283\ Condition 8 of the final Comparability Order.
    \284\ Condition 15 of the final Comparability Order.
    \285\ Conditions 9 and 10 of the final Comparability Order.
    \286\ Condition 18 of the final Comparability Order.
    \287\ Condition 16 of the final Comparability Order.
    \288\ Condition 17 of the final Comparability Order.
    \289\ Condition 19 of the final Comparability Order.
    \290\ Condition 22 of the final Comparability Order.
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    Although Commission Regulation 23.106 does not condition the 
issuance of a Comparability Order on the Commission and the authority 
or authorities in the relevant foreign jurisdiction having entered into 
a formal MOU or similar arrangement, the Commission recognizes the 
benefit that such an arrangement may provide.\291\ Specifically, 
although Commission staff may engage directly with Mexican nonbank SDs 
to obtain information regarding their financial and operational 
condition, it may not be able to exchange and discuss such firm-
specific information \292\ with the relevant

[[Page 58531]]

authorities or reach shared expectations on procedures for conducting 
on-site examinations in Mexico. Therefore, Commission staff will 
continue its engagement with staff of the Mexican authorities to 
negotiate and finalize an MOU or similar arrangement to facilitate the 
joint supervision of Mexican nonbank SDs.
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    \291\ In an enforcement-related context, both the Commission and 
the Mexican Commission are signatories to the International 
Organization of Securities Commission's Multilateral Memorandum of 
Understanding Concerning Consultation and Cooperation and the 
Exchange of Information (revised May 2012).
    \292\ The sharing of non-public information by CFTC staff would 
require assurances related to the use and treatment of such 
information in a manner consistent with section 8(e) of the CEA, 7 
U.S.C. 12(e).
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    Based on the analysis set out above, the Commission finds that the 
Mexican Commission and the Mexican Central Bank maintain supervisory 
programs over Mexican nonbank SDs that are comparable to the 
Commission's supervisory program over nonbank SDs. The Mexican 
authorities' supervisory programs are comparable in purpose and effect 
to the Commission's supervisory program in that the respective programs 
are designed to monitor the safety and soundness of nonbank SDs through 
a combination of periodic financial reporting and examinations. Also, 
as noted above, the Commission and NFA will receive notices from 
Mexican nonbank SDs that are comparable to the notices received from 
nonbank SDs. The Commission and NFA will use the above information to 
assess compliance with the Comparability Order and the financial 
condition of Mexican nonbank SDs.
    In addition, the Commission finds that the Mexican Commission has 
sufficient enforcement authority over nonbank SDs, comparable to the 
CFTC's enforcement authority. As discussed in section II.F.1. above, 
the Mexican Commission and the CFTC may sanction nonbank SDs for 
noncompliance with capital and financial reporting requirements by 
imposing fines or, if necessary, revoking the firms' registration. 
Furthermore, as discussed above, NFA may also take disciplinary action 
against a nonbank SD for failure to comply with its rules, including 
nonbank SD capital and financial reporting requirements. Accordingly, 
the Commission is adopting the Comparability Order as proposed with 
respect to the Commission's analysis concerning the comparability of 
the supervisory programs and enforcement authorities of the Commission, 
NFA, and the Mexican authorities with respect to nonbank SD capital and 
financial reporting.

III. Final Comparability Determination and Comparability Order

A. Commission's Final Comparability Determination

    Based on the Mexico Application and the Commission's review of 
applicable Mexican laws and regulations, as well as the review of 
comments submitted in response to the Commission's request for comment 
on the Mexico Application and the proposed Comparability Determination 
and Comparability Order, the Commission finds that the Mexican Capital 
Rules and the Mexican Financial Reporting Rules, subject to the 
conditions set forth in the Comparability Order below, achieve 
comparable outcomes and are comparable in purpose and effect to the 
CFTC Capital Rules and CFTC Financial Reporting Rules. In reaching this 
conclusion, the Commission recognizes that there are certain 
differences between the Mexican Capital Rules and CFTC Capital Rules 
and certain differences between the Mexican Financial Reporting Rules 
and the CFTC Financial Reporting Rules. The Comparability Order below 
is subject to conditions that are necessary to promote consistency in 
regulatory outcomes, or to reflect the scope of substituted compliance 
that would be available notwithstanding certain differences. In the 
Commission's view, the differences between the two rule sets would not 
be inconsistent with providing a substituted compliance framework for 
Mexican nonbank SDs subject to the conditions specified in the proposed 
Order below.
    Furthermore, the Comparability Determination and Comparability 
Order are limited to the comparison of the Mexican Capital Rules to the 
Bank-Based Approach under the CFTC Capital Rules. As noted previously, 
the Applicants have not requested, and the Commission has not 
performed, a comparison of the Mexican Capital Rules to the 
Commission's NLA Approach or TNW Approach.

B. Order Providing Conditional Capital Comparability Determination for 
Mexican Nonbank Swap Dealers

    It is hereby determined and ordered, pursuant to Commodity Futures 
Trading Commission (``CFTC'' or ``Commission'') Regulation 23.106 (17 
CFR 23.106) under the Commodity Exchange Act (``CEA'') (7 U.S.C. 1 et 
seq.) that a swap dealer (``SD'') organized and domiciled in Mexico and 
subject to the Commission's capital and financial reporting 
requirements under sections 4s(e) and (f) of the CEA (7 U.S.C. 6s(e) 
and (f)) may satisfy the capital requirements under section 4s(e) of 
the CEA and Commission Regulation 23.101(a)(1)(i) (17 CFR 
23.101(a)(1)(i)) (``CFTC Capital Rules''), and the financial reporting 
rules under section 4s(f) of the CEA and Commission Regulation 23.105 
(17 CFR 23.105) (``CFTC Financial Reporting Rules''), by complying with 
certain specified Mexican laws and regulations cited below and 
otherwise complying with the following conditions, as amended or 
superseded from time to time:
    (1) The SD is not subject to regulation by a prudential regulator 
defined in section 1a(39) of the CEA (7 U.S.C. 1a(39));
    (2) The SD is organized under the laws of Mexico and is domiciled 
in Mexico (a ``Mexican nonbank SD'');
    (3) The Mexican nonbank SD is a licensed casa de bolsa (broker-
dealer) with the Mexican Comision Nacional Bancaria y de Valores 
(Mexican Banking and Securities Commission) (the ``Mexican 
Commission'');
    (4) The Mexican nonbank SD is subject to and complies with: 
Articles 2, 113, 153, 172, 173, 228, 350, 358, and 392 of the Ley del 
Mercado de Valores (Securities Market Law) (referred to as ``the 
Law''); Articles 5 and 19 of the Mexican Commission Law, the 
Supervision Regulations of the Mexican Commission; Articles 10, 137, 
144, 146, 150 through 158 Bis, 159, 160, 161, 161 Bis through 161 Bis 
5, 162, 162 Bis, 162 Bis 1, 163, 163 Bis, 169, 169 Bis, 175, 176, 179, 
180, 201, 202, 203, 204 Bis 1, 204 Bis 2, 204 Bis 3, 204 Bis 7 through 
Bis 21, 214, 216, 217, Exhibits 5 and 9 of the Disposiciones de 
Caracter General Aplicables a las Casa De Bolsa (``General Provisions 
Applicable to Broker-Dealers''); section C.B1 of Circular 115/2002, 
issued by Banco de Mexico (the ``Mexican Central Bank''); and Provision 
3.1.3 of Rule 4/2012, issued by the Mexican Central Bank (collectively, 
the ``Mexican Capital Rules'' and ``Mexican Financial Reporting 
Rules,'');
    (5) The Mexican nonbank SD maintains at all times fundamental 
capital, as defined in Article 162 and Article 162 Bis of the General 
Provisions Applicable to Broker-Dealers, equal to or in excess of the 
equivalent of $20 million in United States dollars (``U.S. dollars''). 
The Mexican nonbank SD shall use a commercially reasonable and observed 
peso/U.S. dollar exchange rate to convert the value of the peso-
denominated fundamental capital to U.S. dollars;
    (6) The Mexican nonbank SD has filed with the Commission a notice 
stating its intention to comply with the Mexican Capital Rules and 
Mexican Financial Reporting Rules in lieu of the CFTC Capital Rules and 
CFTC Financial Reporting Rules. The notice of intent must include the 
Mexican nonbank SD's representations that the firm is organized and 
domiciled in Mexico; is a licensed casa de bolsa with the Mexican 
Commission; and is subject to, and complies with, the Mexican Capital 
Rules and Mexican Financial Reporting

[[Page 58532]]

Rules. The Mexican nonbank SD may not rely on this Comparability Order 
until it receives confirmation from Commission staff, acting pursuant 
to authority delegated by the Commission under Commission Regulation 
140.91(a)(11) (17 CFR 140.91(a)(11)), that the Mexican nonbank SD may 
comply with the Mexican Capital Rules and Mexican Financial Reporting 
Rules in lieu of the CFTC Capital Rules and CFTC Financial Reporting 
Rules. Each notice filed pursuant to this condition must be prepared in 
the English language and submitted to the Commission via email to the 
following address: [email protected];
    (7) The Mexican nonbank SD shall provide notice to the Commission 
and National Futures Association (``NFA'') if at any time it initiates 
the process of seeking the approval of the Mexican Commission to use 
internal models to compute market risk and/or credit risk. The Mexican 
nonbank SD shall not use internal models to compute its regulatory 
capital under the terms of this Comparability Order without the 
authorization of the Commission or NFA;
    (8) The Mexican nonbank SD prepares and keeps current ledgers and 
other similar records in accordance with accounting principles 
permitted by the Mexican Commission;
    (9) The Mexican nonbank SD files with the Commission and with NFA a 
copy of its quarterly financial report filed with the Mexican 
Commission pursuant to Article 203 of the General Provisions Applicable 
to Broker-Dealers and a copy of the monthly financial information, 
including the monthly balance sheet and income statement, filed with 
the Mexican Commission pursuant to Article 202 and Exhibit 9 of the 
General Provisions Applicable to Broker-Dealers. The Mexican nonbank SD 
must also include with the monthly information provided to the 
Commission and NFA a statement of regulatory capital as of each month 
end. The quarterly financial report and monthly financial information 
must be translated into the English language and balances must be 
converted to U.S. dollars, using a commercially reasonable and 
observable Mexican peso/U.S. dollar spot rate as of the date of the 
report. The quarterly financial report must be filed with the 
Commission and NFA within 15 business days of the earlier of the date 
the quarterly financial report is filed with the Mexican Commission or 
the date that the financial report is required to be filed with the 
Mexican Commission. The monthly financial information must be filed 
with the Commission and NFA within 35 calendar days after the end of 
each month;
    (10) The Mexican nonbank SD files with the Commission and with NFA 
a copy of its audited annual financial report that is required to be 
filed with the Mexican Commission in accordance with Article 203 of the 
General Provisions Applicable to Broker-Dealers. The audited annual 
report must be translated into the English language. The audited annual 
report must be filed with the Commission and NFA within 15 business 
days of the earlier of the date the audited annual report is filed with 
the Mexican Commission or the date that the audited annual report is 
required to be filed with the Mexican Commission;
    (11) The Mexican nonbank SD files Schedule 1 of appendix B to 
subpart E of part 23 of the Commission's regulations (17 CFR part 23 
subpart E--appendix B) with the Commission and NFA on a monthly basis. 
Schedule 1 must be prepared in the English language with balances 
reported in U.S. dollars, using a commercially reasonable and 
observable Mexican peso/U.S. dollar spot rate as of the date of the 
report, and must be filed with the Commission and NFA together with the 
financial information set forth in Condition (9);
    (12) A Mexican nonbank SD that is a registered securities-based 
swap dealer with the U.S. Securities and Exchange Commission (``SEC'') 
and is required to file a monthly Form X-17A-5 (``FOCUS Report'') with 
the SEC, or its designee, must file a copy of the FOCUS Report with the 
Commission and NFA within 35 calendar days after the end of each month. 
A Mexican nonbank SD that files a FOCUS Report with the Commission and 
NFA pursuant to this condition is not required to file the financial 
reports and schedules specified in Conditions 9 and 11 of this 
Comparability Order;
    (13) The Mexican nonbank SD files a margin report containing the 
information specified in Commission Regulation 23.105(m) (17 CFR 
23.105(m)) with the Commission and with NFA on a monthly basis 
(``Margin Report''). The Margin Report must be filed together with the 
monthly financial information required by Article 202 and Exhibit 9 of 
the General Provisions Applicable to Broker-Dealers (Condition 9). The 
margin report must be in the English language and balances reported in 
U.S. dollars, using a commercially reasonable and observable Mexican 
peso/U.S. dollar spot rate as of the date of the report;
    (14) The Mexican nonbank SD must submit with the monthly financial 
information, the quarterly financial report, and the audited annual 
report required under Conditions (9)-(12) of this Comparability Order a 
statement by an authorized representative or representatives of the 
Mexican nonbank SD that to the best knowledge and belief of the 
representative or representatives the information contained in the 
reports, including the translation of the reports into the English 
language and the conversion of balances into the reports to U.S. 
dollars (as applicable), is true and correct. The statement must be 
prepared in the English language;
    (15) The Mexican nonbank SD files a notice with the Commission and 
NFA within 24 hours of being informed by the Mexican Commission that 
the firm is not in compliance with any component of the Mexican Capital 
Rules or Mexican Financial Reporting Rules. The notice must be prepared 
in the English language;
    (16) The Mexican nonbank SD files a notice with the Commission and 
NFA within 24 hours of when the firm breaches the capital conservation 
buffer, which the Mexican nonbank SD is required to maintain pursuant 
to Article 162 of the General Provisions Applicable to Broker-Dealers. 
The notice must be prepared in the English language;
    (17) The Mexican nonbank SD files a notice within 24 hours with the 
Commission and NFA it fails to maintain regulatory capital in the form 
of fundamental capital, as defined in Article 162 and Article 162 Bis 
of the General Provisions Applicable to Broker-Dealers, equal to or in 
excess of the U.S. dollar equivalent of $20 million using a 
commercially reasonable and observable peso/U.S. dollar exchange rate. 
The notice must be prepared in the English language;
    (18) The Mexican nonbank SD files a notice with the Commission and 
NFA if it experiences a 30 percent or more decrease in its excess 
regulatory capital as compared to that last reported in the financial 
information filed with the Mexican Commission pursuant to Article 202 
and Exhibit 9 of the General Provisions Applicable to Broker-Dealers. 
The notice must be prepared in the English language and filed within 
two business days of the firm experiencing the 30 percent or more 
decrease in excess regulatory capital;
    (19) The Mexican nonbank SD files a notice with the Commission and 
NFA within 24 hours if it fails to make or keep current the financial 
books and records required by the Mexican

[[Page 58533]]

Commission. The notice must be prepared in the English language;
    (20) The Mexican nonbank SD files a notice with the Commission and 
NFA within 24 hours of the occurrence of any of the following: (i) a 
single counterparty, or group of counterparties under common ownership 
or control, fails to post required initial margin or pay required 
variation margin to the Mexican nonbank SD on uncleared swap and 
security-based swap positions that, in the aggregate, exceeds 25 
percent of the Mexican nonbank SD's minimum capital requirement; (ii) 
counterparties fail to post required initial margin or pay required 
variation margin to the Mexican nonbank SD for uncleared swap and 
security-based swap positions that, in the aggregate, exceeds 50 
percent of the Mexican nonbank SD's minimum capital requirement; (iii) 
a Mexican nonbank SD fails to post required initial margin or pay 
required variation margin for uncleared swap and security-based swap 
positions to a single counterparty or group of counterparties under 
common ownership and control that, in the aggregate, exceeds 25 percent 
of the Mexican nonbank SD's minimum capital requirement; and (iv) the 
Mexican nonbank SD fails to post required initial margin or pay 
required variation margin to counterparties for uncleared swap and 
security-based swap positions that, in the aggregate, exceeds 50 
percent of the Mexican nonbank SD's minimum capital requirement. For 
purposes of the calculation, the Mexican nonbank SD's minimum capital 
requirement is the core capital requirement under the Mexican Capital 
Rules, excluding capital buffers. The notice must be prepared in the 
English language;
    (21) The Mexican nonbank SD files a notice with the Commission and 
NFA of a change in its fiscal year end approved or permitted to go into 
effect by the Mexican Commission. The notice required by this condition 
will satisfy the requirement for a nonbank SD to obtain the approval of 
NFA for a change in fiscal year end under Commission Regulation 
23.105(g) (17 CFR 23.105(g)). The notice of change in fiscal year end 
must be prepared in the English language and filed with the Commission 
and NFA at least 15 business days prior to the effective date of the 
Mexican nonbank SD's change in fiscal year end;
    (22) The Applicants notify the Commission of any material changes 
to the information submitted in their application, including, but not 
limited to, proposed and final material changes to the Mexican Capital 
Rules or Mexican Financial Reporting Rules and proposed and final 
material changes to the Mexican Commission's supervisory authority or 
supervisory regime over Mexican nonbank SDs. The notice must be 
prepared in the English language; and
    (23) Unless otherwise noted in the conditions above, the reports, 
notices, and other statements required to be filed by Mexican nonbank 
SD with the Commission or NFA pursuant to the conditions of this 
Comparability Order must be submitted electronically to the Commission 
and NFA in accordance with instructions provided by the Commission or 
NFA.
    It is also hereby determined and ordered that this Comparability 
Order becomes effective upon its publication in the Federal Register, 
with the exception of Conditions 11, 13, 18, and 20, which will become 
effective 180 calendar days after publication of the Comparability 
Order in the Federal Register.

    Issued in Washington, DC, on July 3, 2024, by the Commission.
Christopher Kirkpatrick,
Secretary of the Commission.

    Note: The following appendices will not appear in the Code of 
Federal Regulations.

Appendices to Order Granting Conditional Substituted Compliance in 
Connection with Certain Capital and Financial Reporting Requirements 
Applicable to Nonbank Swap Dealer Subject to Regulation by the Mexican 
Comision Nacional Bancaria y de Valores and Banco de Mexico--Commission 
Voting Summary, Chairman's Statement, and Commissioners' Statements

Appendix 1--Commission Voting Summary

    On this matter, Chairman Behnam and Commissioners Johnson, 
Goldsmith Romero, Mersinger, and Pham voted in the affirmative. No 
Commissioner voted in the negative.

Appendix 2--Statement of Support of Chairman Rostin Behnam

    I support the Commission's approval of four comparability 
determinations and related orders finding that the capital and 
financial reporting requirements in Japan, Mexico, the European 
Union (France and Germany), and the United Kingdom (for swap dealers 
(SDs) designated for prudential supervision by the UK Prudential 
Regulation Authority (PRA)) are comparable to the Commission's 
capital and financial reporting requirements applicable to nonbank 
SDs. These are the first comparability determinations that the 
Commission has finalized for applications filed following the July 
2020 adoption of its regulatory framework for substituted compliance 
for non-U.S. domiciled nonbank SDs.\1\ There are currently 15 non-
U.S. nonbank SDs that are eligible to comply with these conditional 
orders: three in Japan; three in Mexico; two in Germany and one in 
France for the EU; and six in the UK that are PRA-designated.
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    \1\ Capital Requirements of Swap Dealers and Major Swap 
Participants, 85 FR 57462 (Sept. 15, 2020). The Commission issued 
the final rule on July 24, 2020.
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    As part of the process leading to the Commission's final 
comparability determinations and orders, Commission staff engaged in 
a thorough analysis of each foreign jurisdictions' capital and 
financial reporting frameworks and considered the public comments 
received on the proposed determinations and orders. Based on those 
reviews, the Commission has determined that the respective foreign 
jurisdictions' rules are comparable in purpose and effect, and 
achieve comparable outcomes, to the CFTC's capital and financial 
reporting rules. Specifically, the Commission considered the scope 
and objectives of the foreign regulators' capital adequacy and 
financial reporting requirements; the ability of those regulators to 
supervise and enforce compliance with their respective capital and 
financial reporting requirements; and other facts or circumstances 
the Commission deemed relevant for each of the applications.
    In certain instances, the Commission found that a foreign 
jurisdiction's rules impose stricter standards. In limited 
circumstances, where the Commission concluded that a foreign 
jurisdiction lacks comparable and comprehensive requirements on a 
specific issue, the Commission included a targeted condition 
designed to impose an equally stringent standard. The Commission has 
issued the final orders consistent with its authority to issue a 
comparability determination with the conditions it deems 
appropriate. These conditions aim to ensure that the orders only 
apply to nonbank SDs that are eligible for substituted compliance in 
these respective jurisdictions and that those non-U.S. nonbank SDs 
comply with the foreign country's capital and financial reporting 
requirements as well as certain additional capital, financial 
reporting, recordkeeping, and regulatory notice requirements. This 
approach acknowledges that jurisdictions may adopt unique approaches 
to achieving comparable outcomes. As a result, the Commission has 
focused on whether the applicable foreign jurisdiction's capital and 
financial reporting requirements achieve comparable outcomes to the 
corresponding Commission requirements for nonbank SDs, not whether 
they are comparable in every aspect or contain identical elements.
    With these comparability determinations, the Commission fully 
retains its enforcement and examination authority as well as its 
ability to obtain financial and event specific reporting to maintain 
direct oversight of nonbank SDs located in these four jurisdictions. 
The avoidance of duplicative requirements without a commensurate 
benefit to the Commission's oversight function reflects the 
Commission's approach

[[Page 58534]]

to recognizing the global nature of the swap markets with dually-
registered SDs that operate in multiple jurisdictions, which mandate 
prudent capital and financial reporting requirements. This is, 
however, an added benefit and not the Commission's sole 
justification for issuing these comparability determinations.
    The comparability orders will become effective upon their 
publication in the Federal Register. For several order conditions, 
the Commission is granting an additional compliance period of 180 
calendar days. To rely on a comparability order, an eligible non-
U.S. nonbank SD must notify the Commission of its intention to 
satisfy the Commission's capital and financial requirements by 
substituted compliance and receive a Commission confirmation before 
relying on a determination.
    I appreciate the hard work and dedication of the staff in the 
Market Participants Division over the past several years to propose 
and finalize these four determinations. I also thank the staff in 
the Office of the General Counsel and the Office of International 
Affairs for their support on these matters.

Appendix 3--Statement of Commissioner Kristin N. Johnson

    I support the Commodity Futures Trading Commission's (Commission 
or CFTC) issuance of four final capital and financial reporting 
comparability determinations and related orders (together, Final 
Comparability Determinations) for non-U.S. nonbank swap dealers 
(foreign nonbank SDs) and non-U.S. nonbank major swap participants 
(foreign nonbank MSPs) organized and domiciled in the United Kingdom 
(UK), the European Union (specifically, France and Germany), Mexico, 
and Japan.\1\
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    \1\ Though the Final Comparability Determinations will apply to 
foreign nonbank MSPs in the relevant jurisdictions, there are no 
such MSPs currently registered with the Commission at this time. I 
will refer only to SDs herein.
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    The Final Comparability Determinations allow eligible foreign 
nonbank SDs to satisfy certain capital and financial reporting 
requirements under the Commodity Exchange Act (CEA) and Commission 
regulations if they: (1) are subject to, and comply with, comparable 
capital and financial reporting requirements under the laws and 
regulations applicable in their home countries and (2) comply with 
the conditions enumerated in the applicable Final Comparability 
Determination. Under this conditional substituted compliance 
framework, foreign nonbank SDs in the relevant jurisdictions that 
comply with these conditions are deemed to be in compliance with the 
Commission's capital and financial reporting requirements.
    Well-calibrated capital requirements create a cushion to absorb 
unexpected losses in times of market stress, and well-calibrated 
financial reporting requirements provide the Commission with 
information to monitor the business operations and financial 
condition of registered SDs. These tools are critical to managing 
systemic risk and fostering the stability of U.S. derivatives 
markets and the U.S. financial system. The Commission's substituted 
compliance framework addresses the need to promote sound global 
derivatives regulation while mitigating potentially duplicative 
cross-border regulatory requirements for non-U.S. market 
participants operating in our markets. Where the Commission permits 
substituted compliance, it must retain sufficient oversight, 
examination, and enforcement authority to ensure compliance with the 
foreign jurisdiction's laws and the conditions to substituted 
compliance.
    Crucially, while these Final Comparability Determinations permit 
foreign nonbank SDs to comply with home country regulations in lieu 
of compliance with Commission regulations, the Commission is also 
imposing important guardrails to ensure continuous supervision of 
the operations and financial condition of the foreign SD.

Background

    For an example of the detrimental consequences of failing to 
adequately capitalize nonbank swap market participants, one need 
look no further than the 2008 global financial crisis. According to 
the U.S. Government Accountability Office, the crisis, which 
threatened the stability of the U.S. financial system and the health 
of the U.S. economy, may have led to $10 trillion in losses, 
including large declines in employment and household wealth, reduced 
tax revenues from lower economic activity, and lost economic 
output.\2\ In response to the crisis, in 2010, the U.S. Congress 
passed the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(the Dodd-Frank Act), which amended the CEA to create a new 
regulatory framework for swaps.
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    \2\ United States Government Accountability Office, Financial 
Regulatory Reform: Financial Crisis Losses and Potential Impacts of 
the Dodd-Frank Act (Jan. 2013), https://fraser.stlouisfed.org/title/gao-reports-testimonies-6136/financial-regulatory-reform-622249.
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    As amended, section 4s(e) of the CEA directs the Commission and 
prudential regulators to impose minimum capital requirements on SDs 
registered with the Commission. Section 4s(e) adopts separate 
approaches for the imposition of minimum capital requirements on 
bank and nonbank SDs. For bank SDs, prudential regulators are 
authorized to set the minimum capital requirements. For nonbank SDs, 
the Commission is authorized to set those requirements. The amended 
CEA also sets out financial reporting requirements for SDs. Under 
section 4s(f) of the CEA, registered SDs are required to make 
financial condition reports and other reports regarding transactions 
and positions as mandated by Commission regulations.
    In 2020, the Commission adopted regulations implementing both 
the capital and financial reporting requirements for SDs, which were 
amended in 2024 (the Capital and Financial Reporting Rules).\3\ The 
Capital and Financial Reporting Rules set minimum capital levels 
that nonbank SDs must maintain and financial reporting requirements 
that nonbank SDs must comply with, including filing periodic 
unaudited financial statements and an annual audited financial 
report.\4\
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    \3\ Capital Requirements of Swap Dealers and Major Swap 
Participants, 85 FR 57462 (Sept. 15, 2020).
    \4\ The reporting requirements imposed on bank SD and bank MSPs 
were ``more limited'' ``as the financial condition of these entities 
will be predominantly supervised by the applicable prudential 
regulator and subject to its capital and financial reporting 
requirements.'' Id. at 57513. In May 2024, the Commission adopted 
amendments to the Capital and Financial Reporting Rules that 
codified two previously-issued staff letters providing interpretive 
guidance and no-action relief and made other technical amendments. 
89 FR 45569 (May 23, 2024).
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    Like the U.S., many other nations adopted their own regulatory 
regimes to govern swaps markets in the aftermath of the financial 
crisis. Since then, regulators from around the world have endeavored 
to improve the resilience of swaps markets and establish a global 
set of standards on critical risk management issues, such as capital 
and financial reporting requirements. These efforts led to the 
development of the Principles for Financial Market Infrastructures, 
to which many jurisdictions, including our own, look for 
guidance.\5\
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    \5\ Principles for Financial Market Infrastructures, Bank for 
International Settlements and International Organization of 
Securities Commissions (Apr. 2012), https://www.bis.org/cpmi/publ/d101a.pdf.
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    The Dodd-Frank Act amendments specifically address the cross-
border application of the CFTC's swaps regime. Section 2(i) of the 
CEA establishes that the CEA's swaps provisions apply to foreign 
swaps activities that have a ``direct and significant'' connection 
to, or effect on, U.S. markets. In line with section 2(i) of the 
CEA, the Capital and Financial Reporting Rules set out a substituted 
compliance framework in Commission Regulation 23.106 for foreign 
nonbank SDs seeking to comply with the Commission's capital and 
financial reporting requirements.
    The substituted compliance framework consists of comparability 
determinations that afford ``due consideration [to] international 
comity principles'' while being ``consistent with . . . the 
Commission's interest in focusing its authority on potential 
significant risks to the U.S. financial system.'' \6\ The 
determinations involve an assessment of the home-country 
requirements that is a principles-based, holistic approach, focusing 
on whether the applicable home-country requirements have comparable 
objectives and achieve comparable outcomes to the Commission's 
Capital and Financial Reporting Rules.
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    \6\ Cross-Border Application of the Registration Thresholds and 
Certain Requirements Applicable to Swap Dealers and Major Swap 
Participants, 85 FR 56924, 56924 (Sept. 14, 2020).
---------------------------------------------------------------------------

Today's Final Comparability Determinations

    The Final Comparability Determinations will apply to 15 foreign 
nonbank SDs currently registered with the Commission and subject to 
oversight by the UK Prudential Regulation Authority, the European 
Central Bank, the Mexican Comisi[oacute]n Nacional Bancaria y de 
Valores, and the Financial Services Agency of Japan. I commend staff 
for their hard work on the Final

[[Page 58535]]

Comparability Determinations, including their work to thoroughly and 
thoughtfully analyze and address comments.
    Importantly, while the Final Comparability Determinations permit 
foreign nonbank SDs in the relevant jurisdictions to comply with 
home country regulations in lieu of compliance with Commission 
regulations, there are numerous protections in place to ensure the 
Commission's ability to supervise on an ongoing basis the adequacy 
of the foreign nonbank SDs' compliance. The Final Comparability 
Determinations all include key conditions with which the foreign 
nonbank SDs must comply. For example, each of the Final 
Comparability Determinations requires that the foreign nonbank SDs 
provide monthly and annual financial reports to the Commission--and 
the Commission can request additional information as required to 
facilitate ongoing supervision. Each Final Comparability 
Determination also requires the foreign nonbank SDs to notify the 
Commission if adverse events occur, such as a significant decrease 
in excess regulatory capital, a significant failure of a 
counterparty to post required margin, or non-compliance with certain 
capital or financial reporting requirements. Finally, in recognition 
of the fact that a country's capital standards and financial 
reporting requirements may change over time, the Final Comparability 
Determinations require the foreign nonbank SDs to provide notice of 
material changes to the home country capital or financial reporting 
frameworks.
    Moreover, the foreign nonbank SDs subject to these 
determinations are registered with the Commission and are members of 
the National Futures Association (NFA). Therefore, these entities 
are subject to the CEA, Commission regulations, and NFA membership 
rules, and each entity remains subject to Commission supervisory, 
examination and enforcement authority. As noted in the Final 
Comparability Determinations, if a foreign SD fails to comply with 
its home country's capital and financial reporting requirements, the 
Commission may initiate an action for a violation of the 
Commission's Capital and Financial Reporting Rules.
    As I have previously noted,\7\ it is important to recognize 
foreign market participants' compliance with the laws and 
regulations of their regulators when the requirements lead to an 
outcome that is comparable to the outcome of complying with the 
CFTC's corresponding requirements. Respect for partner regulators in 
foreign jurisdictions advances the Commission as a global standard 
setter for sound derivatives regulation and enhances market 
stability.
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    \7\ Kristin N. Johnson, Commissioner, CFTC, Combatting Systemic 
Risk and Fostering Integrity of the Global Financial System Through 
Rigorous Standards and International Comity (Jan. 24, 2024), https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement012424; 
Kristin N. Johnson, Commissioner, CFTC, Statement in Support of 
Notice and Order on EU Capital Comparability Determination (June 7, 
2023), https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement060723c; Kristin N. Johnson, Commissioner, CFTC, 
Statement in Support of Proposed Order and Request for Comment on 
Mexican Capital Comparability Determination (Nov. 10, 2022), https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement111022c; 
Kristin N. Johnson, Commissioner, CFTC, Statement in Support of 
Proposed Order on Japanese Capital Comparability Determination (July 
27, 2022), https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement072722c.
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    I thank the staff in the Market Participants Division for their 
hard work on these matters, particularly Amanda Olear, Tom Smith, 
and Lily Bozhanova.

Appendix 4--Statement of Commissioner Caroline D. Pham

    I am pleased to support the order granting conditional 
substituted compliance in connection with certain capital and 
financial reporting requirements applicable to nonbank swap dealers 
subject to regulation by the Mexico Comision Nacional Bancaria y de 
Valores (CNBV) and Banco de Mexico (Mexico Final Order). The Mexico 
Final Order, on balance, reflects an appropriate approach by the 
CFTC to collaboration with non-U.S. regulators that is consistent 
with IOSCO's 2020 report on Good Practices on Processes for 
Deference.\1\
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    \1\ IOSCO Report, ``Good Practices on Processes for Deference'' 
(June 2020), https://www.iosco.org/library/pubdocs/pdf/IOSCOPD659.pdf.
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    I would like to thank Amanda Olear, Thomas Smith, Rafael 
Martinez, Warren Gorlick, Lilya Bozhanova, and Justin McPhee from 
the CFTC's Market Participants Division for their truly hard work on 
the Mexico Final Order and for addressing my concerns regarding the 
conditions for notice requirements.\2\ I also thank the CNBV and 
Banco de Mexico for their assistance and support.
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    \2\ Concurring Statement of Commissioner Caroline D. Pham 
Regarding Proposed Order and Request for Comment on an Application 
for a Capital Comparability Determination (Nov. 10, 2022), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement111022.
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    The CFTC's capital comparability determinations are the result 
of tireless efforts spanning over a decade since the global 
financial crisis. I commend the staff for working together with our 
regulatory counterparts around the world to promote regulatory 
cohesion and financial stability, and mitigate market fragmentation 
and systemic risk.

[FR Doc. 2024-15093 Filed 7-17-24; 8:45 am]
BILLING CODE 6351-01-P