Introduction -

On October 18, 2012, the Securities and Exchange Commission (the “SEC”) issued Release No. 34-68071 containing its proposed rules (the “Proposed Rules”) relating to the capital, margin and segregation requirements with respect to security-based swaps (“SBSs”) for security-based swap dealers (“SBSDs”) and major security-based swap participants (“MSBSPs”). The capital and margin requirements of the Proposed Rules apply to SBSDs and MSBSPs that are not subject to the supervision of a prudential regulator whereas the segregation requirements apply to all SBSDs and MSBSPs. The Proposed Rules also affect broker-dealers whether or not they are SBSDs. The original comment period for the Proposed Rules expired 60 days following publication in the Federal Register; the SEC recently extended that comment period until February 22, 2013.

Proposed Rules — Capital Requirements -

Capital Requirements for SBSDs -

The Proposed Rules establish minimum capital requirements by amending Rule 15c3-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and creating new Rule 18a-1 of the Exchange Act. SBSDs would be required to comply with a net liquid assets test modeled on the broker-dealer capital requirements of Rule 15c3-1 although the SEC is seeking comments on alternative approaches. Pursuant to the Proposed Rules, the minimum capital requirements differ for stand-alone SBSDs and SBSDs dually registered as broker-dealers (“Broker-dealer SBSDs”). The minimum capital requirements for an SBSD also vary depending on whether such SBSD had been approved by the SEC to use internal models in calculating its regulatory capital (the “Approved Internal Models”).

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