[By Larry Goldfarb]

SEC commissioners voted 5-0 yesterday at a meeting in Washington to seek public comment on collateral requirements for swaps that remain in the over-the-counter market instead of being settled at third-party clearinghouses. The proposal, part of the agency’s rulemaking under the Dodd-Frank Act, would also increase capital requirements for dealers of swaps tied to single securities or loans or a narrow index of swaps. Goldman Sachs Group Inc. (GS), Morgan Stanley (MS) and other trading firms would face higher capital and collateral costs under swaps-market rules proposed by the U.S. Securities and Exchange Commission.

“These rules are intended to make the financial system safer, and the derivative markets fairer, more efficient and more transparent,” SEC Chairman Mary Schapiro said before commissioners voted on the proposal.  Dodd-Frank, the 2010 financial-regulation law, calls for most swaps in the $648 trillion market to be guaranteed at clearinghouses that hold collateral from buyers and sellers to cut default risk. The SEC is the last U.S. regulator to propose collateral requirements for non-cleared trades.

Under the proposal, dealers in swaps tied to securities would need to:

• Set aside a fixed amount of capital and a percentage of collateral.
• Have capital equal to an additional 8 percent of collateral for cleared and non-cleared trades.
• Have at least $20 million in fixed net capital.
• Double minimum capital from $500 million to $1 billion; this would apply to bigger and more complex brokerages that use internal computer models to comply with capital rules.

For further information, please read [Bloomberg, 10/17/12]