Goldman Sachs 2015 Annual Report Download - page 31

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
‰Margin requirements for trades that are not cleared
through a central counterparty; and
‰Entity-level capital requirements for swap dealers, major
swap participants, security-based swap dealers, and
major security-based swap participants.
The terms “swaps” and “security-based swaps” are
generally defined broadly for purposes of these
requirements, and can include a wide variety of derivative
instruments in addition to those conventionally called
swaps. The definition includes certain forward contracts,
options, certain loan participations and guarantees of
swaps, subject to certain exceptions, and relates to a wide
variety of underlying assets or obligations, including
currencies, commodities, interest or other monetary rates,
yields, indices, securities, credit events, loans and other
financial obligations.
The CFTC is responsible for issuing rules relating to swaps,
swap dealers and major swap participants, and the SEC is
responsible for issuing rules relating to security-based
swaps, security-based swap dealers and major security-
based swap participants. The U.S. federal bank regulatory
agencies (acting jointly) adopted final rules in
October 2015 and the CFTC adopted final margin rules for
uncleared swaps in December 2015 that will phase in
variation margin requirements from September 1, 2016
through March 1, 2017 and initial margin requirements
from September 1, 2016 through September 1, 2020,
depending on the level of swaps and foreign exchange
forward transaction activity of the swap dealer and the
relevant counterparty. The final rules of the U.S. federal
bank regulatory agencies would generally apply to inter-
affiliate transactions, with limited relief available from the
initial margin requirements for affiliates that have
registered with the CFTC as swap dealers. Under the CFTC
final rules, inter-affiliate transactions would be exempt
from initial margin requirements with certain exceptions,
but variation margin requirements would still apply. We
expect the SEC to adopt margin regulations as well in 2016.
The CFTC has not yet finalized its capital regulations for
swap dealers. However, many of the requirements,
including registration of swap dealers, mandatory clearing
and execution of certain swaps, business conduct standards
and real-time public trade reporting, have taken effect
already under CFTC rules, and the SEC and the CFTC have
finalized the definitions of a number of key terms. Finally,
the CFTC has begun to decide which swaps must be cleared
through central counterparties and executed on swap
execution facilities or exchanges. In particular, certain
interest rate swaps and credit default swaps are now subject
to these clearing and trade-execution requirements. The
CFTC is expected to continue to make such determinations
during 2016.
The SEC has adopted rules relating to trade reporting and
real-time reporting requirements for security-based swap
dealers and major security-based swap participants. The
SEC has also adopted final rules relating to the registration
of security-based swap dealers, but such registration is not
currently required. The SEC has proposed, but not yet
finalized, rules to impose margin, capital, segregation and
business conduct requirements for security-based swap
dealers and major security-based swap participants. The
SEC has also proposed rules that would govern the design
of new trading venues for security-based swaps and
establish the process for determining which products must
be traded on these venues.
We have registered certain subsidiaries as “swap dealers”
under the CFTC rules, including GS&Co., GS Bank USA,
GSI and J. Aron & Company. We also expect to register
certain subsidiaries as security-based swap dealers. We
expect that these subsidiaries, and our businesses more
broadly, will continue to be subject to significant and
developing regulation and regulatory oversight in
connection with swap-related activities.
Similar regulations have been proposed or adopted in
jurisdictions outside the United States, including the
adoption of standardized execution and clearing, margining
and reporting requirements for OTC derivatives. For
instance, the EU has established regulatory requirements
for OTC derivatives activities under the European Market
Infrastructure Regulation, including requirements relating
to portfolio reconciliation and reporting, which have
already taken effect, as well as requirements relating to
clearing and margining for uncleared derivatives, which are
currently expected to be finalized during 2016.
Goldman Sachs 2015 Form 10-K 19