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Swap Dealer Case Study

Case Study

The Client

The client is a diversified financial services company dedicated to the digital assets and blockchain technology industry.


The client trades OTC options and forwards in a number of digital assets. Given continued strong trading growth, the client expected to surpass the de minimis $8 billion in aggregate gross notional amount of derivatives that necessitates their registration as a Swap Dealer (SD) with the CFTC. At the point of Registration, the client had to be fully compliant across all obligations.

In order to prevent the need for trading restrictions, the client demanded a solution that delivered accelerated compliance with the CFTC Swap Dealer obligations.

The Challenge

CFTC Swap Dealer obligations impose strict requirements upon in-scope entities, with penalties for non-compliance.

The client needed to deliver multiple new solutions and enhancements across the full derivative lifecycle.  

Multiple challenges faced the client:

   1.    Limited internal change capacity and time to implementation - At the point of Registration, the client had to be fully compliant across all the detailed CFTC obligations.

   2.   Significant scale of Transformation – Regulatory compliance would require front to back transformation across the clients OTC infrastructure.

   3.   Business Model Complexity – All business areas of the organisation were impacted. A new target operating model had to be defined across IT, Data, People, Process and Governance.

   4.   Limited Capacity – The client had limited ability to translate regulatory requirements into technology and solution requirements.

The Engagement

Tonic deployed a team of expert capital markets derivative practitioners with Swap-Dealer experience across London and NY to lead and execute the SD Registration Transformation program.  

Tonic implemented a structured approach, defining and managing all requirements across eight key workstreams, with business owners assigned across Risk, Compliance and Operations. This approach ensured a compliant, bespoke, cost-effective and scalable target operating model.

A multiple-step approach was taken to accelerate the definition of the client TOM, as shown in the visual below:

Key Successes

For the Current State Analysis, Tonic performed an extensive, accelerated analysis of the client’s existing derivatives operating model.

Tonic Approach Highlights:

Tonic’s experts performed a line-by-line review of the CFTC regulations, rapidly understanding the detailed rules required for regulatory compliance. On completion of the CFTC analysis, Tonic produced a detailed regulatory gap analysis, deconstructing the CFTC regulations to individual line items, and identifying gaps and discrepancies ensuring full traceability to the regulations.

In parallel, our specialists performed Initial Margin Forecast Calculations on the client’s digital derivatives portfolio. The ‘what-if’ initial margin scenarios were based on variable digital asset pricing parameters. The analysis allowed for a detailed understanding of margin requirements across numerous stress-adjusted conditions. The output enabled the client to make informed decisions while evaluating different derivative booking models to ensure they continued to manage the risk and associated initial margin obligations in the most effective manner.

Tonic SMEs led forecast capital calculations for the client under both Swap Dealer approved models: Bank Holding Company Approach and the Net Liquid Assets Approach. This was critical in helping the client evaluate profitability and return on equity of the derivatives business under CFTC SD regulations.

Finally, Tonic defined the target application architecture required to support SD requirements. Tonic experts were responsible for evaluating and selecting vendors based on a qualitative and quantitative benchmarking approach. This also necessitated defining the data management strategy for the target application including cloud-based data storage strategy.

The Outcome

Tonic leveraged their Swap Dealer expertise and experience to accelerate the definition of a regulatory compliant TOM.

Beyond regulatory compliance, implementing the TOM will ensure robust operation scalability to support the client’s objective for continued growth in a scalable, controlled manner.

The documented TOM was delivered to, and approved by the client along with supporting artefacts:

            End-to-end TOM across eight workstreams

            Current state and regulatory gap analysis

            Data architecture, warehouse and data standards

            Vendor solution architecture

            Vendor evaluation and selection

•             Regulatory traceability matrix


The compliant TOM was essential to ensure the client could continue operating and trading digital derivatives without restriction.


Client Feedback

"Tonic came in to help us meet our ambitions of growing into a CFTC registered swap dealer. As a fast-growing firm, we needed a partner that could both align with our way of operating/people (often not people from swap dealer environments), and help us get to the level of technology, process and rigor required to become a swap dealer.

We primarily relied on Tonic to help understand the requirements and body of work (based on our current state) to become a swap dealer. They were able to navigate our growing organisation in an evolving environment well, and truly help us understand where we needed to go. Their level of precision, documentation and process is what we still rely on today as we are continuing to grow into a swap dealer.

Their partnership was key in meeting our ambitions and we do recommend them to firms that are looking for seasoned experience in understanding what being in the swap dealer world and its associated areas means."


Like what you have read? Contact us at info@thetonicconsultancy.com if you would like a chat about our related services.

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