CFTC and European Commission Equivalence Decision

US Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo and European Commission (EC) Vice-President Valdis Dombrovskis announced a common approach for the mutual recognition of EU and US derivatives trading venues. The two regulatory bodies have made a joint announcement to ensure that both US and EU swap market counterparts are able to comply with trading obligations mandated by the EU and by the Commodity Exchange Act in their respective trading venues. The EC will adopt an equivalence decision in order to recognize non-EU regulatory frameworks such as CFTC’s Swap Execution Facilities (SEF) and designated contract markets (DCMs). This decision will alleviate the regulatory burden for US and EU companies. As per the European Commission press release,

The European Commission has today determined the United States to be equivalent to the European Market Infrastructure Regulation (EMIR) in terms of the legal, supervisory and enforcement arrangements for non-centrally cleared over-the-counter (OTC) derivatives transactions…It also determines that US rules on obligations on the exchange of collateral (‘margins’) between counterparties are equivalent to EU rules.

Thus, under this approach, both US and EU companies will be able to use any regulated swap trading platform in the US or EU to comply with their trading obligations. These Trading obligations were introduced by the G20 during the aftermath of the financial crisis, assuring transparent venues for trade of certain commonly used derivatives. The European commission lists the mutual benefits of non-EU regulatory framework recognition as:

  • [Allowing] authorities in the EU to rely on supervised entities’ compliance with equivalent rules in a non-EU country

  • [Reducing] or even [eliminating] overlaps in compliance requirements for both EU and foreign market players

  • [Making] certain services, products or activities of non-EU companies acceptable for regulatory purposes in the EU

  • [Allowing] less burdensome prudential regime to apply to EU banks and other financial institutions with exposures in equivalent non-EU countries.

It also determines that US rules on obligations on the exchange of collateral (‘margins’) between counterparties are equivalent to EU rules.

Margin Comparability by the CFTC

In addition to the EU’s equivalence decisions, the CFTC has made margin comparability determinations that will have a significant effect on corss-border swap activity. CFTC commissioners unanimously approved this week that EU entities registered as swap dealers will enjoy the substituted compliance provisions of CFTC margin rules. These margin rules have their boundaries:

  1. They apply only to uncleared swaps and not to bank swap dealers.
  2. They only apply to transactions that are both a swap and an OTC derivative.

The CFTC explains in their press release,

Pursuant to the CFTC’s comparability determination, a swap dealer or major swap participant that is subject to the both the CFTC’s and EU’s margin rules with respect to an uncleared swap may rely on substituted compliance wherever available under the CFTC’s margin rules. Any such swap dealer or major swap participant that complies with the EU’s margin rules would be deemed to be in compliance with the CFTC’s margin rules, but would remain subject to the CFTC’s examination and enforcement authority.

The CFTC’s comparability determination renders moot CFTC Staff Letter No. 17-22, in which the CFTC’s Division of Swap Dealer and Intermediary Oversight provided time-limited no-action relief from compliance with certain provisions of the CFTC’s margin rules for swap dealers that entered into swaps with counterparties that were subject to the EU’s margin rules.

This determination is effective immediately.

Chairman Giancarlo offered a positive outlook on the CFTC press release,

Today marks a significant milestone in cross-border harmonization between the European Commission and the CFTC. These cross-border measures will provide certainty to market participants and also ensure that our global markets are not stifled by fragmentation, inefficiencies, and higher costs. Indeed these measures are critical to maintaining the integrity of our swaps markets.

European Commission Equivalence Determinations

The EC financial regulation laws include provisions that allow it to adopt equivalence decisions through assessment of non-EU rules satisfying the same. The EU will verify that non-EU country rules have legally binding requirements, ensure effective supervision by authorities, and that they achieve the same results as the corresponding EU rules. A formal equivalence decision will then be adopted by the EC once all requirements are met. These equivalence decisions may take the form of an act which may outline whether equivalence is granted in full or partially, for how long, and whether it applies to the entire supervisory framework of a non-EU country or only to some of its authorities. The EU provides a list of equivalence decisions adopted in the area of baking and finance in their website.

These efforts will require close and dedicated efforts by both CFTC staff and EC staff. A joint press release stated such cooperative endeavors, “The CFTC staff and the EC services will work as expeditiously as practicable to ensure that this arrangement is put into place and operating in a coordinated manner, and will continuously monitor the impacts resulting from the implementation to assess whether any further action is appropriate.”

In a press release by the CFTC, Commissioner Brian Quintenz applauds the achievement between the two regulatory bodies, “I commend the staffs of the CFTC and EC for their hard work and dedication.” Chairman Giancarlo also provided statements on their cross-border collaboration, “I look forward to continuing to work with Vice President Dombrovskis and the European Commission staff in a cooperative manner to make further progress in harmonizing our regulatory frameworks.”

The next steps:

  • The CFTC staff will notify the EC of its list of eligible SEFs and DCMs while the EC will notify the CFTC of its list of eligible MiFID II/MiFIR and MAR compliant trading venues.
  • The CFTC staff and the staff of relevant national competent authorities under the coordination of the EC will also work towards concluding cooperation arrangements to ensure the effective exchange of information and coordination of supervisory activities.

Equivalence Agreement Might Be Imminent

Currently, CFTC Chairman J. Christopher Giancarlo is on a 10-day trip in Europe. Derivatives industry attorneys speculate that a European equivalence pact on swap execution rules might come into fruition very soon. If this happens, it would enable swap trading on platforms located in both, the U.S. and Europe. An absence of this agreement would isolate  U.S. and EU swap execution facilities, making trading more expensive as well as hinder the flow of current liquidity. This agreement can happen as early as January 2018.

A trade execution mandate is sought to be administered by the EU. This move might be part of the general EU financial reform that is looking toward restricting particular swap trading on non-European registered trading platforms. Until then, Europeans can use U.S. based swap execution facilities. On the other side, CFTC prohibits U.S. traders from trading swaps on European platforms.

An equivalence agreement seems to likely happen as unlike former CFTC chairmen, Giancarlo’s evident approach to revamp the Dodd-Frank trade-execution rules would put it at par with European regulations. In particular, Giancarlo wants to mandate that trades occur through other than the conventional models, like through an order book. Other models include voice brokering, auctions, and volume match.

Clearing equivalence discourse between the U.S. and EU has been taking as long as five years. It is possible that both sides won’t come to an agreement by January’s deadline. According to CFTC’s Erica Richardson, the 10-day trip is treated as a “relationship-building” period between the two sides. Giancarlo is showing respectable relational gestures. Micah Green, head of Steptoe & Johnson LLP’s cross disciplinary financial services practice in Washington, thinks that the chairman’s approach in domestic policy approach will be similar to the approach he will take with international regulators. Micah Green predicts that the chairman’s approach “will be well received by European regulators.”

CFTC Approves LedgerX to Deal Bitcoin Options

LedgerX Approved to Trade Bitcoin Futures

LedgerX, a trading and clearing platform for Bitcoin, became the first company to be approved by the Commodity Futures Trading Commission (CFTC) to trade Bitcoin futures. This is one of a few of available current events that shows that Bitcoin is on the verge of being overseen by federal agencies that deal with market regulations.

LedgerX was approved by being a derivatives clearing organization (DCO) by CFTC. Previously, they have been given approval as a swap execution facility (SEF). The company is planning to begin Bitcoin options trading services this fall.

It is evident that investors are ambitious to participate in the crypto marketplace that will soon be giving the option to hedge investments to be protected against asset volatility. According to a Morgan Stanley report titled “Blockchain: Unchained?”, the price of Bitcoin will significantly accelerate when the government starts to regulate the markets where Bitcoins are traded.

SEC Hesitant on Bitcoin

Although CFTC, with its cardinal mission to create a fair market, is giving acceptance to crypto market ventures, the Securities Exchange Commission (SEC) is taking an opposing stance. Earlier this year in February, the SEC denied Winklevoss Bitcoin ETF proposal. The SEC’s rationale is that the crypto market is too unregulated. In a 38 page memorandum they stated that “The Commission has … emphasized the importance of surveillance-sharing agreements between the national securities exchange listing and trading the ETP, and significant markets relating to the underlying asset.” The memorandum asserted that ETFs must have rules that prevent market machinations and manipulations. The SEC, with a mission of protecting investors, believes that the lack of regulations in the Bitcoin market creates an environment where it would be tough to effectively enforce rules.

However, some speculate that one federal agency approval can lead to the next federal agency’s approval. It’s a step by step process and regulations will gradually be created and be implemented.

Senate Confirmed Christopher Giancarlo as Chairman of CFTC

Christopher Giancarlo was nominated by the US Commodity Futures Trading Commission (CFTC) as the Chairman of the regulatory agency. Moreover, Brian Quintenz and Rostin Behnam, both of who are Republican nominees, were confirmed as CFTC Commissioners.

However, a third Republican nominee, Dawn Stump, did not receive the same treatment. According to a Senate Democratic aide, the party did not want to confirm three Republican commissioners. There is currently one Democratic commissioner, Sharon Bowen, who is planning to step down.

The US Senate rendered a unanimous vote to confirm Christopher Giancarlo as Chairman of CFTC. This is an unusual sign of bipartisan efforts as for the past months we witnessed a consistency of oppositions along partisan lines.

Christopher Giancarlo was Acting Chairman of CFTC since the beginning of this year. During the confirmation Giancarlo issued the following statement:

“I am humbled by the bipartisan support in the Senate. As I have stated before, during my time as a Commissioner, I have witnessed firsthand the enduring commitment of members of the US Senate to our common purpose of serving the American people and the agricultural producers upon which we all rely. I stand ready to fulfill the CFTC’s mission to foster open, transparent, competitive and financially sound markets, in a way that best fosters broad-based economic growth and American prosperity. I am pleased that the nominations of Russ Benham and Brian Quintenz were also confirmed by the Senate, and I look forward to the swift confirmation of Dawn Stump and getting a full Commission soon. I am also grateful to Commissioner Bowen for her partnership during my tenure as Acting Chairman, and I am proud of the excellent work we’ve accomplished together.”

Please visit CFTC website to find out more about this and the press release.

CFTC Seeking for Federal Resources to Oversee Trading Involved with Blockchain Technology

Washington, D.C. – In a Congressional testimony, the US Commodity Futures Trading Commission (CFTC) intimated an increase of the agency’s budget to oversee trading involved with blockchain technology.

An additional $31 million needed

On June 8, CFTC’s Acting-Chairman, J. Christopher Giancarlo, testified before the Congressional Committee on Appropriations Subcommittee on Agriculture, Rural Development and Related Agencies. The agency suggests an additional $31 million funding is necessary for the CFTC to oversee the functions on blockchain technologies.

This amount will be appropriated accordingly to supervise activities of the blockchain-related market.

FinTech and Blockchain

With the rise of innovation in the financial technology (FinTech) industry, federal financial agencies are in need to revamp their oversight. Earlier this year, President Trump issued an Executive Order that created the American Technology Council. President Trump touted that Government and its agencies should implement efficient information technologies to render more effective oversights and services.

CFTC’s Acting-Chairman Giancarlo testified that a boost in federal funding will aid the agency in implementing FinTech effectually. Giancarlo pointed out that with these new technologies CFTC will become a more effective regulator. Moreover, these technologies will allow the agency to modernize its current regulations.

Later in his testimony, Acting-Chairman Giancarlo mentioned the innovation of “smart” contracts and distributed ledger technology, both of which are in their nascent stages. Their implementations will ostensibly challenge and change conventional methods of our current financial market infrastructure. Hence, Giancarlo finds it important to take an early initiative to prepare CFTC for such modifications.

Other Agencies

There are other federal agencies requesting additional funding to oversee activities in the financial technology industry. The FBI is asking for $21 million and 80 new employees for such purposes. After recent reports of ransomware and other cybercriminal complaints regarding financial-related activities, resources are needed to deter further damage.


Giancarlo’s Testimony:

CFTC Banned David Liew from Trading

Washington, DC – Earlier this June, the U.S. Commodity Futures Trading Commission (CFTC) charged David Liew for illegal practices in the precious metals futures contracts. CFTC banned David Liew from trading, because of preceding events of manipulating the gold and silver markets. As a junior trader, on the precious metals desk, in a large financial institution, Deutche Bank, Liew was engaging in these unlawful acts for at least two years, from 2009 to 2012.

David Liew’s Machinations

Liew mentioned that he conspired to manipulate prices with other unidentified people. One of them Liew referred to as “The Legend.” The scheme involved placing and quickly pulling out small orders, forcing prices to benefit traders who needed to fill client orders. Liew admitted to placing the fraudulent spoof orders with a hope of having the market interest in trading become larger than what it was in reality. Through the spoof orders, Liew’s resting orders were filled. This duplicitous scheme allowed traders to buy metal futures contracts at exaggeratedly low prices and sell them at artificially high prices.

CFTC’s Investigation

CFTC issued an order filing to which David Liew pleaded guilty to connive to fraudulent charges. Liew is agreeing to cooperate as his preceding actions transgressed the Commission Regulations and Commodity Exchange Act (CEA). Moreover, CFTC banned David Liew from trading and obliged him to perpetually never to participate in other similar commodity-interest activities such as seeking registration, or acting as an agent obliged to be registered.

During the Division of Enforcement’s (Division) investigation, Liew was compliant. CFTC recognized Liew’s cooperation in that process, which included rendering of essential assistance to the investigation and cooperating with any other agencies involved in this investigation.

CFTC’s Director of Enforcement, James McDonald, asserted that the enforcement action indicated that the Commission will be more vigilant and be more stringent with “individuals who manipulate and spoof” the markets. He also said, “the Commission will give meaningful cooperation credit to those who acknowledge their own wrongdoing, enter into a Cooperation Agreement and provide substantial assistance to the Division in its investigations and enforcement actions against others who have engaged in illegal conduct.”

CFTC’s Order:

CFTC Extends No-Act SEFs and DCMs from Certain CFTC Regulations for Correction of Errors

Washington, DC — Today, a no-action letter issued by the U.S. Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight and Division of Clearing and Risk (Divisions) will serve as an extension to the relief granted in CFTC Letter No. 16-58 which will be expiring on June 15, 2017. In addition to the no-action letter providing relief from certain CFTC regulations to allow swap execution facilities (SEFs) and designated contract markets (DCMs) to rectify clerical or operational errors that resulted in a swap being rejected for clearing and consequently becoming void, it also permits SEFs and DCMs to amend clerical or operational errors brought to light after a swap has been cleared.

In order to enable SEFs and DCMs to correct clerical or operational errors that result in a swap being rejected for clearing, the Divisions will recommend that the CFTC to not take any enforcement action against a SEF or DCM for a lack of compliance with  the required methods of execution in CFTC Regulations 37.9(a)(2) and 38.500 as well as the prohibition against pre-arranged trading in CFTC Regulations 37.203 and 38.152 provided that within one hour after a trade has been rejected for clearing, the SEF or DCM corrects all errors by allowing a new, pre-arranged trade with terms and conditions that comply with the terms and conditions of the original trade.

The relief also caters to operational and clerical errors that have only been discovered after the swap has been cleared to be corrected.  The Divisions will not recommend that the CFTC engage in any enforcement action against a SEF or DCM for failure to comply with the required methods of execution in CFTC Regulations 37.9(a)(2) and 38.500 and the prohibition against pre-arranged trading in CFTC Regulations 37.203 and 38.152 if, after a trade has been cleared and an error is discovered, the SEF or DCM permits a pre-arranged trade between the original parties that counteracts the swaps carried on the DCO’s books. To read more, please click here.

CFTC Announces Stronger Anti-Retaliation Protections for Whistleblowers and Enhanced Award Claims Review Process

Washington, DC –  A unanimous vote by the U.S. Commodity Futures Trading Commission (CFTC) to amend Whistleblower Rules has resulted in, among other things, stronger anti-retaliation protections for whistleblowers as well as enhanced processes for reviewing whistleblower claims.

A reinterpretation of the CFTC’s anti-retaliation authority under the Commodity Exchange Act (CEA) concludes that the CFTC or the whistleblower may now seek legal remedies against an employer for retaliation against a whistleblower. Steps taken by an employer that deliberately restricts an employee from direct communication with the CFTC pertaining to a possible violation of the CEA by way of a confidentiality, pre-dispute arbitration or similar agreement are strictly prohibited by the amendment.

In a recent press release, Director of the Division of Enforcement, James McDonald said “The Whistleblower Program is an integral part of the Division’s efforts to identify and prosecute unlawful conduct. The Commission’s approval of these rules today will further strengthen and enhance our efforts to protect customers and promote market integrity.”

While Part 165 of CFTC’s Regulations outlines the agency’s basic framework of the Whistleblower Program the basic framework, the new amendments not only strengthen anti-retaliation protections but will also add efficiency and transparency to the process of determining whistleblower award claims. Furthermore, it will also harmonize the CFTC’s rules with those of the  of the agency’s Whistleblower Program. In addition to strengthening anti-retaliation protections, the new amendments will add the U.S. Securities and Exchange Commission’s whistleblower program.

Additional changes as a result of the amendments include replacing the Whistleblower Award Determination Panel with a Claims Review Staff which will consider and issue Preliminary Determination in the granting and denial of claims. As such, whistleblowers will have an opportunity to view and contest the Preliminary Determination prior to  the CFTC issuing a Final Determination.

Other key changes that have occurred due to the amendments are whistleblower eligibility requirements also make changes to other key areas, such as whistleblower eligibility requirements and authorizing the Whistleblower office to handle a handle facially ineligible award claims that do not pertain to a Notice of Covered Action, a final judgment in a Related Action, or a previously filed Form TCR (Tip, Complaint or Referral).

71 New Names Added to the CFTC’s List of Foreign Entities that Illegally Solicit U.S. Residents to Trade Forex and Binary Options

Washington, DC — In keeping with the U.S Commodity Futures Trading Commission’s (CFTC) attempts to safeguard Americans from fraud, 71 new names have been added to the RED list bringing the total number of companies on this list to over 11o.

The “Registration Deficient, ” now known as the red list which as established in September 2015 and supplemented in April 2016 contains the names of unregistered foreign entities that are believed to be soliciting and accepting funds from U.S. residents at a retail level for, among other things, trading in  foreign currency (forex) and binary options. These companies are required to register with the CFTC but are not registered.

The CFTC asserts that registration does not provide guarantee against mismanagement or fraud by an otherwise unethical firm; however, registration does provide the public with an increased level of security and accountability. Registration limits the CFTC to only examine whether firms are in comply with Commodity Exchange Act, for example whether firms meet minimum financial standards as well as disclosure, reporting, and recordkeeping requirements.

Working in conjunction with the CFTC’s SmartCheckSM campaign, the RED list helps investors identify and protect themselves against illegal conduct. To read more, please click here.

The Royal Bank of Scotland to Pay $85 Million Penalty for Attempted Manipulation of U.S. Dollar ISDAFIX Benchmark Swap Rates by the CFTC

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against The Royal Bank of Scotland plc (RBS) for attempted manipulation of the ISDAFIX benchmark which requires RBS to pay an $85 million civil monetary penalty. The CFTC Order revealed that during a five-year period, commencing in January 2007 and expanding through March 2012 (relevant period), RBS, through actions of multiple traders, tried to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX), a global benchmark reference in a variety of interest rate products. RBS participated in the unlawful conduct in order to gain advantage of certain derivatives positions it held that were priced or valued off of the USD ISDAFIX indicator.

Measures to identify and deter trading potentially aimed at manipulating swap rates will be implemented by the RBS in an effort to strengthen its internal controls and  and to maintain the integrity of interest-rate swap benchmarks.

“People around the world rely on benchmark rates such as ISDAFIX. This is our fourth enforcement action relating to attempts to manipulate the ISDAFIX. These actions, and the CFTC’s previous cases against those who sought to corrupt the LIBOR and foreign exchange benchmark rates, make clear that the Commission takes very seriously its role in ensuring the integrity of any and all benchmarks used in our markets,” Director of the CFTC’s Division of Enforcementsaid Aitan Goelman.

Specifically, the Order found that during the said time frame, RBS, through some of its traders in Stamford, Connecticut, bid, offered, and executed transactions in specific interest rate products which included both swap spreads and U.S. Treasuries, at the critical time of 11:00 a.m. fixing time with the intent to affect the reference rates and spreads captured by a leading interest rates swaps broker (Swaps Broker) in the “print” sent to submitting banks, and thereby to affect the published USD ISDAFIX.

To read more, please click here.

Massad Says CFTC Hampered by Budget Constraints

Recently appointed CFTC Chairman Tim Massad announced last week that there were “a lot of things” he would like to do to continue the CFTC’s goal of regulating financial markets, but that he is held back by strict congressional budget constraints. Referring to the CFTC’s role in promulgating regulations under Dodd-Frank, Massad pointed out, “Our budget hasn’t really increased very much, and yet we were given vastly expanded responsibilities in terms of the markets we cover.” Pointing to a shortfall in staff necessary to carry out the CFTC’s mandate, Massad stated that the CFTC was forced to “rely heavily on the [financial] industry to regulate itself.”

The CFTC’s budget woes have been exacerbated by House Republicans, who will not approve funding requests by the agency and by the White House, even while House Democrats claim that their congressional counterparties are trying to scuttle Dodd-Frank. The CFTC’s current budget is $215 and is unlikely to increase in the next fiscal year.

Massad, who had previously overseen the Troubled Asset Relief Program (TARP) assured that he would be able to improve staff morale at the CFTC. Quoting Theodore Roosevelt, Massad said that he tells staff, “We’re going to do what we can with what we have.”

O’Malia Urges Regulators to “Do No Harm”

In a keynote address last week at the Federal Reserve Bank of New York, CFTC Commissioner Scott O’Malia issued a stern warning to financial regulators in the United States and abroad that market fragmentation could have grave consequences on the world financial system. Borrowing a line from the principles that guide medical ethics, O’Malia urged regulators to “Do no harm” in enacting regulations. “Where our rules have proven unworkable” he continued, “it is incumbent upon us to fix them.”

Taking the medical analogy further, O’Malia expressed concern that financial regulations must be harmonized through substituted compliance and mutual recognition of other jurisdictions. “If systemic risk is a cancer of the global financial system,” he warned, “then the whole body must be treated to prevent its spread.” O’Malia, who has announced that that he will be resigning on August 8, pointed to legal, technological, and market abuse protection regimes that must be harmonized among the US and European Union financial systems in order to foster a strong global financial system. O’Malia recognized that such collaboration would require “serious technology investments,” but insisted that uncoordinated regulation of markets would yield an increase in systemic risk.

CFTC Delays Enforcement of Reporting for Cleared Swaps

The CFTC’s Division of Market Oversight this week granted no-action relief from certain requirements applicable to swap dealers and major swap participants regarding the reporting of swap transactions to swap data repositories. The no-action relief, issues June 30, 2014, extends previous no-action relief regarding the reporting of valuation data reporting of cleared swaps.

Under section 2(a)(13)(G) of the Commodity Exchange Act and part 45 of the CFTC’s regulations, reporting counterparties must submit both creation data (primary economic terms of a swap) and continuation data (any changes to the primary economic terms and all valuation data over the life of a swap). In granting the relief requested by the International Swaps and Derivatives Association, the CFTC acknowledged that swap dealers and major swap participants are experiencing difficulties in establishing the connectivity required to report the required valuation data for cleared swaps pursuant to CFTC regulation 45.4(b)(2)(ii). The no-action relief delays the enforcement of this regulation until June 30, 2015, giving covered parties an additional year in which to comply.

Congresswoman Urges Review of Bank Guarantees of Offshore Affiliates

Maxine Waters, ranking member of the House Financial Services Committee, urged the CFTC this week to begin investigating the offshore actions of Wall Street banks in avoiding certain mandates set forth in the Dodd-Frank Act. In a letter to Timothy Massad, the CFTC’s recently-confirmed chairman, Representative Waters criticized the removal by banks of parent guarantees from overseas affiliates, which allows banks to trade in the interdealer market while skirting Dodd-Frank restrictions aimed at increasing price competition and transparency. By cutting off these guarantees, banks are able to trade in the United States through swap execution facilities established under Dodd-Frank, while their non-guaranteed subsidiaries are subject only to local laws of foreign jurisdictions.

Rep. Waters also sent letters to the Federal Reserve, Office of the Comptroller of the Currency, Securities and Exchange Commission, and Federal Deposit Insurance Corporation. In these correspondences, Rep. Waters reiterated that the CFTC should take a more aggressive stance in reviewing changes to the guarantees.

Senate Confirms Three New CFTC Commissioners

The US Senate Monday voted to approve the nomination of three new commissioners to the CFTC, including Timothy Massad, who will replace Gary Gensler as CFTC chairman. Mr. Massad had served from 2011 to October 2013 as the Assistant Secretary for Financial Stability at the Treasury Department and has overseen the Troubled Asset Relief Program created in response to the 2008 US financial crisis.

In addition, the Senate approved the nominations of Sharon Bowen and Christopher Giancarlo to serve as CFTC commissioners. While both Mr. Massad and Mr. Giancarlo were confirmed by voice votes, the Bowen’s confirmation proved more controversial, and she was ultimately confirmed by a 48-46 vote. Criticism of Ms. Bowen came mainly from the of the political spectrum, with Republican senators criticizing her role in overseeing a panel that denied compensation to victims of a $7 billion ponzi scheme.

The three new regulators will join Commissioners Mark Wetjen and Scott O’Malia on to fill out the CFTC’s five-member panel to continue the implementation of Dodd-Frank regulations begun under the oversight of Mr. Gensler.

CFTC Announces First Whistleblower Award

The CFTC announced last week its first award under the whistleblower award program initiated pursuant to the Dodd-Frank Act. Under the program, eligible whistleblowers are entitled to a financial award where original information provided leads to a successful enforcement action and the collection of at least $1 million. Whistleblowers who file successful claims are also entitled to job security and confidentiality.

Though the identity of the awardee remains undisclosed, the CFTC Whistleblower Award Determination Panel deemed the information “sufficiently specific, credible, and timely to cause the Commission to open an investigation.” The unnamed whistleblower received an award of $240,000 for providing the information. Pursuant to CFTC Regulation 165.8, awards granted under the whistleblower program amount to between 10 and 30 percent of the total amount of sanctions collected from the enforcement action.

Prior to finalization of the relevant regulations, the CFTC received over 600 letters arguing that the proposed regulation provided insufficient protection to whistleblowers and instead sought to protect financial entities by limiting the pool of potential whistleblowers. Prior to the issuance of the award last week, the CFTC denied 25 whistleblower claims.

TeraExchange Announces First Bitcoin Derivative

TeraExchange has recently announced that it has created a swap involving the average exchange rate of bitcoin and plans to list it on its Swap Execution Facility.

This bitcoin derivative was created on behalf of two clients as a bilateral swap, and while neither party has acted upon the agreement, they are expected to soon, according to Reuters.

This agreement marks the first time a bitcoin derivative will be traded, and as such, it will be the first time the digital currency will come under regulation from the Commodity Futures Trading Commission.

Bitcoin was created in 2009, with mainstream interest around the digital currency rising sharply over the last year.

A bitcoin derivative should prove to be an interesting swap to watch, as it has become rather notorious for its wild price fluctuations over the past few years. Just this December, Bitcoin’s value shot up to $1,200 and then quickly fell to $450. It is currently priced at around $500 dollars.

CFTC Public Utilities No-Action Letter Is Welcome Relief

The Commodity Futures Trading Commission (CFTC) released a no-action letter recently, offering relief to public utilities that were having trouble finding market participants willing to work with them for hedging purposes.

The public utilities no-action letter should clear up an issue with the definition of the word “swap dealer” that has been negatively affecting public utilities since 2012.

Under normal circumstances, any trader dealing swaps at a total notional volume of less than $8 billion dollars would be exempt from having to register as a swap dealer. However, for “special entities” like public utilities, exemption status was lowered significantly, with only entities trading a total notional volume of less than $25 million dollars qualifying for exemption.

Due to this lower threshold, market participant who traded with public utilities would be much more likely to have to register as swap dealers, which comes with a list of requirements such as margin, capital and business conduct.

Most market participants would rather not have to deal with these extra requirements, and, as a result, public utilities were left with very few trading entities willing to work with them.

The public utilities no-action letter states that market participants engaging in ‘utility operations-related’ trades with special entities will not have to register as swaps dealers, which should greatly improve hedging opportunities for public utilities.

CFTC Struggling to Utilize Current Swap Market Data

After a year of swap data reporting, the Commodity Futures Trading Commission (CFTC) is yet to be able to make any sort of headway on the swap market data it has been collecting, leaving the nearly $700 trillion dollar industry no safer than it was before the 2008 financial crisis.

Among a list of reasons for this given by CFTC Commissioner Scott O’Malia during an event, O’Malia mentioned inconsistent reporting and technological issues as major pain points.

As it stands right now, the CFTC receives its swaps market data from several different swap data repositories (SDRs). Each SDR receives more than 60 million messages per week and have no uniform way of organizing this data, making it impossible for the CFTC to automate their data aggregation.

Without automation, the CFTC has to have two economists working fulltime solely to put together their weekly swaps report.

Outside of swap market data reporting issues, the CFTC’s budget is severely limiting the regulator’s ability to analyze data. The CFTC is notoriously underfunded, and is currently unable to update its technology in order to properly manage all the data it is receiving.

The CFTC will be receiving little sympathy from market professionals however, as many had warned that the CFTC was rushing through its rule implementation, and had mandated the reporting of data before having an idea of what data they would need or the best way to collect it.

CFTC Criticized Over Suspending Outside Research By Internal Regulator

The Commodity Futures Trading Commission’s internal regulator has determined that the CFTC may have been in violation of a federal law that requires the Commission to maintain a research program after suspending outside research from being published.

The claim comes from the CFTC’s reaction to a complaint filed by CME Group back in December 2012. According to CME Group, the Commission was illegally allowing outside researchers access to proprietary market data.

In its claim, CME Group pointed to a paper published by former CFTC chief economist Andrei Kirilenko and two outside researchers in regards to High Frequency Trading. According to CME Group, this and other papers published by the CFTC used non-public information to reach conclusions.

In response to this complaint, the CFTC suspended the publication of outside research and had its inspector general’s office look into whether or not the Commission had in fact broken any laws while allowing outside researchers access to sensitive market data.

Interestingly, while the inspector general’s office found CME Group’s claims to be unsubstantiated, saying that the CFTC broke no laws through its outside research program, it claimed that the CFTC may have very well violated a law by suspending the publication of outside research.

Furthermore, the inspector general went on to criticize the CFTC’s handling of data, saying that the Commission has been taking entirely too long to review academic papers before being published, to the point that it may be violating free speech rights.

The CFTC issued a strongly worded letter along with the report last week, disagreeing with the inspector general’s office’s findings, going as far as to deny that the research program is even shut down. The CFTC said that full time economists still have access to data. The commission also stated that it maintains a research and information program through news releases, staff advisories, and publicly aggregated data.

CFTC Extends Overseas Trade Rules Deadline

The Commodity Futures Trading Commission issued a no-action letter on Friday stating that the Commission will be extending its overseas trading rules deadline, giving overseas traders more time to comply with the CFTC’s rules.

The CFTC and European regulators came to an agreement in February over how both regulators would handle overseas trading rules, where the CFTC agreed to allow US traders to use overseas trading platforms, as long as those platforms were following comparable rules to US platforms.

It was expected that European traders would be prepared for this rule to go into effect by Marc 24th. However, after requests from European trading firms, the CFTC will now be extending the deadline for compliance to May 14th.

On top of extending the deadline to comply with overseas trade rules, the CFTC will also be changing the conditions firms will have to meet in order to be in compliance, which the Commission will be detailing in a statement they will release sometime next week.

The CFTC seems to be backpedaling quite a bit from its previous stance on overseas trade rules. Initially, the Commission was planning to have a rather wide sphere of influence over trades happening between foreign firms and US traders in overseas offices.

However, after seeing significant backlash over this stance, even being sued by US banks and trading organizations for overstepping it’s boundaries, it seems the CFTC is now much more willing to work with overseas regulators.

Regulators to Blame for OTC Market Split, According to O’Malia

While at the Futures Industry Association’s annual meeting last week, CFTC commissioner Scott O’Malia says that any split between foreign and US traders  in the OTC market is unwanted, and if a split has happened, then it should be blamed on regulators.

In a study done by the ISDA, Cross-Border Fragmentation of Global OTC Derivatives: An Empirical Analysis, it was found that the trade volume between Europe and the US in the OTC market dropped 77% in October, after swap execution facility (SEF) trading went into effect. Trade volumes remained low through the end of the year.

During the same time, OTC market trade volume between European traders rose significantly, seeming to point to an obvious correlation between US SEF trading and Europe’s declining interest in trading with the US.

Even with this study however, O’Malia stated that he is yet to see convincing evidence that European traders aren’t doing business with US firms specifically to avoid the clearing and execution rules that the US currently has to comply to. He did admit that there is a lot of uncertainty in the market right now however, and that this needs to be addressed.

O’Malia mentioned that the dip in cross borer trading in the OTC market could be due to European firms waiting for the Markets in Financial Instruments Directive (MFID) to be revised. It’s believed that the revisions to MFID will put European trading firms in compliance with CFTC rules. These firms may be waiting for this rather than changing their current practices to match the CFTC’s.


CFTC Seeks Clarity in Swaps-Data Reporting

The Commodity Futures Trading Commission (CFTC) is looking to over-haul the way in which swaps-data reporting is done in an attempt to better make use of the information it receives.

The CFTC has released a request for comment on around 70 questions regarding swaps-data reporting and how to use the data it collects from companies like Depository Trust & Clearing Corp. and CME Group Inc.

Both the CFTC and the SEC were made responsible for collecting swaps-data after the financial crisis of 2008 in order to bring more transparency to the market and point out risks in the system before they lead to another crisis.

Currently, regulators are finding it very difficult to make sense of the information they are receiving on the almost $700 trillion dollar swaps market in a timely manner, which is raising concerns among market officials.

It seems the swaps-data reporting overhaul has been a long time coming. CFTC Commissioner Scott O’Malia had mentioned issues with reporting last year, saying that the data they were collecting was not helping the regulator detect the issues it’s working to protect against.

Other than what to do with the data it collects, the agency will be looking for advice on just how to go about collecting the data. It’s currently defending itself in a lawsuit with the DTCC over its current methods, with the DTCC saying that the CFTC allowing CME Group Inc. to report data on its own databases is anticompetitive and counterproductive to reducing transparency.

CFTC Investigating Preferential Treatment of High Speed Trading Firms

The Commodity Futures Trading Commission (CFTC) is looking into deals given to high speed trading firms by exchange operators.

The investigation is based on concerns that high speed trading firms are receiving incentives and discounts in the market that other investors don’t normally have access too.

Without these discounts, regulators are worried that less-influential investors are at an unfair disadvantage.

High speed trading firms utilize sophisticated trading platforms capable of making a large number of trades in less than a second. While making up close to half of total stock market volume, high speed firms have come under scrutiny a few times in the recent past, particularly after the role computerized trading played in the “flash crash” in 2010 where the stock market plummeted and made an almost complete recovery in a matter of minutes.

The CFTC will be looking at communication records between futures exchanges and certain traders, as well as checking payment records for discounts.

The commission is hoping to make sure that all deals offered to high speed trading firms were also made available to other traders.

Inscentive programs are common in most trading markets, and many say that they increase orders placed through the exchanges, increasing liquidity. The CFTC however, is worried that high speed trading firms may be able to take advantage, boosting volumes while harming other investors.

European Traders Seek Delay in Overseas Trading Restrictions

The Commodity Futures Trading Commission may be delaying overseas trading restrictions that are set to go into effect next week.

European Traders are claiming that they need more time to comply, ensuring that overseas trading will be able to continue.

In an attempt to ease tension with European regulators, the CFTC will hold off on instituting several rules it has created in regards to overseas trading, allowing Europe to catch up on its own rule making process.

The CFTC and the European Union had been butting heads over derivative regulation for some time. While the CFTC has been moving very quickly and aggressively on derivative trading reform, the EU has taken a much slower approach, causing problems for overseas traders.

Last month however, the two regulators came to an agreement in which the CFTC would allow US traders to trade on European platforms, so long as the platform follows rules that are comparable with US platforms.

However, some trading firms based in London are now saying that they need more time to comply than the March 24th  deadline will allow. Currently, no European firm has filed paperwork saying that they are currently being regulated in a similar fashion to US platforms.

The CFTC says it will only consider a delay after receiving a formal request from European Officials or trading platforms, which, so far, has not happened.

While there is no guarantee that there will be a delay in overseas trading restrictions, European trading firms are hoping to have the deadline moved to July 1st.

Commissioners Unhappy With CFTC No-Action Letters

Several commissioners have spoken out over the CFTC’s no-action letters, claiming that many of them were instituted hastily, leaving little time to review or edit them.

The Commodity Futures Trading Commission has put in place almost 70 rules since the 2010 regulatory reform law was put into place. Of these rules, 36 were related to Dodd-Frank. However, within these 36 rules, over 200 no-action letters or other forms of guidance have had to be issued after the rules were instituted.

Some commissioners have defended the CFTC no-action letters, saying that their use was inevitable, as overhauling the operations of the $600 trillion dollar derivatives market is no small task. As former commissioner Micheal Dunn explained it to, “You can’t make an omelette without breaking some eggs.”

Most commissioners agree that some no-action letters will be necessary. However, it seems for many commissioners, the issue revolves around how the CFTC no-action letters were instituted.

Commissioners have pointed out that while some of the no-action letters are only temporary, quite a few of them are indefinite or permanent. Many of the commissioners only received notice of the letters the night before they were issued, which has them feeling as though their input had not been considered over what is essentially a complete change in policy.

CFTC chairman nominee Timothy Massad recognized the need for a more streamlined and organized rule making process while being questioned at a confirmation hearing by the Senate.

While former CFTC chairman Gary Gensler spent most of his time putting many of the Dodd-Frank rules into place, it seems Massad’s focus will fall on figuring out how to amend and enforce these rules.

Commissioner Chilton to Leave CFTC Next Week

CFTC Commissioner Bart Chilton has announced that he will be leaving the Commodity Futures Trading Commission by the end of next week.

Chilton, who had said he would be leaving the CFTC in November, has stated that he will step down from the Commission by March 22nd.

Though he announced his departure months ago, Chilton had decided to stay on for a little longer than planned, most likely to serve as an extra hand at the commission, which would have been running with only two of the five commissioners it requires had he left.

However, now that the Senate has met with, and seems likely to accept, the three replacement nominees set to join the CFTC, Chilton may feel as though he can step down without causing any issues.

Along with former chairman Gary Gensler, Chilton was among the most vocal supporter within the CFTC for stricter position limits for traders and other largely contested rules formed from the Dodd-Frank Act.

Chilton plans to finish writing his book, “Theft” which will detail the relationship between Wall Street and Washington, telling Bloomberg in an interview “I have a book to write, and I want to get to it.”

Chilton will be succeeded by Sharon Y. Bowen, pending her likely approval from the Senate.

Judge OK’s DTCC CFTC Lawsuit

A US federal judge has ruled that part of a lawsuit filed by Depository Trust & Clearing Corp (DTCC) against the Commodity Futures Trading Commission (CFTC) will be allowed to proceed.

The DTCC CFTC lawsuit was filed by the DTCC over the how the CFTC allowed CME Group Inc and IntercontinentalExchange to gather market data.

The DTCC had actually filed 4 claims against the CFTC in the lawsuit. However, US District Judge Amy Jackson dismissed three of them, citing that the court could not review claims that did not involve a final action by the CFTC. Two of the claims involved actions approved via the CFTC’s “self-certification” process, with a third being about changes made the frequently asks questions section on the CFTC’s website.

The Dodd-Frank Act requires all trade data for over-the-counter derivatives  to be stored in swap data warehouses for easy monitoring. The DTCC is suing the CFTC for allowing CME Group Inc and IntercontinentalExchange to use their own proprietary data warehouses. The DTCC, which operates its own rival data warehouse, has claimed this to be anticompetitive.

With this being the main purpose behind the DTCC CFTC lawsuit, it seems the DTCC is happy to be able to move forward, even without the other aspects of the suit. A member of the DTCC tell Reuters, “We are pleased that the judge has given the green light to the core of our case. We continue to believe that CME Rule 1001 is anticompetitive and undermines the core pro-competitive principles of the Dodd-Frank Act.”

CFTC and FERC Reach Data Sharing Agreement Through MOU

The Commodity Futures Trading Commission and the Federal Energy Regulatory Commission have released a “Memorandum of Understanding” (MOU) detailing their agreement to share market data between one another.

The MOU was put in place in early January, and the CFTC and FERC began more freely transmitting market data to one another just last week.

As it turns out, getting the two regulators to share market data has been a long time coming, with the need for an agreement being first discussed over three years ago.

The MOU will ensure that market data needed by either regulator will be quickly and easily shared between them. Previously, requests for market data had be placed and reviewed on a case-specific basis.

The announcement of a more free flowing form of data sharing between the regulators was announced on March 5th, along with an Interagency Surveillance and Data Analytics Working Group that will coordinate the sharing of data and help focus on, among other things, data security and data sharing infrastructure.

The sharing of data between the CFTC and the FERC marks progress, and should certainly help to create a safer and more transparent market.

CFTC Chairman Nominee Timothy Massad Likely to Be Approved by Senate

It looks as though CFTC chairman nominee Timothy Massad will be approved by the Senate, after dispelling any doubt about his commitment and experience at a hearing in Washington yesterday.

The Senate was initially unsure about President Obama’s choice in replacement for Gary Gensler, based on a lack of experience in many of the areas the CFTC regulates. However, after discussing his relevant experience and vowing to uphold a strong enforcement program, it seems the Senate has found no reason to doubt the CFTC chairman nominee.

Massad, having recently lead the unwinding of the Troubled Asset Relief Program (TARP), feels that this, along with his time as a corporate finance attorney, has given him enough experience with regulation and derivatives to be able to handle the responsibilities of the CFTC position.

Massad will be replacing Gary Gensler as the new CFTC chairman. While Gensler spent his time as chairman putting a large portion of the rules instituted by the Dodd-Frank Act into play, it seems Massad’s time will be spent enforcing these rules.

Massad was one of several CFTC nominees to speak on their experience in front of the Senate yesterday, being joined by Sharon Bowen and J. Christopher Giancarlo, who also seem likely to be approved.

Should all three be approved, the CFTC will have a full staff in terms of commissioners once again, as the commission is currently operating with only three of the five it requires.

Senate Questions New CFTC Nominees

The three CFTC nominees waiting for approval to join the Commodity Futures Trading Commission are now facing some questions at a Washington approval hearing from the Senate over how much they will be willing to enforce the rules put in place by the Dodd-Frank Act.

Among the nominees is President Obama’s choice for CFTC chairman, Timothy Massad. Drawing skepticism from the senate, some are worried that Massad doesn’t have much of a record or policy in regards to what the CFTC regulates.

Outside of Massad, CFTC nominees Sharon Y. Bowen and J. Christopher Giancarlo, who are slated to take on roles as commissioners, will also be answering some questions for the Senate.

Among the concerns, it seems those involved in the matter are eager to hear about the CFTC nominees’ views on speculation in commodity markets and the reach of Dodd-Frank rules overseas.

Upon, approval, these CFTC nominees will significantly change the make-up of the Commission’s current leadership. The CFTC is already only operating with three of the five commissioners it’s supposed to, and with commissioner Chilton on his way out, they will actually be making up the majority of the Commission’s leadership.

Swaps Market Reform Has Little Effect on Trading Patterns

It’s been two weeks since the swaps market reform has forced banks and traders onto SEFs, and so far little has changed.

After making large scale changes to the swaps market in an attempt to increase transparency and competition within the market, it seems banks and other traders are still  mostly trading amongst themselves.

It was hoped that this swaps market reform would help promote trading between these two groups. But, even without this, the market will at least be more transparent.

Before swaps were regulated, it was very difficult to see just how interconnected banks were, as most trades were handled over the phone. It’s thought that this helped exacerbate the 2008 financial crisis. With trades having to be done over SEFs, they can now be recorded and monitored.

On another note, it seems that the push to SEFs hasn’t had much of an effect on liquidity either. While the market did see a 30-40% drop in total trade volume during the first week, it is already back to average levels, according to Bloomberg.

The CFTC granted a three month delay to package swaps, which some think may be part of the reason  for the rather anticlimactic results.

Currently, SEF members aren’t commenting on the matter, feeling as though two weeks is too soon to begin making assessments of the market.

Obama Pushing for CFTC Budget Increase

President Obama has stated that he will be pushing for a CFTC budget increase to $280 million dollars this year.

While this will be a sizable increase to the CFTC budget, up 30 percent from the current $215 million, this new budget increase falls short from last year’s request of $315 million.

Though this is $35 million short of what the CFTC was looking for, it seems that anything at all will be welcome relief to the heavily underfunded Commission.

The CFTC’s budget and staff has seen very little increase over the past few years, even though it is now in charge of policing the $600 trillion dollar derivatives market after the 2008 financial crisis. Members of the Commission have stated on several occasions that they are in dire need of a budget increase, as they don’t currently have enough staff or the right technology to properly monitor the market.

The lack of funding is causing some unrest within the Commission, as many of its higher ranking members have left, citing low pay as one of the main reasons.

Yet the agency and Obama have struggled to get any sort of increase to the budget passed, as congress has blocked increases in an attempt to rein in budget deficits as well as to curb commission overreach.

With a shrunken request, and the Commission’s newfound leniency under acting chairman Mark Wetjen, it seems possible that a CFTC budget increase may just be a possibility.

CFTC EC SEF Agreement May Not Help Liquidity Issues

Earlier this month, the Commodity Futures Trading Commission announced that it would allow US persons to trade on European multilateral trading facilities without the MTFs having to register as swap execution facilities (SEFs) in an attempt to ease concerns over liquidity within the market.

However, platform operators seem to think that this new CFTC EC SEF agreement may not do much at all to keep liquidity between Europe and US markets.

It seems that, while traders from either country may now trade on either platform, the use of two separate platforms at all creates a bifurcation within the market, leading to a lack of liquidity between the two countries.

In order for US traders to be able to trade on MTFs, they must operate under certain standards that would be comparable to the US. Many platforms however, may not be willing to subject non-US traders to US regulations and may not bother qualifying, leaving US traders unable to use their platforms.

On top of this, some market participants are saying that the trading being done on MTF’s are currently not offering the types of swaps that would force a US trader to use them in the first place, meaning the CFTC EC SEF agreement will have no effect on the market.

European Benchmark Legislation May Harm Banks’ Derivatives Positions

While the European benchmark legislation was designed to add clarity to the marketplace after the LIBOR scandal, it may wind up causing European banks to drop derivatives positions.

Under the European Parliament Economic and Monetary Affairs Committee’s revised European benchmark legislation, EU based institutions will be forbidden from holding any products linked to unauthorized benchmarks.

Banks are finding this to be problematic, as it seems a majority of non-EU benchmarks will not meet the required standards to be considered authorized, which, as the rules currently stand, could include over the counter (OTC) derivatives.

In the original proposal for European benchmark legislation, the European Commission would have prevented EU financial institutions from using any benchmarks outside of Europe, unless they were produced by institutions with rules comparable to that of the EC. However, many are hoping to have this changed so that benchmarks from institutions who have agreed to the practices laid out by the International Organization of Securities Commission can also be accepted—though even that would rule out most non-EU benchmarks.

It seems unlikely that the European Commission will be giving much leeway to banks in this area, and while European officials are hoping to have the final rule ready by May, it will not be taking effect until later in 2014 or early 2015.

US CCPs Feeling Confident over EC Approval

US central counter parties (CCPs) seem to be gaining confidence that the European Commission (EC) will overlook differences in their clearing house rules, preventing US CCPs from losing European clients.

The rules set out by the European Market Infrastructure Regulation (Emir) vary from those followed by US CCPs. While EMIR requires  a minimum holding period for futures margining in Europe to be two days, its only one in the US, for example.

Because of this and a list of other differences, US CCPs have been concerned over whether or not they would be prevented, or at least delayed, from being approved by the EMIR as qualified CCPs in Europe.

However, it seems these fears are being put to rest as things begin to move forward. Perhaps one of the biggest factors in this is the Commodity Futures Trading Position’s new attitude toward working with European regulators after the departure of previous chairman Gensler.  The CFTC has recently agreed to allow US entities to trade on European platforms, provided they meet certain standards.

Because of this, many are now assuming that the EC will be much more inclined to allow US CCPs that have adopted similar internal practices to Europe’s to qualify.

US Swap Activity Slows as Mandatory SEF Trading Begins

US swaps trading practically came to a halt on the first day of mandatory SEF trading.

This Tuesday (February 18th) marked the first day that trades had to be executed through SEFs in the US. And it seems that traders aren’t quite ready to jump on board.

A total of 143 swaps were executed on Tuesday for a notional value of $14.6 billion. This trade count is about 81% down from the most recent pre-mandatory SEF trading day (February 14th). On Friday, 764 swaps were traded for a notional value of $65.8 billion.

It seems that many traders are holding back, waiting for others to test the waters and waiting to see if there are any issues before getting back into the swing of things. And while dealers have admitted to being a bit disappointed by the initial turn out, the results weren’t unexpected, perhaps having learned from the poor turn out after US clearing deadlines just last year.

Surprisingly, while interest rate swaps dropped off due to their inclusion in mandatory SEF trading regulation, swap futures did not see a similar spike in trading, even though they do not fall under the regulation.

It seems very likely that normal trading volumes will resume once traders acclimate to the new rules.

Diminished Transaction Tax Plan Closer to Reality

The transaction tax plan, though scaled back from its original conception, is inching ever closer to a reality.

After a meeting this morning, it seems the transaction tax plan, which failed to gain widespread acceptance at first, has received backing from 11 euro zone countries– though this acceptance could perhaps be seen as begrudging in some cases.

The plan will require some major tweaking before implementation. Originally proposed as a more wide spread levy, the transaction tax plan will most likely only cover share trades initially, with other trades following.

While those involved with proposing the transaction tax had originally hoped to see a .1 percent tax on the value of a share or bond trade, the tax will most likely be closer to .01 percent.

The transaction tax was proposed as a means to get banks to repay some of the money loaned to them during the financial crisis, and while this new tax will not generate anywhere near the 35 billion Euros ($48.13 billion USD) per year the original plan had called for, those pushing for the tax are saying that it is still better than nothing, according to Reuters.

There are still quite a few talks to be had over the subject, and it seems unlikely to see any such transaction tax implemented until 2016.

Democrats Support New Change to Volcker Rule

The Volcker rule may be getting tweaked once again.

The banking industry has been pushing to have a group of debt investments omitted from the Volcker rule, saying that they differ from the types of investments that the Volcker rule was designed to regulate. And it seems likely that they may be getting their way as House officials recently signed a letter looking for guidance from financial regulators on how to go about doing so.

Maxine Waters (D., Calif.) and Carolyn Maloney (D., N.Y.), senior members of the House Financial Services Committee are among the 17 House Democrats who signed the letter, asking regulators to clarify that collateralized loan obligations (CLOs) aren’t necessarily equity investments.

As the Volcker rule is currently written, CLOs can fall under its regulation if it has any of the characteristics of an equity investment. The letter requests that regulators look to exempt CLOs from regulation in some of those cases, though it also points out that there may be instances where regulating CLOs could be required.

Should the Volcker rule not be changed, banks will have to divest their CLOs before the it goes into effect in 2015, according to the Wall Street Journal.

However, with the CFTC under new, seemingly much more lenient management, it’s unlikely that this will be an issue.

CFTC and EU Work Out Cross-Border Trading Agreement

The Commodity Futures Trading Commission (CFTC) and the European Union (EU) have been butting heads over how to jointly regulate international swap trades for some time now. But after meeting yesterday, it seems the two regulators have finally worked out a cross-border trading agreement.

The CFTC and the EU have agreed to allow US firms to trade over European platforms, rather than forcing them to be traded through US swap execution facilities, or SEFs. The cross-border trading agreement will keep liquidity within the market, as well as ease tensions between the US and Europe over the CFTC’s foreign trading policy.

The agreement is not without restrictions however. In order for trades to be executed outside of US facilities, the country handling the trade must have standards in place that can be considered comparable to the CFTC’s. While this may seem simple enough, the requirement has so far only been met by the UK, according to the commission.

It also may be some time before other European countries are considered up to par by the Commission, as the EU isn’t planning to have its trading rules in place until 2016.

This new cross-border trading agreement is quite the turnaround for the CFTC— which was actually sued for its overbearing foreign trading policies toward the end of last year. This is no doubt due in part to former chairman Gary Gensler stepping down, and it will be interesting to see how the market fares with a more lenient CFTC.

CFTC Sets its Sights on High Frequency Trading

The Commodity Futures Trading Commission (CFTC) is beginning to look into regulating high frequency trading over the coming months.

High frequency traders rely on computer software to make trades in only fractions of a second. However, there have been instances where glitches have hurt the market, and the CFTC has decided that many of its regulations are in need of an update.

Having issued a report on high frequency trading last fall, the CFTC is now looking to get feedback on the many suggestions it has put forth for better regulating the industry.

In the report, the CFTC mentions things like power outages and computer errors as the main cause for concern. Even just last year, thousands of Nasdaq OMX group’s stocks were frozen for three hours due to technological issues.

Among the more notable errors in high frequency trading is the 2010 “flash crash” where an algorithm led to the futures and securities market to drop 5% and then almost entirely recover within just a few minutes.

While the list of suggestions is sizable, the CFTC seems particularly interested in implementing “kill switches” that could halt malfunctioning programs as a last resort scenario.

The deadline for comments on the matter is February 14th. The CFTC is currently reviewing responses and will be making recommendations on the next steps afterwards.

CFTC Issues 3 Month No-Action Letter for Package Swaps

The Commodity Futures Trading Commission (CFTC) has issued a no action letter in regards to package swap deals, giving both the CFTC and traders another 3 months to decide on how to properly monitor package swaps on SEFs.

Without the no-action letter, any traders participating in package swap trading would have to report any package swap that includes swaps subject to the made-available-to-trade (MAT) ruling to SEFs by February 15th.

A package swap is a trade that involves the simultaneous execution of several trades, and would currently be difficult handle through SEFs.

Initially, the CFTC had mandated that any package swap that included swaps subject to the MAT ruling would still have to be traded through a SEF in order to close a loophole that would allow traders to keep certain swaps off SEFs by packaging them with other swaps not subject to the MAT ruling. However, after finding that SEFs are currently ill-equipped to handle package swaps, the CFTC has decided to hold off on this, much to the relief of market traders.

Many traders had feared the required reporting of package swaps would drive down liquidity, an issue for many market participants who do the bulk of their trading through package swaps.

The no-action letter will keep package swaps off of SEFs until May 15th.

EU Anticipates Issues with New European Derivatives Rules

The EU is set to implement new European derivatives rules this Wednesday in an attempt to begin bringing more transparency to the $700 trillion dollar market that has been blamed for being a major factor in the 2008 financial crisis.

While the EU has been working towards creating these new European derivative rules since the crisis, it seems likely that it will still be quite some time before any real results are seen.

Financial institutions in the EU will be required to report all derivative transactions to new trade repositories come Wednesday. However, many companies and financial institutions will not be ready to comply by this time, according to Reuters. An FCA spokesperson told Reuters that while responses to non-compliance will be proportionate, companies need to be aware that enforcement action is very much a possibility.

The 14 “big banks,” which account for about 65% of total derivatives market transactions are already set to comply. Companies who use the market to hedge risks (accounting for between 5-10% of total market transactions) make up the majority of trading entities behind in compliance to the new European derivative rules.

Outside of compliance, experts in the field also point to a fragmentation between the 22 repositories available to trade on as an issue for the EU.

Until the EU designs an aggregation system for all of the data that will begin to be reported on Wednesday, it will remain very difficult to get a clear picture of the entire derivatives market.

Blythe Masters Joins CFTC Advisory Committee

JP Morgan’s commodities chief, Blythe Masters, is now a member of a CFTC advisory committee, according to an announcement made yesterday by the Commodity Futures Trading Commission.

Masters has been working in the swaps industry for well over a decade, and helped JP Morgan begin using credit default swaps to hedge bank risks.

She will be taking part in a discussion the CFTC advisory committee will be having next week over the Commission’s cross-border regulation policy.

The policy, which has been bemoaned by both foreign and domestic banks, says that trades made by foreign banks still fall under CFTC rules if U.S.-located personnel arrange, execute or negotiate the transactions.

The CFTC was sued by several banks recently for this policy, and it seems the Commission is now seeking to amend its guidelines.

Masters is joining the CFTC advisory committee just as JP Morgan is selling of its physical commodities business. The reason for the bank’s decision to sell off its multi-billion dollar operation seems to be the amount of headaches many of the new rules have created for banks in recent times.

The CFTCs apparent change of heart over cross-border regulation has come quickly after former chairman Gary Gensler stepped down, and it seems likely that banks will see a softer side of the CFTC over the next few months, and possibly years because of this.

US an EU Close to Deal on Cross-Border Derivatives Rules

The US and European Union have been working on an agreement over cross-border derivatives rules for a while now, and are finally closing in on a deal, according to Bloomberg.

The agreement will relieve EU trading platforms from being affected by US derivative trading rules, at least for the time being.

The deal is being handled by the Commodity Futures Trading Commission (CFTC) and European Union officials, and while it seems they’ve come to an agreement over cross border-trading rules, nothing will be finalized until February 15th.

The US’s policy on cross-border trading had been a point on contention for many large banks, some of which have recently sued the CFTC over its ability to police trades that are made from banks outside of the country.

The CFTC claimed that any trades made by an outside bank that was essentially at all linked to a US trader would have to do so according to the CFTC’s rules. This policy however, was causing foreign banks to stop trading with the US and creating fragmentation within the market, according to banks involved with the issue.

This turnaround for the CFTC seems to mark the beginning of a different type of Commission, quite possibly caused by Gary Gensler stepping down as CFTC chairman. Gensler was known for policing the derivative market very strictly, and it seems likely that the CFTC will loosen up a bit with him gone.

Credit Derivatives Overhaul to be Postponed

The implementation of a new set of rules affecting the $21 trillion dollar credit derivative market will be delayed until September, according to the International Swaps and Derivatives Association (ISDA).

The rules will be addressing flaws in the credit derivatives market that were exposed during the financial crisis of 2008. Among the changes, the list of what triggers payouts will be expanded to include bail ins- where investors are forced to contribute to bank rescues- on top of bankruptcy, payment defaults, and restructuring.

The reasoning behind the delay in new credit derivatives rules is to give companies more time to prepare. ISDA spokesperson Nick Sawyer told Bloomberg, “We decided to allow people time to make the necessary adjustments to operations and infrastructure.”

The delay has caused the cost of insuring losses on certain types of debt sold by banks to rise.

Concerns by investors over credit derivatives were sparked by a payout triggered by a Dutch bank that covered a mere 4.5 percent of some losses.

The rules should be completed sometime in March, before the European Central Bank assumes the role of regulator in November, following a review of the region’s lenders.

EU Warns Businesses to Brace Themselves for Swap Reform

The deadline for European countries to begin reporting swaps trading is quickly approaching, even though many businesses may not be ready for large scale swap reform.

Beginning on February 12th, derivative transactions made by businesses in the EU will have to be reported to data banks known as trade repositories. This will be one of the EU’s first steps toward swap reform geared toward preventing a financial crisis similar to 2008 from occurring again.

The rules the EU are putting in place are similar to the sap reform rules set by the CFTC in the US. However, rather than take a staggered approach to implementation, the EU will be putting its rules in place all at once. The method could be a bit overwhelming for some businesses.

Perhaps the biggest issue with the EU’s plans is their decision to require reporting from both sides of the transaction, rather than just the sell side, which could be problematic for non-financial companies who may not have all of the correct systems in place.

Many businesses have warned that they may not have all of the systems in place in time for the February 12th deadline, but it seems unlikely the EU will be moving the date back.

Leaders are hopeful however, that the regulator will take a similar approach to the UK’s system according to Bloomberg, in which they are not planning to implement heavy penalties immediately following the deadline.

EU and CFTC to Work Together on Cross-Border Regulation

The EU and the CFTC have announced that they will be working together in their implementation of cross-border regulation, after talks in Washington.

The regulators have been piecing together new laws in the hopes of preventing a similar financial crisis to the one in 2008, which had significant negative effects on both country’s economies.

The EU and the CFTC have agreed to “minimize the divergence on margin requirements” for over the counter derivatives, according to a report by Bloomberg. They have also promised to work together and create consistent standards for cross-border regulation.

This is actually the second time the EU and CFTC have discussed cohesion on cross border regulation. Back in July of 2013, the two regulators had agreed to work together on these issues. However, the CFTC was very quick to act on derivative regulation while ex-chairman Gary Gensler was in charge, implementing many of the initiatives of the Dodd-Frank act before the EU had even finished discussions on how they would go about regulating the industry.

Included in the CFTC’s initiatives were rules for cross-border regulation that had been criticized for affecting many of Europe’s banks, which lead to tension between the two regulators.

Now that Gensler has left the CFTC, it seems likely the Commission may slow down on its rule making, giving the EU a chance to catch up.

The two regulators will be meeting again in July.

French Banking Lobbyists Criticize European Union’s Proprietary Trading Rules

The European Union’s plan to quell big banks’ proprietary trading has been met with criticism from French banking lobbyists who say it will give an advantage to US banks, which would not be affected by the new rules.

Interestingly, the rules the European Union has agreed upon are already less severe than their initial plans to actually break up large banks, which were deemed “to big to fail” after the fall of the Lehman Brothers sparked the financial crisis of 2008.

While French banking lobbyists criticize the European Union’s plans, saying they will take away French banks’ freedom to trade, EU commissioner Mike Brainer has pointed out that the new rules will not actually restrict the banks from trading, but merely make them move the trading to a separated subsidiary. The goal behind this is to separate risky trading from the safer banking actives like deposit taking.

Meanwhile, as French banking lobbyists criticize the European Union for being too strict, other countries like Germany and England have found the rule to be adequate, according to a Reuters report on the matter. And, furthermore, other countries have found the EU’s plans to be too lenient on the banks.

The rule will wind up being similar to the US Volcker Rule, though the banning of proprietary trading will only wind up affecting the top 30 European banks.

Regardless, the European Union will have plenty of time to debate the issue, as rules aren’t likely to go into effect until 2017.

CFTC Certifies TrueEX and Tradeweb MAT Submissions

The Commodity Futures Trading Commission has announced that both TrueEX and Tradeweb MAT Submissions, or made available to trade submissions, have been certified by the CFTC’s Division of Market Oversight.

The certification means that certain swaps handled by both TrueEx and Tradeweb will now fall under the trade execution mandate, and will now have to be traded over swap execution facilities (SEFs).

This makes three trading platforms that have been certified by the CFTC this month, with Javelin Capital Markets LLC being certified a few weeks ago.

MAT Submissions that fall under the CFTC’s trade execution requirement will now have to be traded through swap execution facilities (SEFs). Though not immediately, traders will have 30 thirty days to comply after certification. Having each been certified at different times, each trading platform’s certified swaps will fall under the trade execution at different times: February 15 for Javelin, February 21 for TrueEx, and February 26 for Tradweb.

For a more detailed list of which swaps fall under the trade execution mandate within each platform, see the CFTC’s website here for Javelin, here for TrueEX, and here for Tradeweb.

The CFTC is utilizing SEFs as an intermediary between traders in an effort to bring more transparency to the market; however, some feel as though the CFTC allowing trade platforms to decide which items are suitable for trading on SEFs is diminishing the Commission’s authority and oversight within the market.

Reuters to Set Swaps Rates during ICAP Investigation

According to Bloomberg, Thomson Reuters Corp. will be setting benchmarks for US swap trading rates during the ICAP investigation. Being performed by the International Swaps & Derivatives Association (ISDA), the regulator will be looking into whether or not the banks had manipulated the way ICAP set its benchmark rates.

Before the ISDA can move forward with the ICAP investigation, they must phase it out of its current roles within the$ 463 trillion dollar swaps market, which will begin this week.

Reasoning behind the ICAP investigation stems from evidence found that points toward the organization having rigged data used to determine the US swap rate to change prices at the expense of pensions and other institutional investors.

ISDA spokesman Steven Kennedy told Bloomberg that phasing ICAP out of its swap rate setting responsibilities is the first step toward utilizing best practices in the setting of benchmark rates. He went on the mention that the next step would be moving the whole process onto an automated system, which he says should begin sometime in the second quarter of this year.

Swap rate automation should help tame the manipulation of swaps, an important issue, as several scandals undermined the reliability of financial benchmarks just last year.

CFTC Looks to Address Swap Report Data Issues Affecting Swap Transparency

According to the Wall Street Journal, the Commodity Futures Trading Commission is beginning to make changes to fix swap report data issues that have made it difficult to facilitate market transparency.

The CFTC will be putting together a group to review its swap report data collection process, as well as ensure that banks and other financial institutions are reporting and keeping records that are on par with the rules the Commission has put in place.

This probe into swap report data issues has been sparked by an error in reporting from the CFTC that caused the commission to miscalculate the overall size the of derivatives market.

Commissioner O’Malia has mentioned that reporting issues are widespread throughout the CFTC, and that they are hindering the Commission’s ability to oversee the market.

It may be some time before these swap report data issues are actually fixed however, as the CFTC is currently extremely underfunded. As of right now, there are only two employees in charge of rounding up all of the swaps report data, and it takes them twelve days to have the data ready to publish. This is four times longer than other reports the CFTC publishes.

Among the problems being considered in the probe, the CFTC will look into whether or not the agency needs new rules, technology, or personnel with more data analysis expertise.

Acting chairman Mark Wetjen has instructed staff to have formal recommendations prepared by June.

UK Challenge to Short-Selling Law Dismissed by EU Court

According to Reuters, the UK’s attempt to challenge a short-selling law that bans the ability to short-sell shares during market emergencies has been denied by a European Union Court.

Attempting to limit the reach of financial rules designed to regulate the industry, the UK had challenged a part of the short-selling law that grants the European Securities and Markets Authority (ESMA) power to ban betting on falling share prices when the ESMA deems it a threat to either markets or financial system stability.

In order for the UK to challenge the short-selling law, those involved stated that the law overstepped the ESMA’s boundaries based on an EU treaty provision. However, because the ESMA can only enforce this law if national leaders haven’t taken action to deal with disorderly markets, the court ruled against this claim.

Short-selling involves the selling of borrowed shares with the hopes of buying them back at a lower price later.

Britain will also be challenging rules that involve bonus caps for bankers, a financial transaction tax, and the forcing of clearing houses to be moved to the euro zone by the European Central Bank in the near future.

Senate Planning to Elect Timothy Massad as CFTC Chairman

According to the Wall Street Journal, the Senate seems likely to vote the current nominee for chairman of the Commodity Futures Trading Commission, Timothy Massad, into the position sometime next month.

Former CFTC chairman Gary Gensler stepped down earlier this month; Timothy Massad has been nominated to take over for the current interim Commissioner, Mark Wetjen.

While this clears up a bit of the uncertainty around the CFTC, there are still many concerns regarding the state of the CFTC with Gensler gone.

Gensler had a reputation for being extremely hard on banks in terms of regulation, possibly to a flaw, as his rulemaking became the subject of several lawsuits during his time. While democratic lawmakers are hoping to see Timothy Massad keep a close watch on banks, republican lawmakers are hoping to see a softer side of the CFTC.

Tomothy Massad himself has noted that he will have to be diligent in making sure the CFTC isn’t taken advantage of during this transition period. The Senate will also be voting in two other nominees as commissioners; the CFTC is currently operating with only 3 of the 5 commissioners that are supposed to run it.

Interestingly, with Bart Chilton leaving the CFTC soon, this will mark the first time the CFTC, originally created to monitor commodity trading and hedging within the agricultural industry, will be without a chairman or commissioner with a background in agriculture.

IVSC and Global Regulators Begin to Create Valuation Standards for Bank Assets

According to Reuters, global regulators, including the International Valuation Standards Council (IVSC), have begun to plan the first worldwide standard for valuing some of the more difficult-to-price assets held by banks.

The first task of the IVSC, it seems, will be developing a benchmark by which to base this valuation. There is currently little to no guidance on how to price an asset contained within a company’s account, particularly when there is no market for the asset.

The independent, not-for-profit IVSC will be playing a large role in valuating these assets.

According to the IVSC, the main difficulty behind pricing will be derivatives, which should not be much of a surprise, given their reputation for being more risky than most assets.

The IVSC, which is headed by David Tweedie, consists of 74 member bodies from 54 countries, but does not actually have any enforcement powers, which leaves the question of who will be ensuring that any new rules created are followed up for debate.

At any rate, based on the large scope with which the standards will encompass, and with many top accountants in the industry currently warning of moving too fast, it seems unlikely that any actual effect from these standards will be seen for quite some time.

EU Official Calls for Strong Financial Transaction Tax

According to Reuters, the EU’s chief tax official is calling on countries within the Union to implement a strong financial transaction tax, rather than watering it down with various exemptions. The official suggests implementing the rules on a more gradual scale instead.

The EU official, Algirdas Semeta, feels that a deal for regulating financial transaction taxes could be ready to go within the first half of this year, even with countries looking for exemptions for things like interbank securities repurchase deals and pension fund transactions.

Derivatives and securitised debt, which played major roles in the financial crisis of 2008 are also being considered for exemption from the financial transaction tax, with policymakers claiming that including them could harm funding for companies, hurting the economy.

The deal is currently being worked on by 11 countries within the EU, which will serve as a means to have banks repay the money that they borrowed during the crisis.

Semeta fears that if members agree upon a financial transaction tax that is filled with too many exemptions, the transactions may begin to shift abroad.

CFTC Announces Trade Execution Mandate on Certain Interest Rate Swaps

According to, the Commodity Futures Trading Commission’s Department of Market Oversight has announced that trading platform Javelin SEF, LLC’s self-certification of available-to-trade  determinations (MAT determinations) on several types of interest rate swaps, has been deemed certified.

In accordance with CFTC regulation,  swaps that are subject to MAT determinations, whether listed by Javelin or any other platform, will be subject to the trade execution mandate under a sections of the Commodity Exchange Act about one month after certification (February 15).

For information on which swaps fall under the trade execution mandate, see

Many market participants have inquired with the CFTC about trade execution requirements for “package” transactions involving one or more swaps that are subject to the trade execution mandate. The Commission’s current statement is that package deals may not relieve traders from performing package transactions involving one or more swaps subject to the trade execution mandate from performing the transaction on a SEF.

Acting CFTC Chairman Mark Wetjen will be holding a public roundtable discussion dealing with operational issues on creating proper transaction entry and execution technology for package transactions, and will be using public comments to consider under what conditions to allow limited relief to package transactions.

EU Agrees on Market Rule Overhaul

According to Bloomberg, the European Union has successfully come to an agreement on a market rule overhaul that will tighten measures to regulate the derivatives market, slowing down high frequency trading and curbing speculation in commodity derivatives.

The market rule overhaul will push more activity onto regulated platforms in hopes of eliminating some of the risk involved with derivatives trading, which have been cited as playing a major role in the financial crisis of 2008.

The deal has been a long time coming; the market rule overhaul is the product of two years of negotiating by the EU financial services chief Michel Barnier.

The deal they have agreed on is considered to be the centerpiece of new regulation the 28-nation bloc has agreed to implement.

Among the issues the market rule overhaul will cover, certain derivatives in the electricity and gas markets will be moved to trading platforms, though some will also be granted exemptions due to being covered by other EU regulation.

While the deal has been agreed upon, it must still go through a formal approval process. The rules set forth in the deal will not go into effect for at least two and a half years after it is formally approved.

Federal Agencies Allow Interim Collateralized Debt Obligations With Interim Rule

According to, five federal agencies have approved an interim rule that will allow banks to keep certain securities, namely collateralized debt obligations, which are backed by trust preferred securities (TruPS CDOs). The temporary rule has been put in effect to lighten the impact of the Volcker rule, which put strict limits on banks’ proprietary trading abilities in an attempt to lower the risk associated with these trades after being linked to exacerbating the financial crisis of 2008.

This new rule will allow banks to retain collateralized debt obligations, as they are considered to be of minimal risk. The agencies involved in passing the vote were the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Commodity Futures Trading Commission, and the Securities and Exchange Commission.

The qualifications that need to be met in order to retain these collateralized debt obligations are described by as:

  • the TruPS CDO was established, and the interest was issued, before May 19, 2010;
  • the banking entity reasonably believes that the offering proceeds received by the TruPS CDO were invested primarily in Qualifying TruPS Collateral; and
  • the banking entity’s interest in the TruPS CDO was acquired on or before December 10, 2013, the date the agencies issued final rules implementing section 619 of the Dodd-Frank Act. also defines collateral for TRuPS CDOs as “any trust preferred security or subordinated debt instrument that was:

  • issued prior to May 19, 2010, by a depository institution holding company that as of the end of any reporting period within 12 months immediately preceding the issuance of such trust preferred security or subordinated debt instrument had total consolidated assets of less than $15 billion; or
  • issued prior to May 19, 2010, by a mutual holding company.”

The agencies will be accepting comments on the rule for thirty days, following its being added to the federal register.

Federal Reserve to Discuss New Physical Commodity Rules

According to Reuters, the Federal Reserve is setting up to take public comments on new physical commodity rules that will limit banks’ ability to trade certain commodities this week.

This marks the Federal Reserve’s first steps in what will most likely be a long road ahead for reforming physical commodity rules. The driving force behind this reform comes from public and political complaints over the risk involved with having banks trade physical commodities like crude oil and aluminum.

During a Senate hearing last July, people involved in the industry spoke out about the banks’ ownership of the storage facilities that are required for physical commodities, and how this allowed them to inflate prices. Hundreds of millions were paid out in fines by big banks for manipulating energy markets in 2013 alone, producing a strong argument for reforming physical commodity rules.

Those taking part in the hearing as witnesses will include Norman Bay of the Federal Energy Regulatory Commission (FERC), market oversight chief Vince McGonagle of the Commodity Futures Trading Commission (CFTC), and Michael Gibson, the Federal Reserve’s director of banking supervision and regulation.

The Federal Reserve has not disclosed how it plans to reform physical commodity rules, but members of the industry will have 60 to 90 days to submit letters to be used in the forming of these new rules after the hearing.

CFTC May Push Interest-Rate and Credit Swaps onto SEFs

According to Bloomberg, the Commodity Futures Trading Commission (CFTC) is set to push interest-rate and credit swaps onto SEFs in the near future.

While the CFTC is currently reviewing the plans, they haven’t found any reason to object to them as of yet. And with the first of these new requirements being instituted on January 16th, it seems unlikely that they will find one.

Addinginterest-rate and credit swaps to the list of trades that must be monitored is another step toward market transparency for the CFTC, which has been attempting to take the risk out of swaps trading ever since it played a major role in the 2008 financial crisis.

Which swaps need to be traded over SEFs has been a debate within the industry since the mandate was put in place back in October. Packaged swap deals are currently still under debate, as the Securities Industry and Financial Markets Association and International Swaps and Derivatives Association asked for them to remain off SEFs back in November. And with people saying that the industry doesn’t currently have the infrastructure to monitor them properly, they may remain off the platforms for some time.

CFTC Commissioner Scott O’Malia has called for an agency advisory committee on January 21st to oversee the decisions made on interest-rate and credit swaps and to get industry feedback.

EU Proposal Drafted, Offers leniency for Banks

According to Reuters, Banks in the European Union are going to see limits on proprietary trading, based on a draft of an EU proposal.

The EU is drafting a proposal in an attempt to curb the risky trading done by banks that has been considered to be a major factor in the 2008 financial crisis. However, it seems their attempt to tame the $59 trillion dollar market isn’t enough for some, with experts considering it to be lacking in authority, and merely designed to be passed without contest.

Among other issues with the EU proposal, lobbyists have said it gives banks in certain countries a lot of room for interpretation, and may allow some to avoid separating risky investment banking from the deposit taking functions of large banks.

While the proposal will apply to all the bloc’s banks, only thirty top lenders will see limits imposed on their proprietary trading.  And proprietary trading is defined very tightly in the EU proposal, which will allow banks to trade on behalf of customers, “make markets,” and quote prices in securities.

Reasoning for the EU proposal’s leniency seem to stem, at least in part, from financial services chief Michel Barnier’s term being up at the end of October, and his not wanting to “make any waves,” as stated by to a financial industry official quoted by Reuters.

Singapore Exchange Granted Clearing Certification by CFTC

According to the Financial Times, US regulators will now allow the Singapore Exchange to clear over-the-counter derivatives trades for American customers. This makes the Singapore Exchange the first Asian exchange to be granted this certification.

After the 2008 finical crises, the US passed the Dodd-Frank Act in order to help police the derivatives market, which is often cited as a major cause of the crisis. One of the requirements of the Dodd-Frank Act is that derivative trades be processed through clearing houses like the Singapore Exchange, guarding the market against any negative impacts that could occur should one of the parties of a trade default.

With this approval, the Singapore Exchange can now offer US traders local clearing services for products like iron ore swaps, interest rate swaps and non-deliverable foreign exchange forwards.

Approval for the Singapore Exchange came just as the Commodity Futures Trading Commission and the Monetary Authority of Singapore agreed to work together in supervising financial institutions that will involve both US and Singapore derivative markets.

Singapore is expected to mandate all trading be cleared through clearing houses sometime after the middle of 2014, bringing it up to pace with US and European regulations.

The Singapore Exchange is still waiting on similar approval from European regulators.

EU Reaches Agreement on New Financial Regulations

According to Reuters, after months of discussions and arguments, the EU has finally begun to come together over how it plans to regulate the swaps industry.

After agreeing to work with the US over working out global standards to police the $600 trillion dollar derivatives industry, which is thought to have played a major role in the financial crisis of 2008, the EU has fallen behind the US’s Commodity Futures Trading Commission in creating and implementing new rules for the system.  An understandable issue, while the CFTC is a US only entity, the EU has to convince whole separate countries to agree before implementing rules.

Though this marks another step taken towards financial stability, it seems there is still a long way to go, and it may take some time before even the next step is made.

The EU has only about three more months to discuss policy before the European Parliament begins to campaign for May elections. And, after which, the EU will have to wait until October for a new European commission to continue.

This should make for an interesting few months as the EU scrambles to get laws in place that synch up to the CFTC’s, which is refusing to acknowledge any rules from foreign regulators that the Commission does not find up to par with its own.

CFTC Considers Taking its Derivatives Trading Rules Overseas

According to the Wall Street Journal, the Commodity Futures Trading Commission may be looking to force the derivatives trading rules the Commission has implemented in the US onto foreign markets.

The CFTC had agreed to delay the deadline for foreign markets to comply to US trading rules while the European Commission and other foreign regulators came up with their own derivatives trading rules in hopes that they could all work together in policing the $693 trillion dollar market. However, having decided that foreign regulators haven’t been strict enough, the CFTC is now considering ignoring foreign rules, and enforcing US regulations onto all overseas entities linked to US derivative trading.

The CFTC’s continued march forward in its implementation of derivatives trading rules despite lagging foreign counterparts has drawn criticism from many who feel that doing so is an affront to the G-20 agreement to coordinate international rule-making through the Financial Stability Board.

Experts in the field also claim that forcing overseas entities to adhere to CFTC rules will cause unnecessary double reporting, which would be both time consuming and costly.

It’s interesting to see the CFTC still pursuing such strict overseas rules, as the Commission was sued just last month by US financial groups over the same matter.

The CFTC will be holding a meeting later this week to finalize their recommendations before the new derivatives trading rules go into effect.

Wetjen to be Temporary CFTC Chairman

As the year comes to an end, so will the term for current Commodity Futures Trading Commission chairman Gary Gensler, according to Bloomberg, commissioner Mark P. Wetjen will be temporarily taking his place.

Though Obama has nominated Timothy Massad to take the position, the Senate is yet to hold a hearing to vote on the matter. In the meantime, the commissioners will vote fellow commissioner Wetjen into the position on an interim basis, as they wait on the Senate.

Wetjen, a democrat, was a former advisor to Senate Majority Leader Hary Reid.

Wetjen may find himself sitting as chairman for a while, as the Senate seems to be dragging their feet a bit when it comes to voting in new members to the CFTC; they have yet to vote on the replacement for Jill E. Sommers, who stepped down from her position back in July.  With Sommmers gone, Gensler leaving, and commissioner Bart Chilton having one foot out the door, the CFTC may find itself being run by merely two of the five commissioners it’s supposed to have.

Chilton, who was a favorite to take over as chairman before announcing his own departure recently, will actually stick around longer than he had previously stated in order to help the Commission as it adjusts to these new changes.

Segmented Derivative Regulation to Create “Chaos” in the Market

According to Reuters, a lack of congruency between US and EU over how to police the $640 trillion dollar derivative market is causing frustration within Asian Pacific markets, and could lead to serious and expensive consequences.

While reaching an agreed upon solution for derivative regulation is on everyone’s to do list, one of the major difficulties seems to be with how quickly the US decided to begin implementing their laws compared to the EU. News spread of a Transatlantic Trade and Investment Partnership being discussed between the CFTC and the EU back in July. But the CFTC has since quickly jumped ahead of the EU in implementing laws that are now disrupting foreign regulators and traders alike.

The CFTC has actually recently come under fire for its seemingly haphazard rulemaking, recently being sued by several banking organizations because of it.

Regardless of the outcome, banks are worried that if derivative regulation is not agreed upon soon, markets may begin to split, and any added costs caused by this division may be pushed onto end users.

Industry leaders are also warning that a lack of congruency in derivative regulation is causing uncertainty within Asian Pacific markets and that this may cause countries like China and Indonesia to begin to go their own way.

Volcker Rule Approved by Regulators

According to the Wall Street Journal, the Federal Deposit Insurance Corp., Federal Reserve Board, Securities and Exchange Commission, and Commodity Futures Trading Commission have all voted to approve the infamous Volcker Rule.

While the vote for Volcker Rule approval was unanimous for the FDIC and the Federal Reserve, the CFTC approved it by 3-1, while the SEC approved it by a slightly narrower 3-2.

The Volcker Rule, which was proposed as a part of the Dodd-Frank Act, will implement strict rules on the banks’ ability to buy and sell securities on behalf of clients and limit compensation arraignments thought to increase risky trades.

The long contested Volcker Rule will not affect most “community banks,” smaller banks with less than $10 billion in assets. And while many considered the rule to be too harsh, it seems many of the larger banks are already in compliance with the rule, with some banks having stopped proprietary trading as far back as two years ago.

It seems investors have been largely unfazed by the passing of the Volcker Rule as well, with banks’ stocks fairing well in the market—even those considered to be heavily affected by the rule.

Any bank that is not yet fully in compliance with the Volcker Rule will have until July 2015 to comply, though they will be expected to begin making visible “good faith” efforts to comply before then.

Commissioner O’Malia on the CFTC: More Technology, Less Insanity

According to, the Commodity Futures Trading Commission’s Scott O’Malia is hoping to see some changes to the CFTC over the next year.

O’Malia has been rather vocal in his disagreement with many of the CFTC’s moves recently, feeling that the Commission was acting overly aggressive in its rulemaking process, going as far as to call its recent attempts at cross-border trading regulation “regulatory insanity.”

Commissioner O’Malia’s sentiment may see some affirmation soon, as the several Wall Street organizations filed a lawsuit against the organization over these very rules just this Wednesday, claiming that the Commission had over stepped its boundaries, and that it did not give affected parties enough time to comment on the proposed rules before implementation.

O’Malia is hoping that the CFTC will be able to work more effectively with overseas regulators, who have also criticized the Commission’s rule making process. O’Malia would like to see the CFTC begin to slow down a bit and focus on writing up regulation more efficiently, citing the 130 exemptions and no-action letters it has had to issue over the 67 rules the Commission has implemented as cause for concern.

Outside of its rule making procedures, O’Malia has also expressed desire for the CFTC to ramp up its technology department. The commissioner feels that the CFTC is extremely outdated, and has stated that it would take the organization weeks to produce even rather basic statistics on SEF trading. As the alpha watchdog of an over 600 trillion dollar market that is constantly updating its own technology, it’s easy to understand O’Malia’s concern with the notoriously underfunded commission’s ability to keep up.

With CFTC chairman Gary Gensler, and Commissioner Bart Chilton– both of whom are considered extremely aggressive in terms of Wall Street reform– stepping down soon, it seems possible that O’Malia may very well see some of the changes he is hoping for come to fruition, though whether or not the CFTC receives the funding it needs is still anyone’s guess.


Big Banks Look to Reverse New CFTC Rules

According to the New York Post, several of the US’s largest banks plan to sue the Commodity Futures Trading Commission (CFTC) over some of the new rules it has been implementing.

The banks are looking to get many of the new rules reversed through the law suit, citing that the CFTC violated rulemaking procedures while implementing them. They claim that the CFTC rushed many of the laws, passing them before the banks were given proper time to review and comment on them.

The banks are concerned that the passing of these laws — requiring all overseas trades that are even slightly involved with US markets to be cleared by both foreign and US regulators– will adversely affect liquidity in the market, as well as raise costs and create redundancy within regulation.

Many feel that the CFTC has not weighed the actual benefits to the industry these new rules would create against their cost, going as far to say that CFTC chairman Gary Gensler forced these rules through merely to get one more shot in on the banks before he steps down.

The lawsuit is expected to be filed very soon, as many of these rules are due to go into effect before next year.

SEF Rules Are Trouble for Asian Derivatives Markets

According to Reuters, many Asian and U.S. banks are looking for ways around new rules implemented by the Commodity Futures Trading Commission and other regulators. Some fear their maneuvers may lead to liquidity shortages within the market.

While regulators are trying to round up all derivatives trading onto new Swap Execution Facilities (SEFs), a mere 10 to 20 percent of Asia’s turnover in currency and interest rate derivatives are currently going through SEFs, while the vast majority are being settled either in the wider market or bilaterally. Breaking up liquidity in this manner is making it difficult for investors looking to hedge portfolio risk.

In response to the CFTC mandating all trading over $8 billion (per year) with American counterparties must be done over SEFs, Asian derivatives market traders are severely limiting their trading with U.S. participants in order to stay under the $8 billion dollar threshold.

US banks are doing their best to find loopholes in the SEF rule, trying not to be left out of the expanding Asian derivatives market. Some are offering to use their London subsidiaries to keep Asian derivatives market traders from having to pay higher brokerage fees.

Regulators are concerned that the SEF rules may lead to a “Balkanization” of the market, and warn that these rules and the costs they create may cause more trading to be done outside of SEFs, creating less transparency within the market and undermining the purpose of their institution altogether.

CFTC Charges Principal Trading Organization for “Banging the Close” and “Spoofing”

According to, the Commodity Futures Trading Commission has filed a civil enforcement action against principal trading organization for both ”banging the close” and “spoofing” the IDEX USD Three-Month Interest Rate Swap Futures Contract.

In order to manipulate the value of the three month contract, the CFTC claims that the principal trading organization “banged the close” during the fifteen minute settlement period of the contract.

The CFTC defines “banging the close” as: a manipulative or disruptive trading practice whereby a trader buys or sells a large number of futures contracts during the closing period of a futures contract (that is, the period during which the futures settlement price is determined) in order to benefit an even larger position in an option, swap, or other derivative that is cash settled based on the futures settlement price on that day.

The organization repeatedly placed bids during the settlement period, placing 60 percent of overall bids on the three month contract and actually placing all of the bids on 13 days between January and August of 2011.

The CFTC has determined that the organization had also “spoofed” those bids, defining “spoofing” as: bidding or offering with the intent to cancel the bid or offer before execution.

According to the CFTC, “none of [the principal trading organization] electronic bids were accepted or “hit” to consummate an actual transaction.”

Treasury Bond Rule will be Costly for Clearinghouses

According to Businessweek, the Commodity Futures Trading Commission will be voting today on a new rule that will result in Treasury collateral being subject to a “prearranged and highly reliable funding arrangement.” Should the rule be passed, clearinghouses will be forced to back Treasury bonds with credit lines.

The rule, according to experts, could cause liquidity facility costs to double. The steep rise in operating price may lead to clearing members either passing those costs on to end customers or leaving the business outright.

It seems that, while Treasury bonds are considered to be an extremely safe investment, liquidating them could take up to a day, which many think would be too long should an event similar to the financial crisis of 2008 arise.

CFTC chairman Gary Gensler acknowledged that there will be some costs that clearinghouses will have to deal with, but he does not feel as though the market will be significantly affected.

Many clearing houses are upset with this, saying that having to back Treasury bonds with credit lines would be simply too expensive. CME Group, operator of the largest futures market in the world recently increases its credit line by 3 billion, up to $10 billion dollars. Yet even with that, CME would still be short of the $14 billion it would need to cover the exposure from its largest clearing member.

CFTC Chairman Nominee Timothy Massad Met With Skepticism by Senate

According to Bloomberg, President Obama’s nominee for the next chairman to the Commodity Futures Trading Commission is being met with skepticism by some members of the Senate.

Pending approval from the Senate, Timothy Massad, a Treasury Official, will be taking over for current CFTC chairman Gary Gensler. Many in the Senate feel that Massad has some very big shoes to fill, and some are unsure if he will be able to do it, doubting his experience and ability to oversee the $600 trillion dollar market.

Massad, 57, has been around for some time now, and certainly does seem to have relevant experience. Massad worked at Cravath, Swaine & Moore LLP, where he successfully served as the senior associate in the effort to standardize swaps documents. It’s been said the he was quite skilled in taking a large number of varying opinions and managing to reach a consensus between all of them.

Massad also worked on the controversial Troubled Asset Relief Program to bail out Wall Street after the financial crisis of 2008. While Massad is aware that TARP was a very unfavorable solution, he does mention that it was in fact quick and effective. As of today, banks have paid back about 406.5 billion of the 421.5 billion loaned to them through the TARP program.

SEF registration rule to slow multi-dealer trading.

According to Traders Magazine, SEF registration rules may hinder movement towards multi-dealer platforms by forex traders.

The SEF registration rule, instituted by the US’s Commodity Futures Trading Commission requires all multi-dealer platforms to register as swap execution facilities. This may slow the growth of multi-dealer platforms, and, as found in a report by industry consultancy Greenwich Associates, may even cause multi-dealer platforms to consolidate.

As found in the Greenwich associates’ report, trading on multi-dealer platforms has risen six percent over the last five years, going from 38 percent in 2007 to 44 percent. Alternatively, single-dealer trading dipped seven percent in the same five years, going from 49 to 42 percent.

It seems safe to assume that the SEF registration rules will disrupt these trends, as traders will be more inclined to conduct business via single-trade platforms in order to circumvent the process altogether.

Greenwich Associates does state that this new trend may not be permanent, however. After the dust begins to settle over the SEF registration rule, the consultancy feels as though traders will begin to utilize multi-dealer platforms once again, though the volume may be spread over fewer players with many single company multi-dealer platforms consolidating together in order to mitigate the hassles that come with SEF registration.

White House Announces Nominee for CFTC Chairman

According to the Financial Times, the White House plans to nominate Timothy Massad for chairman of the Commodity Futures Trading Commission (CFTC).  Massad, a US treasury official, will be taking the place of current CFTC chairman Gary Gensler, who will be stepping down towards the end of the year.

How Massad plans to run the CFTC is still very much unknown, but the replacement of Gensler will most likely come as a relief to many banks and trading firms. CFTC chairman Gensler has acquired a reputation for being an extremely tough regulator.

Gensler was made CFTC chairman after the Commission was given a huge boost in responsibility in order to help prevent another financial crisis similar to 2008. President Obama will personally thank Gensler for bringing authority to the CFTC, and for his diligent work in implementing many of the regulations required by the Dodd-Frank Act.

Massad became a US treasury official in 2009 and was confirmed by the Senate to become assistant secretary at the Office of Financial Stability, which should make becoming CFTC chairman a fairly smooth transition. Massad may be best known for running the troubled asset relief programme, or “Tarp.” Since its induction, the$700 billion dollar program has seen banks repay nearly every dollar lent to them during the financial crisis, and has even made close to $30 billion in profit for US taxpayers.

Should Massad be appointed CFTC chairman, he will certainly have his work cut out for him, as the Commission is currently notoriously underfunded. Obama will be speaking with congress today about underfunded agencies in an attempt to raise the CFTC’s budget.

EU’s Antitrust Probe Delayed Due to Banks’ Request for Business Secrets

According to Bloomberg, the EU’s antitrust probe will see delays now that the banks involved with the case have successfully fought for the ability to see the confidential information the Commission has gathered on the banks.

The information is vital to fighting the antitrust complaint that was filed by the EU back in July. This actually marks the second time sensitive data issues have delayed the EU’s antitrust probe after the Commission’s lawyers failed to redact private information in a document given to the banks involved in the case.

The EU’s antitrust probe was initiated after the banks allegedly told both the International Swaps and Derivatives Association and Markit to keep exchanges Deutsche Boerse AG (DB1) and the Chicago Mercantile Exchange from obtaining licenses for data and index benchmarks, which would keep them from entering the market.

The EU says banks would miss out on profits from the over-the-counter market they currently get through acting as intermediaries if the exchange entered the market.

It’s estimated that this new requirement will set the EU’s antitrust probe back about four months. While the EU says it may be possible for the full trial to be completed before Competition Commissioner Joaquin Almunia finishes out his term at the end of next October, it seems unlikely.

US Options Exchange Leaders Close to Reaching Erroneous Trade Rule Agreement

According to The Wall Street Journal, US Options Exchange leaders have stated that they are close to instituting universal rules for erroneous trades.

While they mentioned that there are still a few discrepancies between the 12 U.S. options exchanges, exchange leaders stated at the Futures Industry Association’s Futures & Options Expo that they were confident in coming to an agreement as early as next week.

The erroneous trade agreement is coming together rather smoothly, as it was only back in September when the Securities Exchange Commission’s Mary Jo White expressed the need to build confidence within the markets and ensure participants that they can operate under many different scenarios.

SEC Commissioner White’s concern springs from a string of erroneous trades by Goldman Sachs back in August. The firm accidently issued a large number of stock-options to be traded at well below the appropriate market value. The differing rules left many traders unsure of what would happen to the trade and resulted in various solutions.

The new rule will alter the operations of the options market to be more like the stock market, where “obvious” trading errors are already handled under a single blanket set of rules.

CFTC Chairman refuses to budge on Cross Border SEF Regulation

According to IFR, CFTC Chairman Gary Gensler reiterated his stance on cross border SEF regulation during a keynote address at the Futures Industry Association’s 2013 Expo in Chicago.

There has been an outpouring of international debate over cross border SEF regulation since the implementation of SEFs in October. While the Dodd-Frank Act was put in place as a means to only regulate US markets, it seems trading isn’t quite so black and white, and many foreign markets who trade with the US are now being forced to either register with SEFs or risk being penalized by the CFTC.

Despite pleas from foreign markets and regulators alike, Gensler refuses to back down. During the address he stated that if a swap dealer, US or non-US, negotiates or executes a swap anywhere in the US, then it falls under Dodd-Frank.

Gensler’s stance on cross border SEF regulation is causing plenty of trouble for the market, as many non-US trading platforms have had to drop US traders due to the rule. Others have been able to use an interpretation of a footnote in the rule (footnote 513) to grant themselves exemption from the rule, at least for now.

Cross border SEF regulation is also making talks for free-trade agreement between the US and EU very difficult. The EU wants to include market regulation in their agreement, but the US is already far ahead of them in terms of implementation.

Banks and Regulators Call on ISDA to Alter Derivatives Market Operations

According to Reuters, U.S. Federal Deposit Insurance Corporation Chairman Martin Gruenberg and Bank of England Governor Mark Carney are calling on the International Swaps and Derivatives Association (ISDA) to change some of the rules behind derivative trading. This is in hopes of creating a safer market place. Specifically, the two are looking to add what they are calling a “short delay” in closing contracts for failing banks.

The call for change to the ISDA comes in the wake of the collapse of Lehman Brothers and the ensuing 2008 financial crisis. The delay will allow regulators and failing banks to sell off contracts in a more orderly fashion, reducing volatility in the market.

It was originally thought that the timely closing of contracts was best, as it maintained clarity within the market. However, regulators now feel that giving banks time to sell off their contracts may help to turn some of their debt into capital in emergencies, maximizing potential for survival and minimizing disruption to the market.

While Gruenberg and Carney are calling for the ISDA to change the rule fairly quickly, it seems unlikely that market participants will be willing to give up rights to rapid closing of contracts without a legal precedent. Given the current minimal state of necessary legal language within the proposal, and with the courts’ history on passing laws like this, seeing any sort of progress may still be a ways off.

MSRB’s plans for Data dissemination has Dealer Groups nervous

According to The Bond Buyer, several dealer groups have spoken to the Municipal Securities Rulemaking Board (MSRB) over data dissemination, warning that disclosing certain information to retail dealers may actually hurt the secondary market.

These warnings have sprung from the MSRB reaching out to dealer groups like the Securities Industry and Financial Market Association and the Bond Dealers of America for feedback on their concept for pre and post- trade pricing data dissemination. The MSRB wanted to know what types of data would be useful for retail investors, and were particularly curious over “conditional trade agreements,” where dealers seek to allocate orders before signing an actual bond purchase agreement. These agreements are often priced differently than what is reflected in the market when the official bonds are signed.

While the dealers are adamant about saying they are for making the market more transparent, they fear that some information may lead to compromising broker strategies, high operating costs, and the bewilderment of retail investors with too much information.

The BDA is concerned that giving out too much information may cause market participants to ease up on trading and decrease liquidity.

While the MSRB is still considering the best way to go about pricing data dissemination, it may be some time before they institute anything, as they are prioritizing rules based off the SEC’s municipal advisor registration rule.

Federal Reserve Liquidity Rules Put the Squeeze on Big Banks

According to Business Week, the Federal Reserve liquidity coverage ratio proposal was approved earlier today. The rule, which affects banks with over a quarter of a trillion dollars in assets the most, will take the approved international rules a few steps further.

Putting a quantitative liquidity requirement in place, the Federal Reserve liquidity rule will mandate that banks must set aside close to two trillion dollars in highly liquid assets by 2017, a full two years earlier than international requirements. As of now, the Federal Reserve says banks are about $200 billion short.

The plan is for these assets to be a sort of insurance against another financial crisis, requiring banks to be able to withstand another extended (30 day) credit squeeze without the aid of the federal government, who last time required hundreds of billions of dollars in assistance.

In order to meet these requirements, the Federal Reserve liquidity rule allows banks to include as much cash, Treasuries, and central-bank reserves. Banks will also be allowed to have up to 40 percent of the required assets to be slightly less liquid. Smaller banks, those ranging from 50 to 250 billion dollars in assets, will only have set aside assets for a slightly easier 21 days.

The Federal Reserve liquidity rule will be open for public comment for about three months, after which it must be approved by the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency.

Banks contest new leverage limit rule.

According to, many of the United States’ largest banks aren’t happy with a recently proposed rule to increase the minimum capital a bank needs to hold against potential losses.

Banks are saying the new minimum– 5 percent for holding banks and 6 percent for their actual banking components– are arbitrary and harmful, claiming that the rule will worsen an already uneven playing field.

The increase from Basel III’s proposed 3 percent is considered a measure to further protect against vulnerabilities that were brought to light in the 2008 financial crises. Agencies are also considering raising the minimum amount of assets considered to have high liquidity for similar reasons. The nonprofit, Americans for Financial Reform, feels that taking these measures will be a big step towards financial stability.

Several banks have pointed out that these excessive leverage ratios will cause them to have to hold significantly more capital for their less risky assets, like cash, as well. In hopes of alleviating some of the sting, banking groups like the Securities Industry and Financial Markets Association and the American Bankers Association have requested that low risk assets like cash and treasuries be exempt from payment calculations.

Confusion over CFTC’s “US Person” Definition Causes Headaches Overseas

According to the Financial Times, foreign fund managers may begin to minimize their business with the US. Due to the CFTC’s new definition of what constitutes a “US person,” fund managers in Europe and Asia who have a principal base of business within the US will now have to conform to the CFTC’s new regulations.

Fund managers who fall under this new definition will now be required to raise their margin requirements and increase reporting and transparency. While Europe wasn’t expecting to meet these requirements under their own laws until mid-2014, foreign fund managers who now fall under the CFTC’s watch will be paying compliance costs much sooner than that.

Experts are saying that the CFTC’s new rules will affect fund performance, as the higher cost of doing business will detract from returns. Many also worry that new disclosure rules will lead to confidentiality issues offshore.

Outside of costs, these new rules are also causing quite a bit of confusion for institutions trying to determine whether or not the rules even apply to them. While US capital makes up 69 percent of European and 75 percent of Asian hedge funds, much of this money is invested by brokers or advisers on behalf of an investor.

With the CFTC leaving fund managers scratching their heads, it seems likely that more issues will continue to rise as the SEC comes up with its own definition of what constitutes a “US person.”

CFTC struggles to get back to work as the government shutdown comes to an end

According to Politico, though the Commodity Futures and Trading Commission (CFTC) is open again, it may still have trouble getting its employees back to work.

The CFTC is notoriously underfunded. The agency is in fact only slightly larger than it was 20 years ago, before taking on the swaps market and increasing their responsibility by tenfold—not including the massive growth in futures trading on top of that. And it seems many of its employees are tired of the squeeze.

A number of the agency’s employees decided that enough was enough during the government shutdown, which resulted in over 600 workers in the CFTC to be furloughed, and are now looking for work elsewhere. Ironically, many of these employees are only now officially leaving the agency, as the employees in charge of processing the paperwork were furloughed.

In hopes of raising CFTC staff morale, Chairman Gary Gensler will be holding a town hall meeting with the entire agency to try and bring employees together and address any of their concerns.

Outside of human resources, the CFTC has a lot on their plate as well. With the government shutdown happening jut as the CFTC’s mandated SEFs went live, they have a long list of questions to address. And Gensler is still hoping to push out the new “Volcker Rule” trading restrictions by the end of the year.

Having  never dealt with recovering from a government shutdown before, Gensler was unable to give a definitive time frame for when the CFTC should be back in full swing.

SEC Chair discusses refining company disclosure reports

SEC Chair Mary Jo White spoke about the SEC and its disclosure policies at a leadership conference in National Harbor, Md. The Securities and Exchange Commission posted the transcript on their website

During her speech White talked about the need for disclosure, stating that without it, investors would be unable to make informed decisions, and could unwittingly be putting themselves at risk. Among the information companies must disclose to the SEC, White mentions the inclusion of the company’s current, future, and occasionally past business model; recent past and present profit history, as well as future profit estimations; details about large shareholders, loan history and future loans; and a detailed descriptions of company officers and directors, how much they are paid, and why.

While White feels all of the provided information she mentioned is or has been useful to investors, she wonders if there isn’t a more efficient way to provide this information, fearing that the often lengthy reports can be difficult for investors to work through.

Citing examples of the many times these reports have been revised over the years, adding and removing required information, White feels that they should be looking into further revising the disclosure reports. According to White, it may be time to consider what is no longer needed in the reports, and to see how much information can be found online and elsewhere. White would also like to see less repetition within reports, and feels that time limits for reports should be tightened.

In conclusion, White says that there may not be one proper disclosure report for everyone, and that the concerns she had spoken should be considered as the disclosure process is further refined.

Debt Ceiling to Impact Global Economy, Regardless Of Default

As the U.S. government shutdown continues with little progress being made towards reaching any sort of consensus between Democrats and Republicans, the U.S. is coming closer and closer to defaulting on its loans. And, according to the Huffington Post, experts are saying that even the threat of a default may cause panic in the market place.

The government shutdown, which started over the House’s inability to come to an agreement on the Affordable Care Act, has since changed trajectory and is now a fight over how the government will pay down its debt, and under what terms will the debt ceiling be raised.

The market is already seeing effects with the price of insuring a one-year treasury bond rising to a staggering .38 percent of the bond.

Many government officials have stated that the U.S. can avoid default for longer than the originally projected Oct. 17th date by “prioritizing” its bills, as in forgoing social security payments to pay interest on bonds. However, experts warn that this would do little to help the economy, saying that at best, U.S. interest rates will rise, causing layoffs and higher prices for American consumers. Some warn that missing the deadline could be as– if not more– disastrous than the bankruptcy of Lehman Brothers, which triggered widespread panic in the global market, bank failures, and a deep recession.

The SEC CEO Payment-Ratio Rule comes under heavy scrutiny

According to, the Securities Exchange Commission (SEC) implemented an interesting new rule in September that requires public companies to disclose the ratio of their CEO pay to median worker compensation. And many seem less than pleased about it.

With this new rule, all public companies will have to disclose to the SEC the median total compensation of all employees aside from the CEO, the compensation of the CEO, and the ratio between the two.

The new rule is mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law in 2010 as a means to create more transparency in the financial services industry in response to the 2008 financial crises.

The rule has been put in place to give investors information on income disparity between CEOs and their employees. This disparity has been said to be increasing within the U.S. and it is believed by many that it links to employee morale and productivity, which directly influences a company’s profitability.

However, not everyone agrees with the SEC. Many business organizations say that this information would in fact provide very little information on a company’s profitability and would merely reflect the size and composition of a company’s workforce. Many are also adding that the benefits of this rule would be heavily outweighed by the effort it would take to calculate median employee compensation.

It seems that these complaints will fall onto deaf ears at the SEC, and, because the rule is mandated by the Dodd Frank Act, a court battle will most likely support the rule. Companies should expect to begin to have to disclose this information sometime in 2016.

CFTC’s Scott O’Malia discusses automated trading rules.

According to The Trade, CFTC’s Scott O’Malia mentioned in a conference held by the Investment Company Institute on Thursday that the Commodity Futures Trading Commission will need to implement the use of more data, as well as focus on high frequency traders (HTFs) as it begins to formulate new automated trading rules.

O’Malia feels the use of data will allow the CFTC to understand problems that can occur within the market, citing the Flash Crash of 2010, where the market was found to be vulnerable to automated trading errors after the event.

The Flash Crash refers to a strange occurrence on May 6, 2010, in which the Dow Jones dropped 600 points in a mere five minutes, only to then recover almost completely within twenty minutes. Both the CFTC and SEC blame, at least partially, high frequency trading firms for the crash, who at one point traded over 27,000 contracts within fourteen seconds.

In order to draft new rules for automated trading, O’Malia feels it’s important to focus on three things: surveying and choosing the most effective market controls, considering which exchange rules to adopt based on best practices, and deciding whether or not a registration process for automated trading firms would be sufficient for new rules.

O’Malia also mentioned that in order to properly manage automated trading, the CFTC will need to upgrade its technology significantly. This was a critique of the CFTC’s reporting of the Flash Crash, as it took five months for the CFTC to be able to properly monitor and evaluate all the data from an event that took less than a half an hour.

CFTC Commissioner O’Malia pleased with SEF performance, but sees room for improvement

According to the Wall Street Journal, Commodity Futures Trading Commission’s Scott O’Malia seems content with how the swap execution facilities have been operating since they were instituted.

As a means to make the derivative market more transparent due to its role in the financial crisis of 2008, the CFTC had mandated that all trading must be done through what they called swap execution facilities, or SEFs. October 2nd was the deadline for all trades to transition over to these new facilities.

Since opening, the SEFs have been involved in around $462 billion dollars in interest rate swaps and about $26 billion dollars in credit derivatives. Of this trading, close to half of it has been done electronically, with the other half being traded over the phone or by other means.

O’Malia, who was named commissioner of the CFTC in 2009, has stated that there have not been any significant issues to date, though they were having difficulty getting consistent data on just how many trades have been executed through the facilities so far.

O’Malia did seem concerned about the structure of the U.S. swap market, fearing that it may begin to resemble the fragmented nature of the U.S. stock market. He also hopes to see credit checks being built into the platforms to guard against traders putting themselves in overly risky positions, though he is aware that this will take time.

Government Shutdown Creates Communication Gap between The CFTC and the European Commission

According to, senior financial industry executives are less than pleased with the US and EU’s inability to work together on the implementation of derivatives reforms and swap execution facilities.

While the Dodd-Frank Act was instituted by the US government to help create transparency in the swaps market, often cited as a major cause of the 2008 financial crisis, its effects reach far beyond United States law.

In order to remedy this, the CFTC and the European Commission signed a deal to hold each other’s laws equivalent when the circumstances allowed, showing real progress towards cross border cooperation over these new laws.

However,while  the United States has been moving quickly to comply with the Dodd-Frank Act’s rules, the European Commission has been pleading with the CFTC to be given more time. However, they had not yet received a response when the deadline for almost all derivatives traders register with SEFs went through, and now it seems that the European Commission is being left in the dust.

This is causing concerns among European firms over whether or not they will be liable, and it seems they won’t be getting answers any time soon, as the CFTC currently has its hands full just trying to monitor the market thanks to the government shutdown, which has left the commission with almost no personnel.

CFTC Will Deal Steep Penalties to Anyone Found Lying in Investigations

According to, the Commodity Futures Trading Commission (CFTC) will not hesitate to penalize anyone found lying in an investigation. The CFTC made this very clear during a recent investigation into pre-stamping with an introducing broker.

When a commodity futures or options order is being processed, the processor must stamp the order form in the correct time bracket, in order to ensure clarity as to when the order was made. However, often times, introducing brokers will stamp a number of these forms beforehand to hasten the process. This often leads to orders being placed with incorrect time stamps which may be used for fraudulent trading activity such as unauthorized trades or unlawful post-execution trade allocation.

In the investigation, the CFTC sat down with Susan Butterman to ask her some questions. Butterman, who would often pre-stamp several order forms, covering every time bracket as a way to be prepared, told the CFTC said that she only stamped forms as orders were being processed. While why she lied initially has not been made clear, the CFTC pressed her with evidence to the contrary, and she quickly caved, admitting to pre-stamping regularly.

While Butterman wasn’t a particularly difficult witness, it seems the CFTC is using her as a deterrent against lying in future investigations, as she will be penalized $50,000 for her actions.

With Lights off in the CFTC, Many Traders Are Left In the Dark

According to the Wall Street Journal, the government shutdown may lead to timid commodities and foreign exchange markets.

                With the shutdown causing the furlough of all but 28 of the more than 600 employees within the Commodity Futures Trading Commission (CFTC), the Commission has been unable to produce its normal weekly commitment of traders report.

Without the CFTC’s report, the market is left without information on investors’ positions, which may lead to a lack of confidence in trading. The reports would often confirm traders’ speculations and actually help level the market place, as without these insights, large clearing houses who handle trade orders will be the only ones able to confirm theories about market positions.

While some traders plan to fall back on other options for their insights, such as the New York Mercantile Exchange, these reports don’t offer as much data as the CFTC’s.

Many traders are hoping to see an end to the government shutdown before October 11th, as this will mark the last day the Energy Information Alliance will be able to produce their reports of oil and natural gas stockpiles, leaving the market even more in the dark than it is now.

Many speculate that the market will only continue to slow as the government shutdown continues.

CFTC Skeleton Crew struggles to monitor sefs’ timid beginnings

According to, swaps trading is off to a slow start since the implementation of the Commodity Futures Trading Commission’s sefs.

In an effort to make the market more transparent, the CFTC mandated that all swaps trading be done through swap execution facilities, a rule that went into effect on October 2nd. While the market isn’t seeing huge volumes right now, it may actually be for the best. With small scale trading, any kinks within the new system can be looked into without major issue.

Smaller scale trading may also be working out better for the CFTC itself, who is operating with a skeleton crew thanks to the government shutdown furloughing all but about 30 of the CFTC’s over 600 person staff. With almost no personnel, the CFTC is finding it nearly impossible to monitor the $633 trillion dollar market. CFTC Chairman Gary Gensler, who has remained steadfast in his decision to go forward with these deadlines despite all of this, has actually taken to the phone himself to call traders and inquire about issues within the system.

The Securities and Exchange Commission, which hasn’t yet been affected by the government shutdown due to a surplus in funds, is running normally, raising questions and reviewing guidelines with the sefs in an attempt to smooth out issues during this transition phase.

CFTC Chairman Gensler Continues to Refuse to Delay Deadlines, Despite Further Pushback

According to The Financial Times, Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler is refusing to budge on the deadline for the next phase of trading rules.

The next set of rules, which will require the reporting of transactions with offshore entities, will go into effect on October 9th. Many feel these rules will affect trading venues in Europe, regardless of their own country’s regulations.

Gensler’s apparently unyielding stance on deadlines, despite continuous complaints and requests for delays is impressive considering not only that he will be stepping down as Chairman within the month, but that he is going forward with these deadlines in the midst of a government shutdown.

The shutdown, which took effect on October 1st, has hit the CFTC significantly harder than any other financial regulator. While the SEC will be able to continue operating normally for a few weeks thanks to a surplus in unused funds, the CFTC , which Gensler has stated as being significantly underfunded, has no such surplus, and is now running with less than 30 of its 600 standard employees.

Perhaps Gensler has reason to feel confident. While the deadline for the CFTC’s last set of rules took affect one day after the government shutdown, many derivatives market traders have stated that the transition actually went rather smoothly.

CFTC Receives Pressure from Farmers to Change Rule

CFTC Receives Pressure from Farmers to Change Rule

According to, the Commodity Futures Trading Commission (CFTC) has come under some heat recently for a rule they’ve proposed by futures market regulators and traders who feel the proposal may actually harm the agricultural community.

The CFTC, which was created in the 70’s to take over for the U.S. Department of Agriculture’s Commodity Exchange Authority, was made responsible for a significantly larger portion of the futures market after the 2008 financial crisis.

Acting in response to scandals by both MF Global and Peregrine Financial Group where each company lost or stole large sums of customer funds, the CFTC is planning to implement some new rules in an attempt to protect future customers from huge loses. However, while the rules are meant to protect customers, they may actually harm the industry as a whole, leaving these customers with no funds to protect.

As of right now, the CFTC plans to cut the time margin calls must be reported from three days to just one day. The CFTC would also require that all customer funds be fully margined at all times.

This would cause small Futures Commission merchants, many of whom deal largely with farmers, to ensure that all customer’s funds are covered at all times. In order to accomplish this, FCMs would have to require customers to severely increase their funds in order to continue trading. This is not something many farmers would be able to do, causing both the farmers and the FCMs to be unable to participate in futures trading.

As it stands, the CFTC does not seem willing to reconsider these new rules.

Quotes and a more details on this story can be found at

Swaps Trade Transitioning Smoothly, Despite Government Shut Down

With the exception of a few delays instituted within the past week, the deadline put in place by the Commodity Futures Trading Commission for swaps traders to comply with new regulations has come, and the transition is well underway. As of today, almost all swaps trades are being handled through Swap Execution Facilities, or SEFs. And, according to The Financial Times, some SEFs have already begun announcing their first transactions ahead of schedule, with Javelin Capital Markets having opened its doors to pair buyers with sellers on Tuesday, a full day before the deadline.

The CFTC mandated that all swaps trading must be done through SEFs in order to add more transparency to the swaps market, which is often considered to be a major factor in the cause of the 2008 financial crisis.

While all swaps trades will have to go through SEFs eventually, the CFTC recently granted a one month delay to foreign exchange swaps and a two month delay in equity swaps, after members of the industry complained that they needed more time.

Interestingly, while the transition to a more streamlined and transparent market place is going rather smoothly, operations within the CFTC will be quite hectic, thanks to the government shutdown that began on Tuesday.  According to the Wall Street Journal, the CFTC is currently running with a mere 28 of its over 600 employees. However, while many of its normal practices will undoubtedly be put on hold, the CFTC will still be monitoring the market place for any suspicious trading.

Division of Enforcement Director to step down in October

According to, the Commodity Futures Trading Commission has stated that the current Division of Enforcement Director, David Meister, will be stepping down from his position in October.

A graduate of the Columbia University School of Law, David Meister was quite prolific during his time as Director, initiating a record number of enforcement actions as well as playing a large factor in creating and implementing many of the Dodd-Frank act’s rules and regulations. Under Mr. Meister’s direction, the Division of Enforcement was a stern entity, handing out strict and harsh penalties both in the U.S. and globally, including a CTFC record 1.3 billion dollars charged to manipulators of the LIBOR interest rate.

Outside of enforcement actions, Mr. Meister enhanced collaborative relationships with the U.S. Justice department, the FBI, and many other domestic and foreign agencies.  He also smoothed out the Division’s investigative and management techniques, increasing the speed in which cases were handled, and ensuring consistent enforcement actions across the board.

Taking his place, Gretchen L. Lowe, currently Chief Counsel of the Division of Enforcement, will be serving as acting Director. A graduate from the University of Pennsylvania School of Law, Lowe is very experienced, having been with the Division for over a decade, she has led some of their most difficult investigations.

More on Gretchen L. Lowe’s time with the Division can be found at

CFTC allows for a few delays in swap trade initiatives

According to Reuters, the Commodity Futures Trading Commission (CFTC), who has by and large refused to budge on its October 2nd deadline for SEF’s to implement its new rules, will allow for a delay in a few of its initiatives.

In an effort to increase transparency and minimize the risk associated with the swap trade market, often blamed as one of the leading factors of the 2008 financial crisis, the CFTC has been working quickly to create Swap Execution Facilities, platforms where all swap trading will be handled and monitored. Before the CFTC, much of the swap trade market was handled over the phone—a $630 trillion dollar market going almost completely unchecked. While negotiation will still be allowed over the phone, all trading must be entered into systems, creating a much simpler, and readily accessible, set of records.

The delays will affect the required reporting of foreign exchange swaps as well as equity swaps, by one and two months, respectively. The largest part of the market, fixed income and credit swaps, will be unaffected, and will begin being reported on October 2nd.

Lastly, in an attempt to further smooth the transition into this new and less risky form of business, the CFTC has allowed for a delay in documentation of onboarding by one month.

Gensler’s assessment of the CFTC: A Summary

Chairman of the Commodity Futures Trading Commission (CFTC) Gary Gensler seemed to be overall satisfied with the CFTC’s current progress and future plans as he spoke in front of the International Group of Treasury Associations and the U.S. Chamber of Commerce recently.
Beginning his speech, Chairman Gensler recalls the state of the U.S. economy in 2008, putting the majority of the blame for the financial crisis on the swaps market.
Gensler feels that since President Obama and Congress placed the responsibility of reforming the swaps market onto the CFTC in 2009, many of the initiatives they sought to put in place to create more transparency in the marketplace are being implemented. According to Gensler, these initiatives will create a safer marketplace for investors and consumers, as well as allowing companies unburdened from risk to focus on innovation, productions, and the creation of job. Gensler is aware that this shift will not be seamless, and promises to work with marketplace participants to ease into these changes, just as they have done in the past.
Again recounting the crises of 2008, Gensler discussed the lack of swaps regulation between the U.S. and other countries, and cites the downfall of several large institutions as the result of this unregulated trading.
According to Gensler, since the CFTC began its regulation of the swaps market, 82 swap dealers have been registered, including the 16 largest financial institutions, known as the G 16 dealers. Gensler says that this regulation not only protects the public as well as job providers, but also lowers risk, and gives the market integrity.
Currently, The US, Europe, Japan, and Canada are all moving forward with coordinating international market reform, and the CFTC has completed its guidance on international application of the Dodd-Frank Act. Gensler feels this reform will protect U.S. companies from failures in swap dealers’ offshore affiliates.
Gensler also pointed to the recent and continued manipulation of the LIBOR interest rate as obvious reason for future reform, and stated that U.S. and foreign regulators are in the beginning stages of finding and implementing alternative options.
Ending his speech, Gensler noted that, even with all the CFTC has done, the organization is very much underfunded. Stating that the current budget is not sustainable, and that without proper funding, the CFTC will be unable to perform all the duties necessary to protect customers and businesses from future crises.
A full transcription of Chairman Gensler’s speech can be found at

Uncertainty in CFTC: Successor to Chairman Position Remains Unclear as Gensler Nears End of Term.

As reported by Reuters, there is a potential void looming over the Commodity Futures Trading Commission’s top position as current chairman Gary Gensler ‘s five year term comes to an end. With the U.S. economy still limping through a recovery from the financial crisis of 2008, thought in large part to be due to a lack of regulation on banks and trading, it seems imperative that this position be filled with confidence.
Obama had brought up the idea of a second term to Gensler back in March, and though Gensler hasn’t commented on the subject, it’s been assumed that he is looking for a more prominent position.
Outside of Gensler, there has been discussion of appointing Elizabeth Ritter to the position. Ritter, a professor in derivatives law who currently works under senior commissioner Bart Chilton within the CFTC, has been praised for her knowledge and expertise, but her lack of experience leading a department within the CFTC has been cited as possible point of contention.
Should no one be appointed for the position by the end of Gensler’s term, the decision would fall upon the CFTC itself to choose an acting chairman from within; the most likely candidate being Commissioner Chilton. However, an acting chairman would not have the same authority as an appointed candidate, and with many critical initiatives coming down the pipeline for the CFTC, including the enforcement of new rules designed to increase transparency within the banking and trading sectors, this situation would be less than ideal.
While it seems likely for the position to be filled without significant issue, the level of solemn irony found in the uncertainty surrounding the head position of the supposed enforcer of financial transparency is difficult to ignore.

CFTC Ends Five Year Investigation of Silver Market

According to, the Commodity Futures Trading Commission (CFTC) has closed its investigation on the silver market after five years. While the CFTC normally keeps a tight lid on its investigations, it has decided to announce this finalization publicly due to the amount of time that has passed since the investigation was initiated.

The CFTC’s department of enforcement began its investigation of the silver market in September 2008, after accusations of manipulation in regards to silver prices in the Community Exchange (COMEX) were made.  Among these accusations, it was speculated that manipulation of futures trade prices had occurred, based on the assumption that as prices for silver products, such as coins and bullion, rise, prices in silver futures contracts should rise as well.  Yet, futures contracts for silver remained stagnant during times of spiking silver prices. This inconsistency was thought to be due to large shorts in the silver market keeping futures contracts lower than normal.

The investigation was undoubtedly thorough, consisting of over seven thousand hours spent analyzing position and transaction data as well as the evaluation of silver market fundamentals for futures trading, among other areas of the silver market. During the Commission’s investigation of past records, the Division of Market Oversight maintained ongoing surveillance of the silver market, monitoring transactions for any signs of possible violations of the Commodity Exchange act.

After five years of deliberation, the CFTC has decided to end its investigation, declaring there to be no reasonable evidence to take enforcement action upon anyone involved in the silver market.

Activists Rally for Financial Speculation Tax

Occupy Wall Street is back, and this time their target is high frequency trading. On the second anniversary of the Occupy Wall Street movement, protesters will be gathering in New York City to demand Congress pass the “Robin Hood Tax.” The Robin Hood Tax, also known as the Financial Speculation (or Transactions) Tax, is an excise tax on the transfer of ownership of certain financial instruments, including bonds, stock, derivatives, and foreign currency exchange. With the proposed tax in place, each time a financial product is traded, a small percentage (less than half of one percent) of the value of the trade is collected in tax.

On April 16, 2013, Minnesota Democrat Keith Ellison introduced the Inclusive Prosperity Act (H.R. 1579), which proposes the excise tax to strengthen our financial security, reduce market volatility, expand opportunity, and to prevent the shrinking of the middle class. The tax is expected to generate as much as $350 billion. Supporters of the tax include Warren Buffet, David Stockman, Bill Gates, Nancy Pelosi, George Soros, and Paul Volcker.

Over a dozen countries have already implemented a system of financial transaction taxation, including many of the world’s largest economies.  At least eleven European countries have either implemented or will soon implement an FTT.  Additionally, leading Asian financial markets, including China and Singapore, also charge an FTT like tax. As of September 17, the Inclusive Prosperity Act has been referred to the House Committee on Ways and Means.

CFTC grants temporary registration to SwapEx, LLC, GFI Swaps Exchange LLC, and MarketAxess SEF Corporation

The U.S. Commodity Futures Trading Commission (CFTC) has approved the applications of SwapEx LLC, GFI Swaps Exchange LLC, and MarketAxess SEF Corporation for temporary registration as swap execution facilities (SEFs) pursuant to section 5h of the Commodity Exchange Act and section 37.3(c) of the Commission’s regulations. By becoming SEFs, these facilities will be able to offer regulated products, including foreign exchange options and non-deliverable forwards. As of September 16, 2013, there are only fifteen trading organizations that have been granted temporary registration as a SEF.

A SEF is a category of CFTC registered entities created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to provide increased transparency in the OTC derivatives market. Under final SEF rules published in June, any person operating a platform on which more than one market participant has the ability to execute or trade swaps with more than one other market participant must register either as a SEF or a designated contract market (DCM).

Additionally, since SwapEx LLC, GFI Swaps Exchange LLC, and MarketAxess SEF Corporation all meet the SEF definition under CFTC final regulations, they are required to register as a SEF to provide a minimum trading functionality, which is defined as an “Order Book.” Order Book means an electronic trading facility, a trading system, or a trading platform in which all market participants in the trading system or platform have the ability to enter multiple bids and offers, observe or receive bids and offers entered by other market participants, and transact on such bids and offers.

SwapEx, GFI, and MarketAxess will be required to demonstrate continued compliance with all applicable provisions of the Commodity Exchange Act, the Commission regulations, and any future regulations, amendments, guidance, and interpretations issued by the Commission in order to obtain and maintain permanent registration.


Third Phase of Mandatory Clearing Begins

The third phase of mandatory compliance with clearing requirements for certain Credit Default Swaps and Interest Rate Swaps was implemented on September 9, 2013.

The most recent round of implementation will affect third-party investment managers and ERISA pension plans (“Category 3 Entities”), and other entities that were not subject to the Commodity Futures Trading Commission’s Division of Clearing and Risk’s first two implementation deadlines.

Unless an exception, exemption, or other relief applies, the CFTC requires market participants to clear swaps within the definition of CFTC Regulation 50.4.  The limited instances where relief from the clearing requirement is granted include exceptions for non-financial entities hedging commercial risk, relief for certain swaps entered into by eligible treasury affiliates, exemptions for swaps between affiliates and certain swaps entered into by cooperatives.

The swap counterparty is required to fulfill all conditions and requirements of the exception, exemption or other claimed relief in order to qualify for relief from the clearing requirement.  One of the conditions required for an exemption from clearing swaps is that certain information regarding the swap and the counterparty must be reported to a registered swap date repository.

The first clearing requirement determination by the CFTC was adopted on November 29, 2012. The swaps that are required to be cleared are listed in CFTC Regulation 50.4 – “Classes of Swaps Required To Be Cleared.” These swaps include all four classes of interest rate swaps and two classes of credit default swaps (CDX CDS indices).   “Category 1 Entities” such as swap dealers, major swap participants, and private funds active in the swaps market were required to comply with clearing requirements as of March 11, 2013.  All other entities, besides Category 3 entities, were considered “Category 2 Entities” and were required to clear swaps as of June 10, 2013.


CFTC Publishes Concept Release on Risk Controls and System Safeguards for Automated Trading in the Federal Register

The U.S. Commodity Futures Trading Commission today published a Concept Release on Risk Controls and System Safeguards for Automated Trading Environments in the Federal Register. The Release is intended to serve as an overview of potential measures that may be able reduce the likelihood and mitigate the impact of market disrupting events.

The Release provides a summary of the automated trading environment, discusses current industry practices, examines their effectiveness, and evaluates the need for any additional and appropriate measures.

Automated trading systems have been a popular topic of discussion after recent disruptive events such as Knight Capital’s errant trades causing a loss of $440 million and the disruption of trading on the Nasdaq stock market from malfunctions in quote dissemination systems.

The Release also examines risk controls that could be implemented by exchanges and participants in automated trading environments. This includes pre-trade risk controls, post-trade reports and other post trade measures, system safeguards related to the design, testing and supervision of automated trading systems, and additional protections designed to promote safe and orderly markets.

Obama Puts Pressure on Regulators to Push Dodd-Frank

President Barack Obama met with Wall St regulators on Monday, August 19th 2013 to discuss the progress made after the 2010 passing of the Dodd-Frank Act. According to The Wall Street Journal, Obama is urging key regulators to implement many sections of the Act in order to avoid any situation similar to the Great Recession. In attendance at this meeting were key players from the Securities and Exchange Commission, Commodity Futures Trading Commission, and the Treasury.

While the Dodd-Frank was passed and signed into law in 2010, many of the key regulatory reforms still haven’t become a reality, including the controversial “Volcker Rule,” which was created to limit proprietary trading and the liabilities larger banks may hold at a time. According to an article in the Wall Street Journal, Treasury secretary Jacob Lew predicts that the Volcker Rule will be in effect by the end of the year. Others remain less optimistic, citing the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) both encountering budget restrictions.

According to an report done by  Davis Polk & Wardwell LLP, less the 40% of the rules in the Dodd Frank were finished by July 1st, 2012.



Top Regulators Meet With Obama On Dodd-Frank Progress

It was announced on Sunday that President Obama is planning to meet with key regulatory officials Today to discuss the advancement of Dodd-Frank. Representatives from the Treasury, the Consumer Financial Protection Bureau, the Federal Housing Finance Agency, the Commodity Futures Trading Commission, the Securities and Exchange Commission and the National Credit Union Administration will be in attendance.

Since being signed into law in 2010, the Dodd-Frank has been the target of both praise and criticism. On the one hand, it’s supporters have purported Dodd-Frank brought increased sustainability and accountability to the regulatory system, but it’s critics have commented on its broad reach. The reforms within the Dodd-Frank Act extended from anti-predatory lending and mortgage reform, to imposing rules on derivatives.

The Commodity Futures Trading Commission’s (CFTC’s) chairman, Gary Gensler, will be present at the talks, along with key members from other financial regulatory agencies. According to Bloomberg, White House press secretary Josh Earnest says that President Barack Obama wishes to meet with the regulators because he wants to press the importance of implementing all of the Dodd-Frank Act’s reforms.



Regulatory Giants Discuss Disaster Recovery Relief in Regards to Sandy

Hurricane Sandy took a physical toll on New York City, but a joint meeting of the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), and the Commodity Futures Trading Commission (CFTC) on the topic of disaster recovery, proved that it’s not just physical damage that companies are worried about.

Hurricane Sandy, which touched down in New York City on October 28th and 29th, disrupted several equities and options markets. On August 16th, 2013, officials from these regulatory giants met to discuss further improvements that can be made to stem the effects another natural disaster may have on the financial systems. Based on their discussion, they proposed a three point best practices of disaster recovery which is posted on the CFTC website.

The first point of their “Business Continuity Planning” paper is “Widespread Disruption Considerations,” which advocates that firms that might be affected by power outages, etc., take any natural disaster into consideration. Certain issues became very apparent during Hurricane Sandy, such as lack of remote access, which relies on internet and phone communication.

The second part of their three point continuity plan is the “Alternative Locations Considerations” which recommends that equities and options firms take precautions by thinking of a potential secondary location that won’t be disrupted in case of a ‘regional’ outage, such as was witnessed during Sandy. This section includes important issues such as power generators, staffing, adequate resources and shuttle services. Lastly, the committee advocates evaluating vendor relations, including services such as settlement, banking and finance.

A full version of the “Business Continuity Planning” can be found on the CFTC website.

Gensler: CFTC Faces Challenges Implementing Volcker Rule

On Tuesday July 30th, Gary Gensler, Chairman of the Commodity Futures Trading Commission (CFTC), testified before US Senate Committee that one of the largest issues the CFTC will confront in the coming years is the implementation of the Volcker Rule, which will prohibit all banks from doing proprietary trading.

Also in his testimony, Gensler cited the recent progress made with cross-border swaps regulation in addition to registration of securities as positive steps forward in the CFTC’s aim to create transparency in the futures industry.

Gensler stated in his testimony to the CFTC that the Volcker Rule, which prohibits banks from using deposits in speculative trades that do not benefit consumers, is in the process of being adopted by the US. However, he also mentioned that he will have to cooperate with certain domestic regulatory bodies to fully implement the ruling.

Other issues Gensler states could pose challenging to the CFTC include the regulation and evaluation of benchmarks. He said, in his speech to the US Senate Committee on Banking, Housing and Urban Affairs that the CFTC will have to work in close connection with international regulators to ensure these benchmarks are based on “fact, not fiction,” as Gensler said. The International Organization of Securities Commissions (IOSCO) created a taskforce looking into benchmarks of the financial industry, and the CFTC has worked with them in the past to ensure overarching international regulation is up to standards.

A full transcript of Gary Gensler’s testimony can be found on the CFTC website.



Fed Re-evaluating Commodities Control Ruling

The Federal Reserve announced that they will be reviewing their rulings regarding Banks trading commodities after receiving complaints.

Since the Bank Holdings Act, which is over 50 years old, deposit holding banks have been disallowed from directly holding commodities. But in 2003, the Federal Reserve put in place a provision letting non-commercial banks deal in commodities, but forbade them from dealing in commodities storage. According to Bloomberg, however, the ten largest banks generate over 6 billion dollars in revenue from trading in commodities, both financially and tangibly.

However, some have voiced concern that it is perhaps un-competitive to have a Bank having financial and physical holdings. As a Senate Subcommittee is investigating JP Morgan for possible gas price manipulation, the subject of commodities has been increasingly important. U. S. Sentaor Sherrod Brown has voiced his own concern regarding the potential for manipulation. “When Wall Street banks control the supply of both commodities and financial products, there’s a potential for anti-competitive behavior and manipulation,” he said in an article for Bloomberg.

The Federal Reserve will be analyzing their stance on the ruling on the 23rd.

FINRA Targeting High Frequency Trading in Probe

The Finance Industry Regulatory Authority (Finra) is looking into how trading firms self-regulate their algorithms used for High Frequency Trading.

In response to several high profile anomalies in the trading market due to High Frequency Trading (HFT) in the past year, the Finance Industry Regulatory Authority (Finra) has been looking into several trading firms with how they use and control their trading algorithms. One of those notable anomalies included an incident where a capital group lost about 10 million dollars per minute because of a malfunctioning computer system. This example has become a cautionary tale for many in the industry, but it appears that Finra fears the HFT industry might not self-regulate enough.

According to an article in Bloomberg, Finra’s letter to 10 firms included specific questions regarding High Frequency Trading algorithms, including whether or not there were kill switches, and under what circumstances they would be utilized.

As a document from Finra said, according to Bloomberg, “In light of several high-profile algorithmic trading failures that caused significant market disruption in 2012, Finra continues to be concerned about how firms are supervising the development of algorithms and trading systems.”

Full documents can be found on the FINRA website.


CME Chairman Voices Concerns About Brokerage Collateral Ruling

Terrence Duffy, Chairmen of the CME Group, counseled Senators against a pending CFTC ruling regarding collateral set aside by brokerages. Duffy’s presentation before the Senate Committee on Agriculture, Nutrition and Forestry in a hearing to evaluate the CFTC was yesterday, July 17th 2013.

In his testimony, Terrence Duffy took aim at a certain pending CFTC ruling requiring all Futures Commission Merchants (FCMs) to put all residual interest on their funds in a separate account. This money would be used to refund customers if a critical situation, such as MFE Global’s dissolution, were to occur again.

But Duffy doesn’t believe that this would do well to protect customers from losing money; instead, he warned the Senate that this could cause brokerages to be pushed out of the market, decreasing both liquidity and competition within the market. Furthermore, he appealed to the Committee by arguing that these changes would disproportionately impact smaller FCMs with stronger ties to agriculture.

Finally, Duffy reasoned that the proposed ruling would disrupt the ‘current regulatory structure’ of having institutions such as the NFA and CME do risk-audits of FCMs.

According to Bloomberg, the CFTC has not yet determined whether or not the regulation will be passed, and spokesman Steve Adamske did not comment on Duffy’s commentary

Simulated Wall Street Cybersecurity Attack to Test Preparedness

On Thursday, July 18th 2013, the Securities Industry and Financial Markets Association (SIFMA) will be carrying out Quantum Dawn 2, a simulated cybersecurity attack meant to assess preparedness.

Since the last cybersecurity simulation in 2011, the list of firms and institutions wishing to be included in this year’s attack has more than doubled, according to the SIFMA brief released today. The organizations undergoing the attack has grown to include stock exchanges, businesses, the U.S. Treasury and Department of Homeland Security, and the simulation will attempt to expose any critical weaknesses in security these firms may have. The previous exercise, that was held in November 2011, was designed to analyze the continuity of equities trading and clearing in the event of a system disruption.

The importance of cybersecurity has come to the forefront of discussions of the greatest risks posed in the financial markets. The focus of the exercise is not to mimic the act of one or two hackers attempting to gain access to a personal computer or account, but rather to simulate state-sanctioned actions targeting entire systems. Issues of cyber security became even more serious in light of last summer’s Flame, a malware that infected about 1000 computers across the world, and was so advanced that experts agreed that no singular hacker could have been it’s origin.

The simulation will be orchestrated on July 18th, and more than 50 banks will be participating.


Guidance and Policy Statement Regulations on Cross Border Swaps Released

Following the vote on guidance and regulation on Friday, the Commodities Futures Trading Commission (CFTC) released the manuscript of the guidelines regarding cross border swaps today, July 16th 2013.

Cross border swaps have become a hot issue in the CFTC for some time now, but was resolved following last Friday’s vote, which passed the new regulations as well as a 75 day guidance period. As of 6 pm, July 16th 2013, the manuscript has not been published to the Federal Registry.

The full document, which is about three hundred pages long, can be found on the CFTC website.

Christopher Ehrman made Director of Whistleblower Office at CFTC

Christopher Ehrman, previously an attorney at the Securities and Exchange Commission (SEC) has been named as the new Director of Whistleblower Office at the Commodities Futures Trading Commission (CFTC).

The Whistleblower Office was created by a provision in the Dodd Frank Wall Street Reform and Consumer Protection act, which was signed into law almost three years ago by President Obama. The Office was intended to create financial incentives and restitution, as well as anti-retaliatory protection, for those who provide information to the CFTC regarding violations of regulation.

Christopher Ehrman was most recently an Assistant Director at the Office of Market Intelligence at the Securities and Exchange Commission, and brings with him extensive regulatory experience. As Gary Gensler said, in a CFTC press release that came out today, “Chris, who comes to us after many years of experience in the SEC’s Enforcement Division, takes on an important role at the Commission to oversee our Whistleblower program and engage with people who report misconduct in the futures and swaps markets.” Ehrman was a practicing attorney at the SEC before being promoted to Assistant Director, and has his JD from the University of Kentucky.

A full document press release can be found on the CFTC’s website.

Regulatory Adjustment to New CFTC Ruling on Cross-Border Swaps

The impacts of the Commodities Futures Trading Commission’s (CFTC) response to cross-border swaps are yet unknown. With a 75 day period of guidance in addition to the implementation of the final ruling, this unprecedented move by the CFTC may deeply impact the market.

On Friday, July 12th, the CFTC voted 3-1 in favor of instituting final guidelines for regulating cross-border bilateral swaps. Gary Gensler, in his opening statement said that “Even though we oversee, here at the CFTC, a complex and sometimes difficult to understand market […] the questions the American people are looking for us to answer are simple: Have we lowered risk? Have we brought transparency to these markets? […] This is why reform matters.”

The presenters of the cross-border rules also went on to define certain aspects of the bill. When discussing the definition of “US-Person,” they widened the definition to include natural born US citizens, businesses with principal or primary stations in the United States and funds if they were majority owned by US Citizens. Other important aspects of these guidelines include ‘unfettered’ access to other counties’ data. According to the meeting, the CFTC has set up relationships for substituted compliance with Australia, Canada, Japan, and the EU, with ongoing talks with some entities in Switzerland and Hong Kong.

The full proceedings are available on the CFTC’s website.

CFTC and European Commission Reach Concordance on Derivatives

The tenuous issue of cross-border derivatives regulation between the United States and the European Union may be over soon, according to a press release from the CFTC today. Gary Gensler, Chairman of the Commodity Futures Trading Commission (CFTC), and European Commission representative Michel Berneir have announced that the two regulatory bodies may have created a ‘common path forward’ for dealing with cross-border swaps.

The European Commission and the CFTC have many advantages of developing cross-border regulations together. In light of this demonstration of international cooperation, some have hopes that the G20 promise to promote transparency in over-the-counter derivatives trading will become more of a focal point in regulation.

The Path Forward, as this plan has been anointed  includes many no-action temporary reliefs in situations where CFTC and EC rules regarding risk mitigation and recording have been considered equivalent. For example, in the case of bilateral uncleared swaps, the rules have been deemed comparable in purpose and scope by both regulatory bodies. Because of this equivalence, the CFTC has ordered a no-action time relief for the transaction-based requirements. Furthermore, the CFTC projects that foreign trade boards will be able to list swap dealings directly, if they’ve already been given no-action relief.

In addition to those no-action time-limited reliefs, the CFTC’s press release included others such as multilateral trading facilities (MTFs). The full press release can be found on the CFTC website.

Basel Committee May Rethink Regulatory Complexity

On Monday, the Basel Committee released a discussion paper dealing with the simplicity of the regulatory systems, leading some to take it as a sign that the committee may advocate simpler regulations in the future. In the paper, they discuss several current aspects of regulation such as risk sensitivity, complexity, and international equivalence.

Since the financial crisis of 2008, international regulatory bodies have become very active, trying to diagnose and address the issues that led to the crash. However, some have criticized these institutions for perhaps worsening issues, rather than diagnosing the potential issues in the economy.

The Basel Committee has recently made several recommendations for countries’ regulatory policies, including recent strategies on mitigating risk through controlling more capital in day to day business. The committee has focused primarily on risk-based systems of regulation, and these types of systems have inherent complexity, but certain members of the committee have acknowledged the issue. In fact, in 2012 the committee also started a sub committee called the Task Force on Simplicity and Comparability dedicated to assessing the impact of the policies.

The purpose of the paper, which was published yesterday on the Basel Committee website, was not to make recommendations, but elicit responses. It is currently open for comment until October 11th.

CFTC Vote On Cross-Border Swaps Set for Friday

After weeks of speculation, it looks like the Commodity Futures Trading Commission (CFTC) will conclude a foreign regulatory issue this Friday, July 12th. The vote will regard how domestic regulations on swaps apply to foreign firms wishing to do business with those in the United States.

The regulations have become a devisive issue in the CFTC , with commissioners on the board giving competing advice on what exactly to do. Current CFTC Chairman Gary Gensler, Democrat, has advocated applying the domestic regulations to the foreign firms as well, but there has been some dissent. Mark Wetjen, Republican, has recommended being more cautious with a ruling on foreign firms, citing that it may hurt, rather than help, the US economy.

Conjecture that Gary Gensler’s term would be over in July prompted some to think that voting on swaps regulation would occur after his position were filled by someone else.

This issue has become important for the derivatives market, and some key players have gotten involved in the recent discussions with the regulatory giant. Speculation that foreign firms would be required to comply with CFTC standards has purportedly caused instability in the market.

The interested parties go beyond just banks, firms and regulators though. Recently, Democratic Senator Elizabeth Warren has weighed in on the issue. In an interview with the Hill on June 20th, she said that “It would be a real mistake for commissioners to think they can run out the clock and just hold tight until Gary Gensler’s term expires. I will certainly still be here and watching this process very closely” But since it appears Gary Gensler will also vote on the regulation’s application to foreign markets, her concerns were unfounded.

Basel Committee Reform Capital Rules of Derivatives Trading

On June 28th, The Basel Committee came out with two papers that recommend strengthening the regulatory oversight of counterparty credit swaps to decrease the alleged risk of derivative transactions.

The first paper improves upon the interim credit assessment suggestions that the Basel Committee made with the Current Exposure Method (CEM) and the Standardised Method. The new credit risk assessment of counterparties in derivative trading fine-tune upon the CEM and the Standardised Method by creating separate risk exposure plans for margined and unmargined trades.

The second paper focuses on the capital risk of banks when working with central counterparties (CCPs). As is, CCPs are utilized to create stability in the markets by clearing and settling trades through risk and obligation assessment as well as supervising the final swap. The new proposal from the Basel Committee includes a recommendation that all trades are sufficiently well capitalized, as well as suggestions to conserve positive incentives for banks to utilize central clearinghouses.

The Basel Committee was established in 1974 by a group of nations concerned about regulatory inconsistencies between countries. Many of the regulatory policies that it wanted to recommend since the financial crisis of 2008 were supposed to be finalized in 2o12, but have been delayed due to complications.

The two papers published are currently open for public comment until the end of September, 2013.


CFTC Brings Charges Against Corzine For MF Global Collapse

Jon Corzine, the ex-CEO of MF Global, a major derivative broker that went bankrupt in October, 2011, is reportedly being brought up on charges by the CFTC relating to the collapse.

On Thursday, June 27th, the CFTC issued a press release stating that they would be bringing charges against Jon Corzine, the former CEO, and Edith O’Brien, Former Assistant Treasurer, in relation to the derivative giant’s collapse in fall 2011. The collapse took with it over one billion dollars of customer money, and the resolution of the crisis are considered to be one of the largest bankruptcies in the United States. In accounts of the crisis, it seems that MF Global may have unlawfully used customer funds to cover losses.

Corzine originally joined MF Global with intent to turn the futures broker into an investment bank, and according to the CFTC release, “Corzine’s strategy called for making increasingly risky and larger investments of the firm’s money.” Corzine had allegedly been made aware of the low cash balance of the firm, but still continued to order the payback of loans and obligations.

Edith O’Brien, who was an Assistant Treasurer at MF Global is being charged with aiding and abetting, as she allegedly approved and caused the implementation of loans that caused millions of dollars of damage.

Both Corzine and O’Brien plan to fight the charges, but the CFTC hopes to ban them from the futures industry.

No-Action Relief for SDs and MSPs Reporting Regulations Extended

The no-action relief issued to Swap Dealers (SDs) and Major Swap Participants (MSPs), originally set to expire on June 30th, has been extended a year. The relief is regarding reporting regulations that were originally put into place on December 17th, 2012. 

The Division of Market Oversight (DMO) Acting Chair Richard Shilts published a letter on June 26th, 2013 regarding the no-action time-limited relief they originally issued on December 17th, 2012. In the letter, they recommend no-action against any Swap Dealer or Major Swap Participant for failure in complying with regulation 45.4(b)(2)(ii). The regulation and subsequent relief specifically applies to companies failing to comply with the obligatory report of valuation data.

The relief applies to SDs and MSPs that must report counterparties under the regulation, and all cleared swaps that have required counterparty reporting by the SDs and MSPs.

The reasoning behind the extension on this relief dates back to a December 13th, 2012 letter from the International Swaps and Derivatives Association, Inc., (ISDA), which was the original request for no-action relief on this matter. One of the specific concerns cited in the June 26th letter is the connectivity required for valuation data to be reported to all Swap Data Repositories (SDRs).

The new deadline for compliance with this regulation is June 30th, 2014.

Gensler Urges Fast Action on Cross-Border Derivatives

The U.S. Commodity Futures Trading Commission (CFTC) planned to have cross-border derivative guidance finished by July 12th, and on June 25th CFTC Chairman Gary Gensler assured Senators that this deadline would be kept, despite some opposition.

Gary Gensler, Chairman of the CFTC, told members of the Senate Appropriations committee that the CFTC would let the extension expire and continue reformation. He also mentioned that swap participants, including big banks, were ready to comply with the regulations. An exemption from cross-border swap regulation is set to expire on June 12th, meaning firms participating in swaps would have to finalize compliance by that date.

Mark Wetjen, another CFTC commissioner, explained in an address on June 25th to the Futures Industry Association expo in London that these firms may need more time under guidance, and that a final policy would have to be ‘clear and workable.’ Republican CFTC commissioners Jill Sommers and Scott O’Malia have also expressed Wetjen’s sentiment. They recommend that the final policy be made keeping foreign regulatory policy in mind, as well as the regulation from the Federal Trade Commission. All three have advocated for a more transitory policy that would ease swap dealers into the period after the deadline.

Another concern for Gensler is the possibility of his term being over before he has time to usher through this regulatory policy. While his term technically expired in April, his position could be reappointed by as early as July. Bart Chilton, another CFTC commissioner, may also be replaced this July.

Wetjen Advocates Legal Advice Before Interim Expiration

The Commodity Futures Trading Commission’s interim relief for cross-border swaps is due to expire on July 12th, but in a speech at a London Futures Industry Associated expo, CFTC Commissioner Mark Wetjen made it clear he thinks the CFTC should provide legal advice and assurance until that point.

The approach Mark Wetjen advocated for is purportedly to ease the transition into the time after the relief expires. Furthermore, by including coordination with internal and international regulatory bodies, firms could adapt to the new compliance model before the deadline. Wetjen echoed the concerns many have had about the regulatory policy, and mentioned that the cross-border guidance must be ‘clear and workable.’

In the address, Wetjen outlined three very clear objectives that he hoped to achieve with this relief and guidance. The first was to protect the US taxpayer and financial systems, and cited the mobility of risk associated with derivatives and the need for global regulation to monitor this mobility. The second objective is to protect the US financial system but also not stifling competition. Lastly, Wetjen hopes that this period of transition will ensure the policy is unambiguous, and gives firms a reasonable time period for compliance.

With the current relief package expiring July 12, Wetjen also hoped to have final guidelines released before the deadline, and open it up for comment.

Elizabeth Warren Chides Commissioners Slowing Cross-Border Swap Regulations

With Gary Gensler’s term expired in April, 2013 and a re-appointment being as soon as July, Elizabeth Warren is decrying commissioners for what she sees as stalling regulation.

Certain policies that the Commodity Futures Trading Commission has been working on include a deal with cross-border swaps. One of the policies would require any domestic bank with a foreign branch carrying out more than eight billion dollars of swaps with a domestic entity, to register with the CFTC. This has prompted some concern from abroad about the US intruding in foreign jurisdictions with regulatory policies that conflict domestically. Banks in the United States, in the meantime, postulate that this could hurt American businesses.

Democratic Senator Elizabeth Warren says that she will be watching the CFTC if they try to further slow down policy making. If they stall beyond the current deadline of finalizing regulation, which is July 12th, 2013, then there is a chance that Gary Gensler will no longer be chairman of the CFTC. As she said in an interview on June 20th with The Hill, “It would be a real mistake for commissioners to think they can run out the clock and just hold tight until Gary Gensler’s term expires. I will certainly still be here and watching this process very closely”

In addition to the commissioners Warren is addressing, there are other branches of the US government interested in slowing down the CFTC’s policy decisions, perhaps to put it out of Gensler’s reach. The House Financial Services committee recently passed a bipartisan bill in support of exempting foreign banks from these regulations as long as they deem their regulatory bodies to be of equal purport.

CFTC Commissioner Chilton’s Address to Hedge Fund Conference Covers HFT, Global Markets

On Tuesday, June 18th 2013, CFTC Commissioner Bart Chilton gave the keynote address in the conference Hedge Fund Industry in 2013, which was held in Chicago, Illinois. In the address, he gives some insight into the working parts behind the Commodities Futures Trading Commission, and why they see some aspects of the financial industry as potential threats to the stability of the market.

Chilton, who has been a CFTC Commissioner since August, 2007, gave a speech that he prefaced by saying that “while this is a talk about trouble, I assure you it isn’t a lecture about trouble.” His speech seemed lighthearted and relaxed, and he even made a quip about Dodd-Frank; “And so, in 2010 Congress and President Obama put in place a new law: Dodd-Frank. I’m sure you guys have your own euphemism for it, but let’s keep this PG.” However, the rest of his speech was less humorous.

In discussing the development of High Frequency Trading (HFT), which he referred to as cheetahs, he mentioned that given the right circumstances, HFT was beneficial.

Look, these cats have some true attributes and they shouldn’t become an endangered species. At the same time, they are impacting markets in ways we barely understand, and it ain’t all good all the time. If we don’t have some rules and transparency about their activities, we run a market risk that some cheetah-related event that harms markets, could put them on an endangered list, and rapidly.

Another one of the subjects he covered was global markets, which is very topical. He explained that balancing domestic and international regulatory policy was difficult, because trading and other financial transactions are globally linked. He went onto explain several global transitions that regulatory policy will influence, and said “we need to give the market a reasonable amount of time to adjust to global derivatives market regulation. The markets will need time to adapt to a new interpretation of the term ‘U.S. person.’ In many instances we’ll have a pretty good idea when the first set of foreign rules come online. In Europe, trade repository reporting is likely to begin in November. We should be cognizant of that as we assign CFTC phased-in compliance.”

Chilton summed up the address by saying that these markets don’t just effect the key players like regulators or traders, but also the everyday consumer, and put the regulations into the context of risk management.

Gary Gensler’s Term May Be Over in July

The Commodity Futures Trading Commission Chairman Gary Gensler may be replaced as early as July, reports The Financial Times. His term, which began on May 26th 2009, was set to expire in April this year, but until a new Chairman has been appointed by President Obama, Gensler may ride out the term until the end of this year.

The other members on the commission, such as Jill Sommers, Bart Chilton, Scott O’Malia, and Mark Wetjen are also up for re-appointments this year, and lobbyists and lawyers are waiting eagerly to see what the turnover is. According to the bylaws of the Commission, each commissioner is supposed to serve a five year term, as appointed by the president. Furthermore, no more than three members may be of the same political party at the same time.

2013 may yield a large turnover for CFTC commissioners since Chilton and Gensler’s terms were up this April, and Sommers recently announced her plans to resign. Sommers has been a CFTC commissioner since August 2007 and announced to Bloomberg in January that “My intention is not to leave until after this last group of rules. It’s not effective immediately. I suspect I’ll leave sometime after the first quarter.”

As for the potential new appointees to the commission, several names have come up but none have been confirmed.

Evaluation By EU of U.S. Credit Swap Rules Delayed

The European Commission has given regulators at the European Securities and Markets Authority more time to analyze United States and Japanese credit swaps. The original deadline for their analysis was June 15th, but ESMA has been given an extension until September 1st to formulate an opinion on third party clearing houses regarding OTC derivatives regulation.

Until the robustness of US credit swap policy has been reviewed, some European banks have been given more restricted access to clearing houses outside of the European Union. Because of concerns that US banking policies may not be compliant with European policies, credit swap rules have become a contentious issue between US and EU regulatory bodies, according to Bloomberg.

Since Dodd-Frank was enacted and furthered the  US Commodity Futures Trading Commission’s international reach, it has caused some compliance issues abroad. The reason for the postponement, according to a letter posted to the European Securities and Markets Authority’s website from the European Commission, is “to allow ESMA more time to take account of international on-going developments and to consider their implications fully.”

Along with reviewing United States credit rules on September 1st, Japan will also be analyzed in this report. A full schedule of ESMA’s proposed assessments of national credit swap rules can be found on their website.

U.S. House Passes Bill To Loosen Federal Grip on FX Derivative Trading

The U.S. House has passed a bill that will loosen the federal government’s grip over the trading of foreign derivatives.

The FX exemption was passed by a bipartisan group of lawmakers on a 301-124 vote.

According to Bloomberg, supporters of the bill feel that this exemption is crucial to giving U.S. firms a strong position in the foreign exchange markets. However, opponents feel that regulation systems in outside countries are weaker and could result in endangering the financial system as a whole.

The Commodity Futures Trading Commission (CFTC) was prepared to supervise all derivatives trading, including FX trading ─however the Securities and Exchange Commission (SEC) took a more hands-off approach by allowing overseas derivative trading to bypass U.S. regulation if the country in which they occur had a regulation system that closely resembles our own.

Banks Receive Extension on Risky Swaps Rule

The Wall Street Journal reports that seven banks have received extensions on complying with the rule that would require them to “move risky swap activities into separate affiliates.”

The Office of the Comptroller of the Currency granted the two year extensions to Bank of America Corp., J.P. Morgan Chase & Co., Citigroup Inc., Wells Fargo & Co., HSBC Holdings PLC, Morgan Stanley and U.S. Bancorp.

The rule, which required banks to move their risky swaps trades to affiliates that were not covered under the “federal deposit insurance and the Fed’s discount window,” was devised by Blanche Lincoln, the previous Senate Agriculture Chairman.

The extension has faced criticism from some proponents of the Dodd-Frank Act. Senator Sherrod Brown (D-OH) stated, “Three years ago, the Congress made a decision that Wall Street should not gamble with taxpayer money…  We shouldn’t have to wait for another financial crisis for regulators to finish the job.”

Representatives from the industry have said that the extensions would allow other regulators to finalize their Dodd-Frank rules regarding swaps. These banks’ confusion on rules would have made the task of creating or moving swaps into new entities difficult.

ISDA Standardizes Swap Valuations with New CSA

The International Swaps and Derivatives Association (ISDA) has released a new credit support annex (CSA) in an attempt to increase efficiency and improve the standardization in the over-the-counter (OTC) derivatives market.

According to the International Finance Review (IFR), the initial CSA that was published by the ISDA in 1994 had an enormous amount of optionality by allowing participants to use a “variety of collateral in differing currencies,” making the valuation of even the simplest swaps an intricate ordeal.

The new Standardized CSA aims to remove this optionality while solidifying overnight index swaps (OiS) discounting as the industry standard and creating a consistent valuation process for cleared and uncleared swaps.

According to IFR, The SCSA will work in conjunction with the old CSA, which will still be backed by the ISDA.  Although the amount of participants that will adopt the new SCSA is unclear, the ISDA believes that many will want to capitalize on the benefits that it offers.

“The SCSA simplifies market processes regarding collateralisation by promoting consistent and transparent valuations while making assignment and risk transfer in the bilateral and cleared space more efficient,” said Robert Pickel, chief executive of ISDA.

Gensler to Meet With Regulators on International Derivatives Rules

CFTC chairman, Gary Gensler, is set to meet with European financial regulators on June 20th in Montreal, reports The Wall St. Journal. The meeting will be a hurdle for Gensler, who opposes an extension for the delay of U.S. derivative rules taking effect on July 12 on foreign banks and foreign branches of U.S banks.

Banks and regulators have called for an extension in order for other countries to set their own swaps rules. Some have said that these swaps rules make the U.S. marketplace less attractive. It would give foreign banks that do not have to comply with the guidance issued last year, which determined how foreign banks should follow U.S. swaps rules (which is not finalized), an advantage.

Gensler faces the challenge of members of his own CFTC questioning the deadline, with Republican Commissioner Scott O’Malia, EU regulators and others, suggesting an extension until December 31st.

Some have been against any delays. The Wall St. Journal reports that Marcus Stanley, policy director for the lobby group, Americans for Financial Reform has said, “If you try to delay it until everybody in the world is done with their derivatives rules, our kids might see it, but we won’t.”

Stephen O’Connor Leaves Morgan Stanley to Become Full-Time ISDA Chairman

Stephen O’Connor is resigning from his position at Morgan Stanley to join the International Swaps and Derivatives Association, Inc (ISDA) as a full-time Chairman.

With this new position, O’Connor will have a more  hands-on approach in driving ISDA’s strategic initiatives. The pace and scope of those initiatives continues to increase given global regulatory reform and the continued evolution of the financial markets and the OTC derivatives business. To address these needs, the decision was made to appoint a full-time chairman who could devote more time and energy to directing and leading the Association.

O’Connor joins ISDA full-time after serving as a member of its Board since 2008 and as the Chairman of the Board since April 2011.  During this time, O’Connor was a Managing Director for Morgan Stanley, which he joined in 1988.  During his 25-year career with Morgan Stanley, O’Connor held several senior positions in regulatory reform strategy, clearing, and counterparty risk management.

“ISDA’s mission, leadership and activities have never been more important in building safe, efficient markets for all users of derivatives,” said O’Connor. “I look forward to a more active role in working with ISDA CEO Bob Pickel and the ISDA team to address the important issues facing our markets.”

SEC Proposes Money Market Fund Rules

The Securities and Exchange Commission is looking to push through a plan that would aim to prevent another run on money market funds, The Washington Post reports. This comes as a response to the events of 2008, when a major money market fund fell below $1 a share, something which has occurred only three times prior, and prompted a panic.

Money-funds had the perception of being as stable as savings accounts by investors, but the 2008 panic saw withdrawals of “$300 billion” in a week of September until the government promised that they would repay losses.

The SEC has proposed options that would target institutional prime funds because they had the largest rates of withdrawal. One option would be to allow these prime fund shares to float. Another option would be “to temporarily block withdrawals and impose fees on investors during times of crisis,” writes The Washington Post.

Some have criticized the plan, which could possibly come in to effect this year. Sheila Bair, the current chair of the Systemic Risk Council, has said that she is “concerned that it falls short of what is necessary to protect taxpayers, mutual fund investors, and the stability of the financial system.”

Some of the SEC commissioners had concerns over the floating share proposal. One of which, Republican Troy Paredes, has said that he felt that allowing floating share values were “not justified on a cost-benefit basis.”


CFTC Receives Order From Federal Court To Charge Chris Hales and Eric Richardson Over $2.7 Million in Sanctions for Fraud

The U.S. Commodity Futures Trading Commission (CFTC) received Federal Court orders to charge three Utah residents from Bentley Equities (Bentley), LLC, over $2.7 million in disgorgement and civil monetary charges for fraudulently soliciting and accepting more than $1.1 million from its customers in relation to commodity futures trading.

In May 2012,  Christopher Hales and Eric Richardson were charged for misleading their clients on the success of their futures trading.  Bentley Equities told their clients that they were actively managing more than $1 million in commodity futures accounts, when in reality they never managed more than $480,000 in commodity futures at one time.  The defendants were also accused of using over $650,000 of their clients’ funds in order to pay for personal expenses like food, auto expenses, clothing, and credit card bills.

According to, Judge Dee Benson of the United States District Court for the District of Utah entered a Consent Order for the Permanent Injunction again Richardson, who was required to pay $100,000 in disgorgement and a $150,000 civil monetary penalty.  Richardson was also permanently banned from engaging in any activities regarding commodities.

Hales and Bentley, on the other hand, were issued an Order of Default Judgment and a Permanent Injunction as well. Hales had to pay $382,080 in disgorgement and $1,146,240 in civil monetary penalties and Bentley had to pay $840,000 in civil monetary penalty. Hales and Bentley were also permanently banned from engaging in any commodity-related activities.


Investor Groups Support Dodd-Frank Act Regarding Mineral Laws

More than 50 investor groups released a statement expressing their disagreement with the lawsuit filed against the Securities and Exchange Commission (SEC) by the U.S. Chamber of Commerce, the National Association of Manufacturers, and the Business Roundtable.  The lawsuit is in regards to the section of the Dodd-Frank act that requires companies to disclose whether they use minerals from the Republic of Congo.

According to The Wall Street Journal, companies must file a report to the SEC by May 2014 to report if any of their products use tin, gold, tantalum, or tungsten that comes from the Congo area.  These raw materials are considered “conflict minerals” because they are thought to help fund armed groups that are involved in labor laws and human rights issues.

The letter from these investor groups states, “Given that the long-standing conflict in the Democratic Republic of Congo (DRC) has claimed more than five million lives and contributed to egregious human rights abuses such as rape, child soldiers, and slave labor, we believe companies must disclose their use of conflict minerals.”  It goes on to say that, “as investors and fiduciaries with a long-term view of capital appreciation that must meet the interests of multiple generations of beneficiaries, we believe it is important to protect investors through improved disclosure and reporting on social risk factors such as labor practices and human rights.’

Europe Considering Financial Transaction Tax Scale Back

Reuters has reported that participating European countries plan to cut the FTT (financial transaction tax) rate by up to 90% and may have its “full roll-out” delayed. The tax, which is set to target speculative trading, would have its rate reduced from 0.1 percent to 0.01 percent and be applied gradually. If it is put into place, 2014 could see transactions of shares taxed, with bonds and derivatives being taxed later on. The tax still has a way to go until final approval by the participating 11 European countries, which include Germany and France. Germany in particular would most likely not approve of any scale-down. The UK government has expressed strong opposition to the FTT which fears that it will be forced to collect the tax by the EU, Reuters reports, as the current rules state that “if either the buyer or seller is based in one of the participating countries, the levy can be imposed even if the transaction takes place elsewhere.” This could potentially be disastrous for financial centers in London and Luxembourg and lessen Europe’s appeal as a place to do business.

CFTC Asked to Delay Expiration of Swaps Rules Exemption

The E.U. has asked for a delay in the enforcement of new swaps rules set to take effect on July 12, when the exemptions for overseas banks of the Dodd-Frank Act expire. In a report by, the European Commission addressed Gary Gensler, the head of the U.S. Commodity Futures Trading Commission. The EC requested the expiration date of the exemptions to be pushed back in hopes that there would be more time for the Group of Twenty to agree upon new rules. According to, the joint letter by the EC’s “director general for internal market and services,” Jonathan Faull, and Steven Maijoor, chairman of the European Securities and Markets Authority” called for an extension or else “EU firms would face huge legal and operational uncertainty.” The temporary exemption allowed foreign banks and foreign branches of banks to avoid having to register with the CFTC, and also avoid having to follow overlapping regulations. Syed Kamall, a member of the European Parliament stated that if the CFTC does not delay the expiration, the market should expect “regulatory arbitrage, which businesses will seek to exploit.”

Dodd-Frank Durbin Amendment a Failure

According to Forbes, an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed three years ago this month, has had a significantly negative impact on American consumers. The amendment was proposed and named after Dick Durbin (D-IL) and passed 64-33 with 17 Republican supporters. It called for the control of prices on the interchange fees for debit cards and targeted banks with assets over $10 billion, but the amendment has had a proportionally greater impact on credit unions and small banks, which economies are built on higher exchange fees to fund customer service. The Durbin Amendment is estimated to have cost banks over $8 billion during the first year alone.

Forbes states that the amendment has been something of a disaster for consumers, who have seen their free checking accounts all but disappear, more banking fees crop up, and a failure “to see savings at the check-out line – the original intent of the amendment in the first place.” The Durbin Amendment has had a positive impact on retailers, who have seen their profits increase while consumers are left out in the cold.

Barney Frank himself, famous for his stance of government regulation has said, “I believe that a free market approach in this area will be better for the economy and all concerned parties than the current system.”