Author: Jacob Shipkevich

Equivalence Agreement Might Be Imminent

Currently, CFTC Chairman J. Christopher Giancarlo is on a 10-day trip in Europe. Derivatives industry attorneys speculate that an 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 year. It is possible that both side don’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: http://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo-24

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: http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfdavidlieworder060217.pdf