Category: CFTC

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:[email protected]/documents/legalpleading/enfdavidlieworder060217.pdf

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.

FIA Sets Forth Five Core Principles in Enhancing CFTC Market Surveillance

In a response to a request by the CFTC’s Technology Advisory Committee for comment on how best to develop a 21st century surveillance system, the Financial Industry Association (FIA) and the FIA Principal Traders Group submitted a comment letter this week setting forth five core principles for modernizing market surveillance. In the comment letter, Walt Lukken, president and CEO of the FIA, urged the CFTC to rely heavily on existing resources moving forward, even as it “leverage[s] the evolving and changing technological landscape and reform[s] its surveillance and oversight mission in a significant and technologically-adept way.”

The FIA suggested that the CFTC approach surveillance modernization in a manner consistent with its longstanding practice of delegating front-line surveillance responsibilities to the exchanges themselves and that the regulatory body avoid building new systems that replicate those built or commissioned by existing exchanges. Even in implementing new enhanced cross-DCM surveillance routines, the FIA contended, the CFTC could utilize existing large trader and daily transaction reports to test and validate these processes. Additionally, the FIA stressed the importance of increasing the technical and analytical expertise of the CFTC staff through training and targeted hiring, and encouraged the CFTC to maintain data privacy as a priority in developing new market surveillance systems.

 

 

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.”