Category: Uncategorized

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:

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 to discuss reworked speculation limit rule

According to Bloomberg, key members of the Commodity Futures Trading Commission (CFTC) will meet tomorrow to work on a new version of a proposal to limit speculation.

The rule was initially conceived by the CFTC as a way to limit the banks’ ability to control specific markets after speculators were blamed for huge price increases on commodities like wheat and oil in 2008. However, the rule was shot down by District Judge Robert L. Wilkins after being challenged by Wall Street groups, ruling that the CFTC did not provide enough reasoning to prove that the rule was necessary.

In order to create a proposal that has a chance of passing, the CFTC will have to include significant economic analysis that proves the need for limits on speculation.

While talk of reworking their rule had been around for a while, the CFTC had also filed for an appeal on the ruling of their previous proposal, which they now say they will drop in favor of their rewritten proposal.

It is possible that some aspects of the proposal might change. While both CFTC Chairman Gary Gensler and Commissioner Bart Chilton support the previous rule, Commissioner O’Malia has voiced contention with it.

Should the CFTC come to an agreement on a new proposal, businesses and other groups would have about a month to discuss it  before it could be put up for a vote.

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.

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.

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.