Tag: Dodd-Frank Act

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.

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.

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 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.

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.

Federal Agencies Allow Interim Collateralized Debt Obligations With Interim Rule

According to CFTC.gov, 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 cftc.gov 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.

CFTC.gov 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.

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.

Federal Reserve Completes Swaps Push out Rule

According to Bloomberg, the Federal Reserve has completed a new rule based on a Dodd-Frank Act requirement known as the push out rule, which will force banks to fence off foreign derivatives trades from US branches.

The push out rule, which hasn’t been changed since its initial drafting in back in June, will go into effect on January 31st. For the time being, uninsured foreign branches of US banks will be treated as though they have government backing—including deposit insurance.

Though the rule is supposed to go into effect on the 31st, many banks have already asked for and received grace periods of up to two years to comply.

In an attempt to make the market safer after derivative trading was linked to the financial crises of 2008, the push out rule has been designed to alleviate pressure from the US government in the event of another crisis by forcing foreign bank branches to separate certain equity, some commodity, and non-cleared credit derivatives from US branches.

With the push out rule coming into effect at the end of next month, banks will now have to either stop the affected swaps trading or move it to properly capitalized affiliates.