Tag: over

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.”

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 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.

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.