Although changes in the regulatory landscape were limited in 2017, several steps, including the Capital Markets Report and Project KISS, may lay the groundwork for more significant developments to come, particularly now that regulatory agencies have new leadership and senior staff and have had an opportunity to review market participant feedback. There also remain a number of outstanding issues and emerging issues that are likely to demand regulatory attention in the coming year.
The US Department of the Treasury recently released its second in a series of four reports evaluating the US financial regulatory system. As it relates to the derivatives markets, the report does not advocate fundamental changes in the regulatory framework but suggests a change in regulatory emphasis. Further, it makes a series of specific recommendations that would broadly make incremental improvements suggested by market participants.
The Board of Governors of the Federal Reserve System recently adopted a final rule requiring US global systemically important banking institutions (GSIBs), their subsidiaries and the US operations of foreign GSIBs (covered entities) to amend many of their qualified financial contracts in order to restrict their counterparties' ability to immediately terminate such contracts in the event that the covered entity or an affiliate enters into bankruptcy or resolution proceedings.
The Commodity Futures Trading Commission (CFTC) has extended and revised no-action relief that provides an exemption from compliance with certain aggregation requirements for CFTC-specified position limits for futures and option trading. CFTC staff have indicated that they may consider further modifications to these requirements during the term of the relief.
The US prudential regulators – including the Federal Reserve Board, the Office of the Comptroller of the Currency and the International Organisation of Securities Commissions – recently issued guidance as to the implementation of variation margin requirements on uncleared swaps. The guidance indicates how the respective supervisory authorities and regulators will approach compliance with the variation margin requirements.
The Commodity Futures Trading Commission Division of Market Oversight (DMO) recently issued a time-limited no-action letter stating that, from February 2017 to August 2017, it will not recommend an enforcement action for failure to file a notice when relying on certain aggregation exemptions from federal position limit levels. The DMO also announced the availability of a portal that provides the form and manner for filing aggregation exemption notices.
The Securities and Exchange Commission (SEC) recently adopted amendments to the expiration dates in its interim final rules that provided exemptions for certain security-based swaps. The SEC noted that the extension has been granted to avoid disruption in the security-based swaps market while it continues to consider the impact of Title VII of the Dodd-Frank Act and whether regulatory action is appropriate.
The US Commodity Futures Trading Commission Division of Swap Dealer and Intermediary Oversight (DSIO) recently issued a time-limited no-action letter which provides that, from March 2017 to September 2017, the DSIO will not recommend an enforcement action against a swap dealer for failure to comply with the variation margin requirements for swaps that are subject to the compliance date.
The Commodity Futures Trading Commission recently issued a no-action relief letter for swaps executed between certain US swap market participants and counterparties located in Australia or Mexico. The letter permits US swap market participants to rely on a provision of the inter-affiliate exemption from required clearing that has previously been available to counterparties located in the European Union, Japan and Singapore.
The Commodity Futures Trading Commission (CFTC) recently issued time-limited no-action relief to derivatives clearing organisations (DCOs) and reporting entities for certain swaps reporting obligations. The CFTC also announced no-action relief for entities submitting swaps for clearing with DCOs acting under exemptive orders or no-action relief that has been provided by the CFTC.
The Commodity Futures Trading Commission (CFTC) Division of Enforcement recently issued two new enforcement advisories outlining the factors that it will consider in evaluating cooperation by individuals and companies in its investigations and enforcement actions. With the issuance of the advisories, the Division of Enforcement aims to further incentivise individuals and companies to cooperate fully and truthfully in CFTC investigations and enforcement actions.
The House of Representatives recently passed HR 238, the Commodity End-User Relief Act – a bipartisan bill to reauthorise the Commodity Futures Trading Commission (CFTC). Although the bill largely mirrors previous legislation reauthorising the CFTC, it includes several regulatory reforms pertaining to the regulation of cross-border swaps and the swap dealer registration threshold.
The Commodity Futures Trading Commission recently released a no-action letter extending further no-action relief from swap data reporting requirements for swap dealers and major swap participants that are not part of an affiliated group in which the ultimate parent is a US swap dealer, major swap participant, bank, bank holding company or financial holding company.
The Commodity Futures Trading Commission recently extended the relief granted under No-Action Letters 15-62 and 15-63 until December 31 2017. The letters exempt inter-affiliate swaps from the trade execution requirement under the Commodity Exchange Act and extend temporary relief from the trade execution requirement to certain affiliate counterparties.
The Commodity Futures Trading Commission (CFTC) recently voted unanimously to re-propose regulations implementing limits on speculative futures and swaps positions as called for in the Dodd-Frank Act. In a separate vote, the CFTC approved final aggregation regulations, which are a key component of the CFTC's existing position limits regime.
The Commodity Futures Trading Commission (CFTC) recently issued a proposed rule establishing minimum capital requirements for swap dealers and major swap participants. Under the proposed rule, the calculation of capital may be performed using the alternative approaches method, which is based on existing US bank regulators' capital requirements or the CFTC's future commission merchant and the Security Exchange Commission's broker-dealer net liquid asset capital requirements.
The Commodity Futures Trading Commission (CFTC) recently issued orders of registration to some foreign boards of trade. CFTC regulations provide that such orders may be issued to a foreign board that possesses the attributes of an established, organised exchange and is subject to continued oversight by a regulator that provides comprehensive supervision and regulation comparable to that exercised by the CFTC.
The Committee on Payments and Market Infrastructures and the International Organisation of Securities Commissions published a joint consultative report on the second batch of key over-the-counter (OTC) derivatives data elements. The consultation develops guidance for regulators on definitions for the second batch of critical data elements that are important for global consistency and the meaningful aggregation of trade repository OTC derivatives transaction data.
The Commodity Futures Trading Commission recently announced that Chair Timothy Massad has signed a counterpart to a memorandum of understanding with the superintendent of securities for Newfoundland and Labrador and the Canadian minister for intergovernmental affairs. The memorandum contemplates cooperation on the regulation of markets and organised trading platforms, central counterparties, trade repositories and intermediaries, dealers and other market participants.
The Commodity Futures Trading Commission (CFTC) recently announced its unanimous approval of a final rule amending CFTC Regulation 3.3 to provide for a 90-day window after the end of an institution's fiscal year for the filing of chief compliance officer annual reports. The amendment applies to futures commission merchants, swap dealers and major swap participants.