The Commodity Futures Trading Commission has proposed a series of changes to its general regulations governing derivatives clearing organisations (DCOs). While the proposed amendments intend to (among other things) enhance certain risk management and reporting obligations, many of them would require significant changes to current practice and impose new obligations on DCOs and their clearing members.
The Commodity Futures Trading Commission (CFTC) has proposed the first instalment of a series of amendments to its rules relating to swap data repositories and the reporting of swap data. The proposed amendments, which would affect Parts 23, 43, 45 and 49 of the CFTC's regulations, implement the CFTC's Roadmap to Achieve High Quality Swaps Data and are intended to improve the quality and accuracy of data available to the CFTC and the public and to streamline data reporting.
The International Swaps and Derivatives Association recently published proposed amendments to its 2014 Credit Derivatives Definitions relating to narrowly tailored credit events. The proposal comes in the wake of concerns raised by market participants over certain failure to pay credit events, or claimed failure to pay credit events – in particular, the 2017 agreement by Hovnanian Enterprises to default on an interest payment to an affiliate in order to obtain favourable refinancing terms from GSO Partners.
The Commodity Futures Trading Commission (CFTC) recently published the 2019 examination priorities for its three divisions. This marks the first time that the agency has published its divisions' examination priorities, which serves as part of the CFTC's efforts to advance its Project KISS (which stands for 'Keep It Simple, Stupid') initiative and demonstrates areas that the divisions view as particularly important to self-regulation in US derivatives markets for the coming year.
Towards the end of 2018, the Commodity Futures Trading Commission (CFTC) proposed significant revisions to the framework governing swap trading through swap execution facilities and designated contract markets. Many of these amendments are in line with recommendations contained in CFTC Chair J Christopher Giancarlo's white paper on swaps regulation reform. The proposed changes are intended to reflect developments in the swaps markets since the CFTC's implementation of its current regulations.
Commodity Futures Trading Commission Chair J Christopher Giancarlo recently released a white paper recommending potential reforms to the agency's approach to the extra-territorial, or cross-border, application of its swaps trading rules. According to Giancarlo, the reforms are intended to create a territorial, risk-based approach that relies on greater deference to regulators in jurisdictions with comparable regulatory frameworks (comparable jurisdictions), where appropriate.
The National Futures Association (NFA) recently adopted an interpretive notice that requires futures commission merchants, introducing brokers, commodity pool operators and commodity trading advisers to disclose to customers certain potential risks involved when dealing with virtual currencies and virtual currency derivatives. The notice reflects the NFA's concern that, among other things, customers may not fully understand the nature of these products or the losses that could be sustained.
The Commodity Futures Trading Commission (CFTC) recently proposed amendments to certain requirements for swap dealers and major swap participants to notify counterparties of their right to segregate initial margin for uncleared swaps. The proposal addresses several concerns previously raised by market participants about the existing rules, including through the CFTC's Project KISS initiative, which was intended to lift unnecessary regulatory burdens and reduce costs for market participants.
Commodity Futures Trading Commission (CFTC) Chair J Christopher Giancarlo and Chief Economist Bruce Tuckman recently published a white paper on potential reforms to the CFTC's swaps trading rules. The white paper proposes a series of changes to rules relating to transactions on swap execution facilities. Accompanying statements note that commission staff is expected to propose a formal rulemaking in this area in Summer 2018.
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 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 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 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 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 (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 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.
The Federal Reserve Board recently issued a notice of proposed rulemaking to tighten capital and other regulatory requirements on financial holding companies (FHCs) that participate in physical commodity trading activities, to remove copper from the list of metals that bank holding companies are permitted to own and store as an activity closely related to banking, and to rescind previous orders authorising certain FHCs to engage in energy management services and tolling activities.
Timothy Massad, chair of the Commodity Futures Trading Commission (CFTC), recently spoke at the Securities Industry Financial Markets Association annual meeting about clearinghouse regulation, technological changes and finishing Dodd-Frank rulemaking. Massad also noted that the CFTC is considering lowering the de minimis threshold, and that it intends to re-propose rules on capital requirements for swap dealers and major swap participants.
The Commodity Futures Trading Commission recently expanded the existing clearing requirement to interest rate swaps through an amendment to Regulation 50.4(a), requiring that market participants submit a covered swap for clearing by a derivatives clearing organisation. The amendment expanded four interest rate swap classes to require clearing by a derivatives clearing organisation.
The Securities and Exchange Commission (SEC) recently voted to establish enhanced standards for the operation and governance of securities clearing agencies that are deemed systemically important by the Financial Stability Oversight Council or that are involved in complex transactions. The SEC also voted to propose to apply the enhanced standards to other categories of securities clearing agency.
The Commodity Futures Trading Commission (CFTC) Division of Market Oversight recently extended time-limited no-action relief to swap execution facilities from certain requirements in the definition of 'block trade' in CFTC regulations. Among other things, the extension will allow the division to continue to evaluate best practices and a more permanent solution to the issues involved in screening block trade orders for compliance with risk-based limits.
The Commodity Futures Trading Commission recently announced that Chair Timothy Massad and Andrew Bailey, chief executive of the UK Financial Conduct Authority, have signed a memorandum of understanding regarding cooperation and the exchange of information in the supervision and oversight of certain regulated firms that operate on a cross-border basis in the United States and the United Kingdom.
The Commodity Futures Trading Commission (CFTC) recently approved a final rule instituting system safeguards testing requirements for designated contract markets, swap execution facilities, swap data repositories and derivatives clearing organisations. In addition, the CFTC issued a comparability determination for Japan's margin requirements for uncleared swaps.
As part of his keynote remarks at the fourth annual Over-The-Counter Derivatives Summit, Commodity Futures Trading Commission Chair Timothy Massad addressed the commission's achievements in the past year. More specifically, Massad discussed the implementation of global rules setting margin for uncleared swaps and the de minimis threshold for swap dealers.
The US Commodity Futures Trading Commission recently approved a final rule to amend existing swaps reporting regulations in order to provide additional clarity to swap counterparties and registered entities regarding their reporting obligations for cleared swap transactions. The rule will become effective 180 days after it is published in the Federal Register.
The US Commodity Futures Trading Commission (CFTC) recently proposed an amendment to CFTC Regulation 50.4(a) that would require certain additional interest rate swaps to be cleared by market participants through either a registered derivatives clearing organisation or a derivatives clearing organisation that has been exempted from registration under the Commodity Exchange Act.
The US Securities and Exchange Commission recently adopted a final rule requiring security-based swap dealers and major security-based swap participants to provide trade acknowledgements for security-based swap transactions. Covered entities are required to establish, maintain and enforce written policies and procedures that are reasonably designed to obtain prompt verification of the terms of all trade acknowledgements that they provide.
The US Commodity Futures Trading Commission recently issued a no-action letter which provides relief to swap execution facilities and designated contract markets to correct clerical or operational errors that cause a swap to be rejected for clearing and thus become void, as well as errors discovered after a swap has been cleared.
The US Commodity Futures Trading Commission recently announced the signing of a memorandum of understanding with the European Securities and Markets Authority (ESMA) regarding cooperation with respect to recognised central counterparties. Pursuant to the memorandum, derivatives clearing organisations established in the United States may apply to ESMA for recognition as central counterparties.
The US Commodity Futures Trading Commission (CFTC) recently issued for public comment a supplement to its position limits proposal of December 2013. The supplement would permit exchanges to recognise, subject to CFTC review, certain positions in commodity derivative contracts as non-enumerated bona fide hedges or enumerated anticipatory bona fide hedges, as well as to exempt certain spread positions from federal position limits.
The Commodity Futures Trading Commission (CTFC) has issued a rule implementing a cross-border approach to its margin requirements for uncleared swaps. The CFTC's margin rule applies to CFTC-registered swap dealers and major swap participants for which there is no prudential regulator, but these rules are closely aligned with the cross-border margin requirements already adopted by the prudential regulators.
The US Commodity Futures Trading Commission (CFTC) recently approved a final rule to amend a requirement in CFTC Regulation 23.500(i) that swap dealers and major swap participants exchange the terms of swaps with their counterparties for portfolio reconciliation. The final rule also amends the definition of 'material terms' in CFTC Regulation 23.500(g).
The CFTC chairman Timothy Massad and authorities for three Canadian provinces recently signed a March 2014 memorandum of understanding. It concerned cooperation and coordination between the jurisdictions with respect to derivatives and securities markets, as well as the supervision and oversight of regulated entities that operate on a cross-border basis in the United States and Canada.
On April 15 2016 the US Securities and Exchange Commission (SEC) – in its ongoing effort to regulate the over-the-counter security-based swap markets – adopted final rules under Title VII of the Dodd-Frank Act implementing comprehensive business conduct standards and chief compliance officer requirements for security-based swap dealers and major security-based swap participants.
The Commodity Futures Trading Commission (CFTC) Division of Market Oversight has issued a no-action letter extending the period for relief from the requirement in CFTC Regulation 37.6 that a swap execution facility obtain documents incorporated by reference in a trade confirmation issued by the swap execution facility before issuing the confirmation.
The Commodity Futures Trading Commission (CFTC) has approved a final rule that removes certain reporting and record-keeping requirements for trade option counterparties that are neither swap dealers nor major swap participants. The final rule eliminates the Form TO annual notice reporting requirement for otherwise unreported trade options in CFTC Regulation 32.3(b).
The European Commission has published its equivalence decision on the derivatives regulatory regimes for derivatives clearing organisations in the United States. The decision followed the announcement by the Commodity Futures Trading Commission and the European Commission of a common approach on the supervision of central clearing counterparties operating in the United States and the European Union.
On March 28 2016 the US Commodity Futures Trading Commission (CFTC) approved a final rule that would allow a foreign natural person applying for CFTC registration to complete and submit a criminal history background check as an alternative to submitting fingerprints.
The Commodity Futures Trading Commission (CFTC) proposed a rule offering an alternative to the requirement for foreign natural persons to provide fingerprints when applying for CFTC registration. Under the proposal, any such person's registered firm may complete a criminal history background check instead of submitting fingerprints.
The Commodity Futures Trading Commission (CFTC) has issued an order under the Commodity Exchange Act delegating to the National Futures Association (NFA) certain reporting and administrative responsibilities. Among other things, the NFA will receive, review and maintain notices of swap valuation disputes in excess of $20 million filed by swap dealers and major swap participants pursuant to CFTC Regulation 23.502(c).
The Commodity Futures Trading Commission (CFTC) Division of Market Oversight has extended no-action relief originally provided in CFTC Letter 13-41. The letter permits the masking of certain reportable identifying information in required reports in light of privacy, secrecy and blocking laws in certain jurisdictions.
The Commodity Futures Trading Commission has launched a new website to provide the public with information about whistleblower rights and protections and to allow the public to submit tips about potential violations of the Commodity Exchange Act online.
The Commodity Futures Trading Commission (CFTC) has granted permanent registration to 18 swap execution facilities that trade interest rate swaps and credit default swaps, all of which were previously operating under temporary registration status. The CFTC continues to review the registration of five remaining swap execution facilities that are currently operating under temporary registration status.
The Farm Credit Administration, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Federal Reserve Board and the Office of the Comptroller of the Currency recently jointly issued a final rule establishing margin requirements for uncleared swaps. Both the final rule and interim final rule will be effective from April 1 2016. The final rule will be phased in from September 1 2016 to September 1 2020.
The US Commodity Futures Trading Commission Division of Market Oversight has extended existing time-limited no-action relief for swaps executed as part of certain package transactions that currently receive relief from the requirement that such swaps be executed on a designated contract market or swap execution facility under CFTC Letter 14-137.
Retail customers investing in the foreign exchange market face heightened risks, including the risk of losses incurred by minor price movements in the market. In light of this, the US Commodity Futures Trading Commission recently approved rule amendments and a new interpretive notice filed by the National Futures Association, in order to increase protection for retail customers of forex dealer members.
The US Securities and Exchange Commission recently took several incremental steps towards completing its regulatory framework for security-based swap dealers and majority security-based swap participants. It unanimously adopted final rules providing the registration process for security-based swap entities, including the detailed forms that registrants will be required to file, and agreed to establish a disqualification waiver process.
The Commodity Futures Trading Commission has taken another step in refining its framework for cross‑border activities, with a new set of proposed rules on the cross‑border application of margin requirements for uncleared swaps. The proposal reflects certain aspects of the cross‑border approach proposed by the US prudential regulators in their parallel proposed rules with respect to uncleared swap margin for swap entities.
The Commodity Futures Trading Commission (CFTC) Division of Market Oversight recently issued a no-action letter extending time-limited relief to swap dealers and major swap participants from the obligation to report valuation data for cleared swaps. The division will not recommend that the CFTC takes action against swap dealers or major swap dealers for failing to comply with its requirements in that regard.
The US Commodity Futures Trading Commission Division of Swap Dealer and Intermediary Oversight recently issued no-action relief from introducing broker and commodity trading adviser registration to persons located outside the United States that facilitate swap transactions for international financial institutions that have offices in the United States. The relief granted is consistent with prior treatment of international financial institutions.
The Commodity Futures Trading Commission and the Securities and Exchange Commission recently issued an interpretation concerning forward contracts with embedded volumetric optionality. The interpretation identifies when an agreement, contract or transaction would fall within the forward contract exclusions from the 'swap' and 'future delivery' definitions in the Commodity Exchange Act.
The Securities and Exchange Commission recently adopted Regulation SBSR, the final rule regarding reporting of security-based swap information to registered swap data repositories and the public dissemination of security-based swap transaction, volume and pricing information by registered swap data repositories. The SEC simultaneously proposed certain amendments to the regulation.
The US Commodity Futures Trading Commission recently reopened the comment periods for two position limit draft rulemakings for an additional 30 days, in order to accommodate questions and comments that may have arisen from a February Energy and Environmental Markets Advisory Committee meeting.
Prudential regulators have proposed rules regarding margin requirements for uncleared swaps which would apply to swap dealers, security-based swap dealers, major swap participants and major security-based swap participants. The Commodity Futures Trading Commission has proposed rules for parties outside the jurisdiction of the prudential regulators. Both sets of rules are substantially similar and reflect international standards.
The Securities and Exchange Commission has published final rules regarding security-based swap data repository registration and security-based swap reporting in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act. The new regulation is part of the overall regulatory agenda to improve transparency in the over-the-counter derivatives markets.
The Commodity Futures Trading Commission (CFTC) recently issued CFTC Letter 15- 03, which provides additional time for reporting parties to comply with certain reporting requirements of the ownership and control final rule. The final rule requires the electronic submission of trader identification and market participant data reporting forms.
The Commodity Futures Trading Commission has issued a public consultation on the feasibility of the first derivatives venue for Bitcoin options. It is seeking comment on applications submitted by LedgerX, LLC, a technology start-up, for registration as a derivatives clearing organisation and swap execution facility.
The Commodity Futures Trading Commission (CFTC) has issued a no-action letter extending and expanding on previously issued relief from oral recordkeeping requirements for commodity trading advisers under CFTC Regulation 1.35(a).
The Commodity Futures Trading Commission has issued no-action relief to entities operating issuers of insurance-linked securities which exempts them from commodity pool operator registration, subject to certain conditions.
The Commodity Futures Trading Commission has issued no-action relief for family offices from commodity trading adviser registration for advisory services that they offer to family clients. To be eligible for this relief, a family office must remain in compliance with the exclusion of family offices from the definition of 'investment adviser'.
The Commodity Futures Trading Commission has issued a no-action letter modifying relief that was previously issued for treasury affiliates. The new letter provides relief from required clearing for 'eligible treasury affiliates' that are wholly owned by a non-financial parent company and are defined as 'financial entities' under the Commodity Exchange Act.
The US Commodity Futures Trading Commission's Division of Swap Dealer and Intermediary Oversight has confirmed that a futures commission merchant may credit a customer's futures, foreign futures and/or cleared swaps trading account for a margin payment upon its initiation of a withdrawal from the customer's bank account using the Automated Clearing House transaction system.
The Board of Governors of the Federal Reserve System, together with a number of other agencies, recently issued a notice of proposed rulemaking to establish margin requirements for swap dealers, major swap participants, security-based swap dealers and major security-based swap participants. The proposed rule modifies and expands an earlier rule – first released in April 2011 – based on comments received on that rule.
The US Commodity Futures Trading Commission's Division of Swap Dealer and Intermediary Oversight recently issued a no-action letter for commodity pool operators of certain commodity pools that are non-registered investment companies and use wholly owned trading subsidiaries to trade commodity interests.
The US Commodity Futures Trading Commission recently extended the time-limited no-action relief from compliance with valuation reporting obligations, the comment period for its proposals on position limits for physical commodity derivatives and aggregation and the time-limited, no-action relief to futures commission merchants.