Posts Tagged ‘CFTC’

Nationalize the Clearinghouses!

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday August 8, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Stephen J. Lubben, Harvey Washington Wiley Chair in Corporate Governance & Business Ethic at Seton Hall University School of Law.

A clearinghouse reduces counterparty risks by acting as the hub for trades amongst the largest financial institutions. For this reason, Dodd-Frank’s seventh title, the heart of the law’s regulation of OTC derivatives, requires that most derivatives trade through clearinghouses.

The concentration of trades into a very small number of clearinghouses or CCPs has obvious risks. To maintain the vitality of clearinghouses, Congress thus enacted the eighth title of Dodd-Frank, which allows for the regulation of key “financial system utilities.” In plain English, a financial system utility is either a payment system—like FedWire or CHIPS—or a clearinghouse.

But given the vital place of clearinghouses in Dodd-Frank, it is perhaps surprising that Dodd-Frank makes no provision for the failure of a clearinghouse. Indeed, it is arguable that the United States is not in compliance with its commitment to the G-20 on this point.

…continue reading: Nationalize the Clearinghouses!

Dodd-Frank At 4: Where Do We Go From Here?

Editor’s Note: David M. Lynn is a partner and co-chair of the Corporate Finance practice at Morrison & Foerster LLP. The following post is based on a Morrison & Foerster publication; the complete text, including appendix, is available here.

Where do we go from here? As we mark another milestone in regulatory reform with the fourth anniversary of the enactment of the Dodd-Frank Act, it strikes us that although most studies required to be undertaken by the Act have been released and final rules have been promulgated addressing many of the most important regulatory measures, we are still living with a great deal of regulatory uncertainty and extraordinary regulatory complexity.

…continue reading: Dodd-Frank At 4: Where Do We Go From Here?

SEC’s Cross-Border Derivatives Rule

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday July 19, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Dan Ryan, Chairman of the Financial Services Regulatory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication.

The SEC provided the “who” but not much else in its final rule regarding cross-border security-based swap activities (“final rule”), released at the SEC’s June 25, 2014 open meeting. Although most firms have already implemented a significant portion of the CFTC’s swaps regulatory regime (which governs well over 90% of the market), the SEC’s oversight of security-based swaps means that the SEC’s cross-border framework and its outstanding substantive rulemakings (e.g., clearing, reporting, etc.) have the potential to create rules that conflict with the CFTC’s approach. The impact that the SEC’s regulatory framework will have on the market remains uncertain, but the final rule at least begins to lay out the SEC’s cross-border position.

…continue reading: SEC’s Cross-Border Derivatives Rule

Banking Agencies Release Limited Volcker Rule Guidance

Editor’s Note: The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Robert W. Reeder III, Camille L. Orme, Whitney A. Chatterjee, and C. Andrew Gerlach. The complete publication, including appendix, is available here.

On June 10, 2014, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (collectively, the “Banking Agencies”) and the Securities and Exchange Commission (the “SEC”) released substantially identical Frequently Asked Questions (“FAQs”) addressing six topics regarding the implementation of section 13 of the Bank Holding Company Act of 1956, as amended, commonly known as the “Volcker Rule.”

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CFTC Provides Streamlined No-Action Relief Filing Procedure

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday June 21, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Carolyn A. Jayne, partner in the Investment Management, Hedge Funds and Alternative Investments practice at K&L Gates LLP, and is based on a K&L Gates publication by Ms. Jayne, Cary J. Meer, and Lawrence B. Patent; the complete publication, including footnotes, is available here.

The Division of Swap Dealer and Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission (“CFTC” or the “Commission”) recently issued CFTC Letter No. 14-69 (May 12, 2014) (the “Letter”), which provides to certain commodity pool operators (“CPOs”) who delegate (the “Delegating CPO”) their CPO responsibilities to registered CPOs (the “Designated CPO”) a standardized, streamlined approach to apply for no-action relief from the requirement to register as a CPO. The Division previously has granted no-action relief to many Delegating CPOs on an individualized basis. However, the Division recently has seen a substantial increase in the number of no-action requests after the rescission of the CPO exemption from registration in Regulation 4.13(a)(4) and the adoption of a broad definition of the types of swaps subject to CFTC regulation. This streamlined approach will eliminate the need for many, but not all, Delegating CPOs to apply for individualized no-action relief, a more labor-intensive and time-consuming endeavor. However, this approach is available only under certain circumstances described below, and not all Delegating CPOs will qualify.

…continue reading: CFTC Provides Streamlined No-Action Relief Filing Procedure

Increased Scrutiny of High-Frequency Trading

Editor’s Note: The following post comes to us from Matthew Rossi, partner in the Securities Litigation & Enforcement practice at Mayer Brown LLP, and is based on a Mayer Brown Legal Update by Mr. Rossi, Joseph De Simone, and Jerome J. Roche. The complete publication, including footnotes, is available here.

Following the publication of Michael Lewis’ new book, Flash Boys: A Wall Street Revolt (“Flash Boys”), plaintiffs’ lawyers and US government regulators have increasingly focused their attention on financial institutions participating in high-frequency trading (“HFT”). Less than three weeks after the release of Flash Boys, private plaintiffs’ lawyers filed a class action lawsuit against 27 financial services firms and 14 national securities exchanges (with additional defendants likely to be named later) alleging that the defendants’ HFT practices in the US equities markets violated the anti-fraud provisions of the federal securities laws. Plaintiffs’ lawyers filed a separate action against The CME Group, Inc. (“CME”) and The Board of Trade of the City of Chicago (“CBOT”) containing similar allegations in US derivatives markets.

…continue reading: Increased Scrutiny of High-Frequency Trading

Senior Manager Liability for Derivatives Misconduct: The Buck Stops Where?

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday May 3, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Clifford Chance LLP and is based on a Clifford Chance publication by David Yeres, Edward O’Callaghan, and Alejandra de Urioste; the full text, including footnotes, is available here.

The buck, so to speak, does not necessarily stop with the individual who personally violates the U.S. Commodity Exchange Act (“CEA”), which regulates a wide array of commodities and financial derivatives trading, including swaps (in addition to traditional futures contracts and physical commodities trading) in U.S. markets or otherwise engaged in by or with any U.S. person. Rather, as illustrated by a recent court ruling permitting regulatory charges to go forward against the former CEO of MF Global, Jon Corzine, liability can extend to senior managers, even if they are not regulatory supervisors and have not culpably participated in any misconduct.

…continue reading: Senior Manager Liability for Derivatives Misconduct: The Buck Stops Where?

Segregation of Initial Margin Posted in Connection with Uncleared Swaps

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday April 19, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Leigh R. Fraser, partner and co-head of the hedge funds group at Ropes & Gray LLP, and is based on a Ropes & Gray publication by Ms. Fraser, Isabel K.R. Dische, and Molly Moore.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act and Commodity Futures Trading Commission (“CFTC”) Rules 23.702 and 23.703 thereunder (together, the “Rules”), swap dealers are required to notify their counterparties that they have the right to require segregation with a third-party custodian of any initial margin (also known as “independent amounts”) posted to the swap dealer in connection with uncleared swaps. As a result of these new rules, the International Swaps and Derivatives Association (“ISDA”) recently published a form of notification and a set of frequently asked questions regarding these rules. All buy-side entities that trade in uncleared swaps with swap dealers (including buy-side entities that already post their margin with a third-party custodian, such as registered investment companies, and buy-side entities that do not post initial margin) should receive a copy of the notification from their swap dealer counterparties in the coming weeks or months and should plan to respond promptly to the notification in order to avoid any trading disruptions.

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Why the Market Should Care About Proposed Clearing Agency Requirements

Editor’s Note: Annette Nazareth is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP, and a former commissioner at the U.S. Securities and Exchange Commission. The following post is based on an article by Ms. Nazareth and Jeffrey T. Dinwoodie that first appeared in Traders Magazine.

On March 12, the SEC issued a 400-page rule proposal that, if adopted as proposed, would impose a multitude of new compliance requirements on The Options Clearing Corporation (“OCC”), The Depository Trust Company (“DTC”), National Securities Clearing Corporation (“NSCC”), Fixed Income Clearing Corporation (“FICC”) and ICE Clear Europe. Since these clearing agencies play a fundamental role in the options, stock, debt, U.S. Treasuries, mortgage-backed securities and credit default swaps markets, the proposed requirements have important implications for banks, broker-dealers and other U.S. securities market participants, as well as securities exchanges, alternative trading systems and other trading venues.

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Dodd-Frank Rules Impact End-Users of Foreign Exchange Derivatives

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday April 3, 2014 at 9:13 am
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Editor’s Note: The following post comes to us from Michael Occhiolini, partner focusing on corporate finance, corporate law and governance, and derivatives at Wilson Sonsini Goodrich & Rosati, and is based on a WSGR Alert memorandum. The complete publication, including annexes, is available here.

This post is a summary of certain recent developments under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) that impact corporate end-users of over-the-counter foreign exchange (FX) derivative transactions and should be read in conjunction with the four prior WSGR Alerts on Dodd-Frank FX issues from October 2011, September 2012, February 2013, and July 2013.

Title VII of Dodd-Frank amended the Commodity Exchange Act (CEA) and other federal securities laws to provide a comprehensive new regulatory framework for the treatment of over-the-counter derivatives, which are generally defined as “swaps” under Section 1a(47) of the CEA. Among other things, Dodd-Frank provides for:

…continue reading: Dodd-Frank Rules Impact End-Users of Foreign Exchange Derivatives

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