Earlier this evening [January 14, 2014], the Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency (the “OCC”), Federal Deposit Insurance Corporation (such three agencies together, the “Banking Agencies”), Securities and Exchange Commission, and Commodity Futures Trading Commission (the “CFTC” and, collectively, the “Agencies”) issued an interim final rule (the “Interim Final Rule”) regarding the treatment of certain collateralized debt obligations backed by trust preferred securities (“TruPS-backed CDOs”) under the final rule (the “Final Rule”) implementing Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), commonly known as the “Volcker Rule.” The Volcker Rule imposes broad restrictions on proprietary trading and investing in and sponsoring private equity and hedge funds (“covered funds”) by banking organizations and their affiliates.
Posts Tagged ‘CFTC’
The 2010 Dodd-Frank Act mandated over 200 new rules, bringing renewed attention to the use of cost-benefit analysis (CBA) in financial regulation. CBA proponents and industry advocates have criticized the independent financial regulatory agencies for failing to base the new rules on CBA, and many have sought to mandate judicial review of quantified CBA (examples of “white papers” advocating CBA of financial regulation can be found here and here). An increasing number of judicial challenges to financial regulations have been brought in the D.C. Circuit under existing law, many successful, and bills have been introduced in Congress to mandate CBA of financial regulation.
Just one day in advance of the December 21, 2013 expiration of the CFTC’s exemptive order delaying the applicability of some CFTC swap regulations for non-U.S. swap dealers and foreign branches of U.S. swap dealers, the CFTC approved a series of comparability determinations. These comparability determinations will allow CFTC-registered non-U.S. swap dealers and foreign branches of U.S. swap dealers to comply with local requirements rather than the corresponding CFTC rules in cases where substituted compliance is available under the CFTC’s cross-border guidance.  The CFTC made comparability determinations for some swap dealer entity-level requirements for Australia, Canada, the European Union (the “EU”), Hong Kong, Japan and Switzerland and for a limited number of transaction-level requirements for the EU and Japan.
These Davis Polk flowcharts are designed to assist banking entities in identifying permissible and impermissible covered fund activities, investments and relationships under the final regulations implementing the Volcker Rule, issued by the Federal Reserve, FDIC, OCC, SEC and CFTC on December 10, 2013.
The flowcharts graphically map the key elements of the covered fund provisions in the final regulations. An introduction to the new covered funds compliance requirements will also be available soon as a standalone module and in a single combined document.
These Davis Polk flowcharts are designed to assist banking entities in identifying permissible and impermissible proprietary trading activities under the final regulations implementing the Volcker Rule, issued by the Federal Reserve, FDIC, OCC, SEC and CFTC on December 10, 2013. An introduction to the new compliance requirements is also included.
To make our summary and analysis of the final rules more user-friendly, these flowcharts graphically map the key restrictions on covered trading activities in lieu of a traditional law firm memo.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) amended section 4a of the Commodity Exchange Act (the “CEA”) to require the Commodity Futures Trading Commission (the “CFTC”) to establish position limits on an aggregate basis for (1) futures and options contracts on agricultural and exempt commodities traded on or subject to the rules of a designated contract market (“DCM”) and (2) contracts based on the same underlying commodity as such futures and option contracts, including (a) swaps listed for trading by a DCM or swap execution facility (“SEF”), (b) swaps that are not traded on a DCM, SEF or other registered entity but which are determined to perform or affect a “significant price discovery function” (“SPDF swaps”) and (c) foreign board of trade (“FBOT”) contracts that are price-linked to a DCM or SEF contract and made available for trading on the FBOT by direct access from within the United States.
Over two years after publication of a proposed regulation, a final regulation implementing the so-called “Volcker Rule” is expected to be adopted tomorrow by the five US Federal financial regulatory agencies.  Two of them—the Federal Reserve and the Commodity Futures Trading Commission—are expected to adopt the regulation at public meetings. According to reports, the explanation and regulatory language may be over a thousand pages long.
Assuming that the agencies go forward as announced, the most important points to look for in a final regulation are:
On November 5, 2013, the Commodity Futures Trading Commission proposed rules to establish new position limits that would apply to 28 agricultural, energy and metals futures contracts, and swaps, futures and options that are economically equivalent to those contracts.  Once adopted, the proposal would reinstate, with certain changes, the position limit rules that were vacated by a U.S. federal court in 2012 (the “Vacated Rules”).  The CFTC also re-proposed aggregation standards that are similar to those initially proposed as amendments to the Vacated Rules, but with a few notable differences, to be used in applying position limits (the “Aggregation Proposal”). 
The proposals would:
On November 5, 2013, the Commodity Futures Trading Commission (the “CFTC” or “Commission”) held a public meeting during which it:
- Voted 3-1, with commissioner O’Malia dissenting, to propose for public comment a new set of rules on position limits (the “Proposed Rules”) applicable to options, futures, and swaps contracts (“derivatives”) related to 28 agricultural, metal, and energy commodities;
- Confirmed that it will voluntarily dismiss its appeal of the September 2012 decision from the United States District Court for the District of Columbia (the “Court”) vacating the Commission’s previous attempt at imposing position limits across derivatives (the “Original Position Limit Rules”); and
- Voted unanimously to propose separately for public comment rules that would expand the availability of aggregation exemptions, as compared to the Original Position Limit Rules, from the CFTC’s aggregation standards applicable to position limits for futures and swaps (the “Proposed Aggregation Rules”).
On September 30, 2013, the Division of Market Oversight of the US Commodity Futures Trading Commission (CFTC) released responses to Frequently Asked Questions regarding Commodity Options (FAQ). While intended to be provide non-binding guidance to affected market participants, the FAQ also serves to highlight the significant complexity of the current analysis required for commodity options.
Andrew K. Soto, Senior Managing Counsel for Regulatory Affairs of the American Gas Association (AGA), in written testimony before the US House of Representatives Committee on Agriculture Subcommittee on General Farm Commodities and Risk Management at a recent hearing regarding the Future of the CFTC: End-User Perspectives effectively summarized this complexity as follows: