Bridging the Week by Gary DeWaal: May 26 to 30 and June 2, 2014 (Exempt DCOs Coming Soon; US a Laggard Related to PFMIs; NFA Gives an Early Christmas)

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Published Date : June 01, 2014

A shortened workweek for most in the US and for some in Europe seems to have inspired a slowdown in regulatory developments worldwide impacting the financial services industry. As a result, only the following few matters are covered in this week’s Bridging the Week:

Also, FINRA has issued a supplement to the standard form of the 2002 Securities Futures Risk Disclosure Statement. 

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CFTC Acting Chairman Again Previews That Exempt Foreign DCOs Are Likely Coming Soon

In a speech last week before an attorney group in Washington, DC, Acting Chairman Mark Wetjen highlighted recent accomplishments of the Commodity Futures Trading Commission in implementing Dodd-Frank, particularly related to rolling-out the Commission’s trading mandate, addressing “market structure issues related to risk controls” and risk controls by futures commission merchants, and adjusting rules to accommodate end users.

In addition, Mr. Wetjen again disclosed that he has instructed the staff of the CFTC to develop “a process for recognizing foreign clearinghouses under authority provided by Congress in Dodd-Frank.” This process presumably would permit such entities to act as derivatives clearing organizations exempt from US registration requirements and to process transactions for at least certain US persons. (For a discussion regarding the authorization of the CFTC to permit exempt DCOs, see the article (and related My View commentary) “CFTC Grants No Action to HK Clearing Entity to Act as DCO Temporarily for US Persons Without Registration” by clicking here.) 

In his presentation, the acting chairman also acknowledged that, despite the CFTC’s relief earlier this year to certain qualified trading venues (QMTF) in Europe to host trading by US persons without registering as a swap execution facility, no QMTF has taken advantage of the relief.  Mr. Wetjen claimed that this development is a function of business considerations and not of regulatory difficulty:

“Some have suggested that the reason there is not a QMTF currently operating pursuant to this effort is because the conditions were not calibrated appropriately. I disagree. The most agile platforms were able to adopt standards to comply with these conditions within the extended time frame provided by the Commission, but either chose not to or pursued a different regulatory course. A better explanation for the lack of uptake is that last year many global financial institutions restructured their operations in a way that made the relief less useful given its timing.”

(For details on this relief, see article “CFTC Grants Conditional Relief for Swaps Trading on Certain Multilateral Trading Facilities Overseen by EU Regulators” by clicking here.  See also the article “CFTC Extends No-Action Relief to Swaps Executed on EU Regulated MTFs” by clicking here.) 

Finally, Mr. Wetjen also indicated that the Commission will soon provide guidance on how FCMs can comply with pre-execution risk control requirements in connection with block trades, and noted that since so-called package transactions (those where at least one leg involves a swap subject to the CFTC trading mandate) have been required since May 16 to trade on a SEF or designated contract market, “…some preliminary data suggests that these efforts may actually be accelerating the move to both regulated and electronic trading.”

And briefly:

And even more briefly

For more information, see:

CFTC Acting Chairman Mark Wetjen's Remarks:

CFTC Schedules Roundtable Regarding Position Limits for Physical Commodity Derivatives:

CFTC TAC Agenda Set:

Federal Judge Blocks Defendants’ Subpoena for Identity of Confidential Informant in CFTC Manipulation Action:

FIA Releases Revised Customer Funds Q&As:

FINRA 2014 Supplement to 2002 Securities Futures Risk Disclosure Document:

See also 2010 Supplement:

ICE Clear Europe and Its FCM Clearing Members Authorized to Commingle Domestic and Foreign Futures and Options in a Single Segregation Account for Portfolio Margining:

IOSCO Rates Countries' Implementation of the Principles for Financial Market Infrastructure; US Assessed a Laggard:

NFA Fee Reduction:

NYPC Withdraws as DCO:

The information in this article is for informational purposes only and is derived from sources believed to be reliable as of May 31, 2014. No representation or warranty is made regarding the accuracy of any statement or information in this article. Also, the information in this article is not intended as a substitute for legal counsel, and is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The impact of the law for any particular situation depends on a variety of factors; therefore, readers of this article should not act upon any information in the article without seeking professional legal counsel. Katten Muchin Rosenman LLP and/or Gary DeWaal may represent one or more entities mentioned in this article. 

Circular 230 Disclosure: Pursuant to regulations governing practice before the Internal Revenue Service, any tax advice contained in this article is not intended or written to be used and cannot be used by a taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.


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