CFTC

SEC Division of Investment Management Letter on Cryptocurrency Related Investment Products; Joint Statement by SEC and CFTC Enforcement Directors Regarding Virtual Currency Enforcement Actions

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On January 18, 2018, in a letter to the Investment Company Institute and SIFMA, Dalia Blass, Director of the SEC’s Division of Investment Management, warned market participants against the risks of creating and marketing investment products to retail investors that hold “substantial amounts” in “cryptocurrencies and related products.” The risks/concerns posed by cryptocurrency ETFs and funds, including transparency of information, trading, valuation and custody, were highlighted.

Also, on January 19, 2018, SEC Co-Enforcement Directors Stephanie Avakian and Steven Peikin and CFTC Enforcement Director James McDonald issued the following Statement:

“When market participants engage in fraud under the guise of offering digital instruments – whether characterized as virtual currencies, coins, tokens, or the like – the SEC and the CFTC will look beyond form, examine the substance of the activity and prosecute violations of the federal securities and commodities laws. The Divisions of Enforcement for the SEC and CFTC will continue to address violations and bring actions to stop and prevent fraud in the offer and sale of digital instruments.” Release.

 

CFTC Approves Amendments to Rules on Intermediary Registration and Review of Adverse Actions

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On January 9, 2018, the U.S. Commodity Futures Trading Commission (the “CFTC“) approved final rules that update Parts 3 and 9 to integrate existing advisory guidance, incorporate swap execution facilities (“SEFs“) and update provisions currently applicable to designated contract markets (“DCMs“). Part 3 governs registration of intermediaries and Part 9 relates to CFTC review of exchange disciplinary, access denial, or other adverse actions. Press Release. Rules.

 

Chairman Giancarlo Statement on Virtual Currencies

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On January 4, 2018, the Commodity Futures Trading Commission (CFTC) Chairman, J. Christopher Giancarlo, issued a statement on virtual currencies. “The CFTC’s Market Risk Advisory Committee (MRAC), sponsored by CFTC Commissioner Rostin Behnam, has announced that it will hold a meeting on January 31, 2018 to consider the process of self-certification of new products and operational rules by Designated Contract Markets (DCMs) under the Commodity Exchange Act (CEA) and CFTC regulations . . . . The MRAC meeting is scheduled to take place the week after a January 23, 2018 meeting of the CFTC Technology Advisory Committee (TAC), sponsored by CFTC Commissioner Brian Quintenz, which will consider the related challenges, opportunities, and market developments of virtual currencies. Both the MRAC and TAC January meetings are timely and have the support of the full Commission. My fellow Commissioners and I look forward to thorough and thoughtful discussions.”

The Statement is of particular significance because on December 1, 2017, the Chicago Mercantile Exchange Inc. (CME) and the CBOE Futures Exchange (CFE) self-certified new contracts for bitcoin futures products, and the Cantor Exchange (Cantor) self-certified a new contract for bitcoin binary options. At that time, CFTC Chairman Giancarlo stated that “we have had extensive discussions with the exchanges regarding the proposed contracts, and CME, CFE and Cantor have agreed to significant enhancements to protect customers and maintain orderly markets. The Statement also emphasized that “the Commission will continue to assess whether further changes are required to the contract design and settlement processes . . . These activities include monitoring and analyzing the size and development of the market, positions and changes in positions over time, open interest, initial margin requirements, and variation margin payments, as well as stress testing positions.” Press release.

CFTC’s Division of Market Oversight Extends Time-Limited No-Action Relief for SEFs from Certain Block Trade Requirements

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On November 14, 2017, the U.S. Commodity Futures Trading Commission’s Division (“CFTC“) of Market Oversight extended time-limited no-action relief to swap execution facilities (“SEFs“) from certain requirements under the definition of “block trade” in CFTC regulation 43.2.  The time-limited relief to SEFs is extended until November 15, 2020. The extension will, among other things, provide the Division of Market Oversight more time to review and evaluate SEF trading practices and functionalities for pre-execution credit checks. To read the full press release, click here.

CFTC Launches LabCFTC as Major Fintech Initiative

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On May 17, 2017, the Commodity Futures Trading Commission (“CFTC“) approved the creation of LabCFTC, which it describes as “a new initiative aimed at promoting responsible fintech innovation to improve the quality, resiliency and competitiveness of the markets the CFTC oversees.” LabCFTC will also “look to accelerate CFTC engagement with fintech and RegTech solutions that may enable the CFTC to carry out its mission responsibilities more effectively and efficiently.”

The CFTC intends for LabCFTC to be the agency’s focal point to promote fintech innovation and fair competition by making the CFTC more accessible to fintech innovators and serve as a platform to inform the CFTC’s understanding of new technologies. Moreover, the CFTC intends that LabCFTC will be an information source for the CFTC and its staff on responsible innovation that may influence policy development. For more information regarding LabCFTC click here.

The CFTC identified the following Core LabCFTC Components:

  • GuidePoint: GuidePoint is a new dedicated point of contact for fintech innovators to engage with the CFTC, learn about the CFTC’s regulatory framework and obtain feedback and information on the implementation of innovative technology ideas for the market. The CFTC believes that such feedback may include information that, particularly at an early stage, could help innovators/entities save time and money by helping them understand relevant regulations and the CFTC’s oversight approach.
  • CFTC 2.0: A new initiative to foster and help promote the adoption of new technology within the CFTC’s own mission activities through collaboration with fintech industry and CFTC market participants.

The CFTC intends that LabCFTC will facilitate:

  • Through proactive engagement with the innovator community, a better understanding in the CFTC of how new innovations interact with the regulatory and supervisory framework and identification of areas where the framework could better support responsible innovation.
  • Collaboration among the fintech industry and CFTC market participants that facilitate responsible market innovation and promote the use of technology within the CFTC; CFTC participation in studies and research that facilitate responsible innovation in the markets and promote the use of technology within the agency.
  • Cooperation with financial regulators at home and overseas.
  • Monitoring of trends and developments to ensure that CFTC’s regulatory framework supports – and does not unduly impede – responsible technological innovation.
  • Information sharing about applications of fintech, including potential use cases, benefits, risks and solutions.

Engagement with academia, students and professionals on applications of FinTech relevant in the CFTC space.

CTFC Approves Re-Proposal of Position Limits Regulation

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On December 5, 2016, the U.S. Commodity Futures Trading Commission (“CFTC“) unanimously approved to re‑propose rules that implement limits on speculative futures and swap positions. Separately, the CFTC also approved final rules on aggregation of positions, a component of the existing position limits framework. The comment period ends 60 days after publication of the re-proposal in the Federal Register. Release.

Commission Approves an Order Regarding Swap Dealer Registration De Minimis Exception

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On October 13, 2016, the U.S. Commodity Futures Trading Commission extended until December 31, 2018, the $8 billion swap dealer registration de minimis threshold. Unless it is further modified, the threshold will become $3 billion once the extension expires. Press Release.

CTFC Approves Proposed Rules Addressing Application of Certain CEA Regulations to Cross-Border Transactions

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On October 11, 2016, the U.S. Commodity Futures Trading Commission (“CFTC“) unanimously approved proposed rules relating to the application of certain swap provisions of the Commodity Exchange Act (CEA) and CTFC to cross-border transactions. The proposed rules address, among other things, key terms for cross-border transactions, registration thresholds and external business conduct standards. The comment period ends 60 days after publication of the proposal in the Federal Register. Press Release.

CFTC Extends No-Action Relief for Swap Execution Facilities from Certain “Block Trade” Requirements

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On October 7, 2016, the U.S. Commodity Futures Trading Commission (“CFTC“) Division of Market Oversight extended time-limited no-action relief for swap execution facilities from the “occurs away” requirement from the definition of “block trade” under CFTC Regulation Section 43.2. Relief is extended until November 15, 2017. Press Release. No Action Letter.

CFTC Signs Memorandum of Understanding with Two Mexican Authorities to Enhance Supervision of Cross-Border Regulated Entities

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On September 6, 2016, the U.S. Commodity Futures Trading Commission announced that it “signed a Memorandum of Understanding (MOU) with the Comisión Nacional Bancaria y de Valores (CNBV) and the Banco de México (BDM) regarding cooperation and the exchange of information in the supervision and oversight of certain regulated entities that operate on a cross-border basis in the United States and in Mexico.” Press release.