4 Trading Regulations

2020 ◽  
Author(s):  
Liebi Martin ◽  
Markham Jerry W ◽  
Brown-Hruska Sharon ◽  
De Carvalho Robalo Pedro ◽  
Meakin Hannah ◽  
...  
Keyword(s):  
Financial Services ◽  
Foreign Currency ◽  
Securities And Exchange Commission ◽  
European Economic Area ◽  
Forward Contracts ◽  
Futures Trading ◽  
Over The Counter ◽  
Futures Options ◽  
Commodity Futures Trading Commission ◽  
Market Infrastructure

This chapter focuses on trading regulations. Derivative trading in financial instruments on organized exchanges consists largely of the following instruments: futures, options, options on futures, and swaps. Those transactions are differentiated from ‘cash’ transactions and ‘forward’ contracts. Forward and cash contracts are traded in over-the-counter (OTC) markets, which are generally subject to the day-to-day oversight of a government financial services regulator. Nevertheless, OTC cash and forward transactions may not entirely be free of governmental restrictions. For example, in the US, the anti-manipulation prohibitions in the Commodity Exchange of 1936 (CEA) may be applied to trading in cash and forward contracts where they are effected in order to create artificial prices. Particular OTC derivative transactions involving retail customers in foreign currency are also subject to regulation by US authorities, including the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), and banking regulators. The purpose of those regulations is to protect unsophisticated retail customers from fraudulent business conduct and dealer failures. Meanwhile, the trading in OTC derivatives in the EU and the European Economic Area (EEA) is regulated under the European Market Infrastructure Regulation (EMIR) as amended by EMIR Refit.

Commodity Exchanges and Regulation

2018 ◽  
Author(s):  
Jerry W. Markham
Keyword(s):  
Foreign Currency ◽  
Securities And Exchange Commission ◽  
Commodity Futures ◽  
Futures Trading ◽  
Financial Responsibility ◽  
Market Participants ◽  
Futures Options ◽  
Currency Exchange ◽  
Financial Derivative ◽  
Commodity Futures Trading Commission

The U.S. Commodity Futures Trading Commission (CFTC) intensively regulates commodity futures, options, and swaps pursuant to the provisions of the Commodity Exchange Act of 1936. The Securities and Exchange Commission (SEC) and federal banking agencies also have some jurisdiction over derivative financial instruments. This chapter describes the CFTC regulations, including registration requirements for designated contract markets, clearinghouses, and various swap market participants. It also describes the financial responsibility requirements imposed on futures commission merchants and safeguards for customer funds in the futures markets. Additionally, the chapter addresses prohibitions against misleading sales activities, deceptive trading practices, and price manipulations. Finally, it reviews the role of the SEC and bank regulators in regulating financial derivative contracts, particularly securities derivatives and foreign currency exchange transactions.

Differentiating Centralization and Overlap in Swap Regulation

2019 ◽  
pp. 127-148
Author(s):  
Alejandro E. Camacho ◽  
Robert L. Glicksman
Keyword(s):  
Securities And Exchange Commission ◽  
Commodity Futures ◽  
Title Vii ◽  
Regulatory Regime ◽  
Securities Markets ◽  
Futures Trading ◽  
Commodity Futures Trading Commission ◽  
Legislative Changes ◽  
Over Time

This chapter explains how legislative changes to, and the broader commentary on, US derivatives regulation illustrate the value of parsing the overlap/distinct and centralization/decentralization dimensions in assessing the tradeoffs of regulatory allocations. The Securities and Exchange Commission and the Commodity Futures Trading Commission have been tasked with decentralized authority over securities and futures, respectively. Over time, their jurisdictions have increasingly overlapped as the futures and securities markets converged. Reorganization proposals and legislation to correct perceived problems with the overlapping, decentralized regulatory regime (such as Title VII of the Dodd-Frank Act) have usually failed to parse the various tradeoffs between overlap and distinct or between centralized and decentralized authority. By limiting their analysis, policymakers and observers of derivatives regulation may have misdiagnosed problems with the existing allocation or missed potential opportunities to craft different regulatory configurations that might have better accommodated policy tradeoffs or been more politically viable.

Securities Regulation

2019 ◽  
pp. 287-324
Author(s):  
Alan N. Rechtschaffen
Keyword(s):  
Hedge Funds ◽  
Financial Regulation ◽  
Regulatory Reform ◽  
Securities And Exchange Commission ◽  
Securities Regulation ◽  
Futures Trading ◽  
Product Lines ◽  
Wall Street ◽  
Consumer Protection Act ◽  
Commodity Futures Trading Commission

Prior to the 2007 financial crisis, financial regulation was compartmentalized along lines of segmented financial instruments. With the exception of the regulation of swaps as described in chapter 14, post-crisis regulatory reform maintains this bifurcation of regulation along product lines between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The SEC and the CFTC have begun to issue rules establishing a coordinated approach to regulating certain derivatives under the Wall Street Reform and Consumer Protection Act (widely known as the Dodd-Frank Act) in particular as they relate to swaps. This chapter discusses the jurisdiction of the SEC, what constitutes a security, sellers’ representations, consequences of securities, hedge funds, and derivatives regulation.

Recent key Bitcoin and virtual currency regulatory and law enforcement developments

2015 ◽  
Vol 16 (1) ◽  
pp. 13-18 ◽  
Author(s):  
Evan L. Greebel ◽  
Kathleen Moriarty ◽  
Claudia Callaway ◽  
Gregory Xethalis
Keyword(s):  
New York ◽  
Law Enforcement ◽  
Financial Services ◽  
New York State ◽  
Securities And Exchange Commission ◽  
Regulatory Regime ◽  
York State Department ◽  
Virtual Currency ◽  
Content Type ◽  
Commodity Futures Trading Commission

Purpose – To explain and draw conclusions from six recent bitcoin and virtual currency regulatory and law enforcement developments. Design/methodology/approach – Discusses and draws conclusions from six recent, important developments: two administrative rulings from the Financial Crimes Enforcement Network (FinCEN), recent remarks by New York State Department of Financial Services Superintendent Benjamin Lawsky, remarks by Mark Wetjen of the Commodity Futures Trading Commission (CFTC), a recent Securities and Exchange Commission (SEC) informational sweep of crowdsales of crypto-equity, and the US Department of Justice proceedings against Trendon Shavers. Findings – Rather than trying to stifle or control virtual currencies, US governmental entities recognize the long-term value of virtual currencies and are trying to create a regulatory regime to foster growth and development, and an atmosphere where institutional and retail investors are protected. Originality/value – Provides an overview of the key United States regulatory issues facing companies engaged in Bitcoin-related businesses.

Cryptocurrency regulations will become more variable

2018 ◽  
Keyword(s):  
Securities And Exchange Commission ◽  
Futures Trading ◽  
Content Type ◽  
Securities Law ◽  
The Us ◽  
Commodity Futures Trading Commission ◽  
Regulatory Scrutiny ◽  
Market Capitalisation ◽  
And Control

Subject Cryptocurrency classification. Significance The classification of crypto assets under US securities law is less clear than in Japan, China and South Korea, but a working group comprising senior officials of the US Securities and Exchange Commission (SEC) and the US Commodity Futures Trading Commission (CFTC) is discussing it. The unclear status of Ethereum’s ether and Ripple’s XRP, the second- and third-largest crypto assets by market capitalisation, is the centre of attention. Impacts Mined crypto assets including bitcoin and litecoin are likely to remain classed as commodities. Ether and XRP are unlikely to be designated as commodities as they were initial coin offerings (ICOs) but also not as standard securities. As ICOs come under increasing regulatory scrutiny and control, more will fail, but a few may achieve notable success.

Derivatives

2019 ◽  
pp. 157-198
Author(s):  
Alan N. Rechtschaffen
Keyword(s):  
Interest Rates ◽  
Foreign Currency ◽  
Credit Derivatives ◽  
Counterparty Risk ◽  
Treasury Bonds ◽  
Over The Counter ◽  
Futures Options ◽  
Counterparty Credit Risk ◽  
Stock Indexes ◽  
Versus Exchange

Derivatives provide a means for shifting risk from one party to a counterparty that is more willing or better able to assume that risk. The counterparty's motivation for assuming that risk might be to manage its own risk or to enhance yield (make money). Derivatives transactions may be based on the value of foreign currency, U.S. Treasury bonds, stock indexes, or interest rates. There are four types of derivatives contracts: forwards, futures, swaps, and options. This chapter discusses the following: counterparty credit risk, over-the-counter versus exchange-traded derivatives, shifting risk, types of derivatives, reduction of counterparty risk, suitability as hedging instruments, distinction between forwards and futures, foreign exchange forwards and futures, options, characteristics of swaps, and credit derivatives.

CFTC clarifies and expands relief relating to delegation of commodity pool operator responsibilities

2015 ◽  
Vol 16 (1) ◽  
pp. 69-73
Author(s):  
Cary Meer ◽  
Lawrence B. Patent
Keyword(s):  
Financial Services ◽  
Design Methodology ◽  
Commodity Futures ◽  
Investment Management ◽  
Futures Trading ◽  
Content Type ◽  
Commodity Futures Trading Commission ◽  
Practical Guidance

Purpose – To explain CFTC No-Action Letter 14-126, issued on October 15, 2014 by the Commodity Futures Trading Commission Division of Swap Dealer and Intermediary Oversight, which sets forth a number of conditions with which a commodity pool operator (“CPO”) that delegates its CPO responsibilities (“Delegating CPO”) to a registered CPO (“Designated CPO”) must comply in order to take advantage of no-action relief from the requirement to register as a CPO. Design/methodology/approach – Explains the modified conditions provided by Letter 14-126, including clarification of the permissible activities in which a Delegating CPO seeking to take advantage of registration no-action relief may engage regarding investment management, solicitation, and management of pool property; lists other criteria carried over from Letter 14-69 of May 12, 2014; provides analysis and discusses limitations of the relief provided by the CFTC No-Action letter. Findings – The letter makes more liberal several of the conditions set forth in CFTC Letter 14-69 of May 12, 2014, with which many Delegating CPOs could not comply. Originality/value – Practical guidance from experienced financial services lawyers.

scholarly journals Corporate culture and frauds: a behavioral finance analysis of the Barclays-LIBOR case

2013 ◽  
Vol 11 (1) ◽  
pp. 447-463 ◽  
Author(s):  
Enrico Maria Cervellati ◽  
Luca Piras ◽  
Matteo Scialanga
Keyword(s):  
Corporate Culture ◽  
Behavioral Finance ◽  
Financial Services ◽  
Financial Industry ◽  
Department Of Justice ◽  
Dominant Culture ◽  
Futures Trading ◽  
Market Participants ◽  
The Us ◽  
Commodity Futures Trading Commission

The aim of this paper is to use behavioral finance to explain the factors that brought Barclays Plc. to face a £290 million fine (about $440 million), having deliberately tried to manipulate the LIBOR (London Interbank Offered Rate). This sums to the £59.5 million fined by the British Financial Services Authority (FSA) – the highest fine ever imposed by this organization – and respectively £102 million and £128 million by the US Department of Justice and by the Commodity Futures Trading Commission (CFTC). We analyze the reports issued by the U.S. and the British regulatory agencies, and those of financial analysts. Even though the focus of analysis are Barclays’ actions, we compare them with what other market participants did at the time of the analyzed events, to offer a comprehensive look at the financial industry and its dominant culture. In particular, after describing LIBOR rate determination methodology and the behavior of Barclays personnel when violations occurred, we present Barclays’ failures in organizing its own control systems and establishing a proper corporate culture. Finally, we analyze the behavior of market participants and supervisory authority in evaluating Barclays’ financial and ethical performance.

The Collateral-Linked Currency Forward (CLCF) Contract: Blockchain-Enabled OTC Currency Forward Market Infrastructure

2018 ◽  
Keyword(s):  
Financial Markets ◽  
Price Volatility ◽  
Primary Source ◽  
Counterparty Risk ◽  
Forward Contracts ◽  
Over The Counter ◽  
Market Participants ◽  
Distributed Ledger ◽  
Forward Contract ◽  
Market Infrastructure

We eliminate the primary source of uncompensated risk from trading in one of the largest sectors of the global financial markets. Market infrastructure enhancements are achieved in the foreign exchange (FX) forward contract market by integrating distributed ledger technology (DLT) into the creation of collateral-linked contracts for currency forwards (CLCF). Specifically, we deploy DLT with embedded automation as the shared platform for bilateral FX forward contracts, including operational provisions of International Swaps and Derivatives Association and Credit Support Annex agreements. Through automation, we link the economics of the currency forward contract and the price-volatility-induced counterparty exposures, bringing intraday counterparty risk to within mutually acceptable ranges. The essential benefits of the over-the-counter market structure are preserved because CLCF contracts remain bilateral to allow for customized terms and conditions between market participants. Reduced concentration risk is also preserved because there is no central counterparty or central clearing organization into which all risks are pooled. As a result, liquidity is enhanced and risk is reduced in the FX forward contract market.

CFTC amends chief compliance officer duties and annual report requirements

2019 ◽  
Vol 20 (1) ◽  
pp. 10-16
Author(s):  
Julian E. Hammar
Keyword(s):  
Annual Report ◽  
Securities And Exchange Commission ◽  
Futures Trading ◽  
Content Type ◽  
The Public ◽  
Close Analysis ◽  
Compliance Officers ◽  
Final Rule ◽  
Commodity Futures Trading Commission ◽  
Compliance Officer

Purpose This paper summarizes the requirements of rule amendments promulgated by the Commodity Futures Trading Commission (CFTC) in 2018 regarding the duties of Chief Compliance Officers (CCOs) of swap dealers, major swap participants, and futures commission merchants (collectively, Registrants) and the requirements for preparing, certifying and furnishing to the CFTC the CCO’s annual report. Design/methodology/approach This paper provides a close analysis of the CFTC’s final rule amendments that make clarifications regarding the CCO’s duties and seek to harmonize with similar rules of the Securities and Exchange Commission (SEC) applicable to security-based swap dealers.It also analyzes rule amendments for the CCO’s report that provide clarifications and simplify certain requirements.In each case, it discusses comments from the public and the CFTC’s responses to those comments. Findings This paper finds that the rule amendments provide a number of helpful clarifications and simplify certain existing requirements for Registrants and their CCOs subject to the rules.While the rules overall achieve greater harmonization with similar rules of the SEC governing CCOs of security-based swap dealers, this paper notes that care will need to be taken by CFTC Registrants who also become registered with the SEC to be cognizant of remaining differences between the CFTC’s and SEC’s rules in order to ensure compliance with the rules of each agency. Originality/value This paper provides valuable information regarding the duties of CCOs of Registrants and CCO annual report requirements from an experienced lawyer focused on commodities, futures, derivatives, energy, corporate, and securities regulatory matters.

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