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NFA Seeks Online Access to Seg Funds Information
National Futures Association announced on Aug. 16 that its board of directors approved a rule requiring each futures commission merchant to provide its Designated Self-Regulatory Organization with view-only access via the internet to account information for each customer segregated funds account maintained and held at a bank or trust company. The proposed changes, which NFA has submitted to the Commodity Futures Trading Commission for approval, also would apply the same requirement to an FCM's customer secured accounts held for customers trading on foreign futures exchanges. NFA said this rule will allow DSROs to check any customer segregated and secured bank account balance for any FCM any time, without asking the firm or the bank, and compare those balances to the firm's daily segregation report.
Although NFA did not say when the new rule will take effect, it acknowledged that FCMs will need time to provide the required access and said it will work with exchanges, FCMs and bank depositories to implement the access process. NFA noted that its FCM advisory committee had encouraged NFA to begin this process as soon as possible.
CFTC Splits 3-2 on Inter-Affiliate Clearing Exemption
The Commodity Futures Trading Commission on Aug. 16 voted 3-2 to propose exempting swaps between affiliated entities from the clearing requirements under the Dodd-Frank Act. The proposed exemption would be limited to swaps between majority-owned affiliates whose financial statements are included in the same consolidated financial statements. Commissioners Jill Sommers and Scott O’Malia voted against the proposal. In a joint statement they explained that while they supported the exemption, they opposed a provision in the CFTC proposal that would impose “an unnecessary requirement” for affiliates to post variation margin with each other.
CME Group is seeking U.K. regulatory approval to establish a London-based futures exchange and is hoping to begin trading in mid-2013, the exchange announced on Aug. 20. CME said the new exchange will start with foreign exchange futures. The exchange will be headed by Bob Ray, currently CME’s managing director for products and services, and will clear through CME Clearing Europe, which launched in May 2011.
“We continue to see an increase in business coming from our diverse set of customers in Europe, with more than 20% of our volume now originating from the region,” said CME Group Executive Chairman and President Terry Duffy. “Having an exchange in London that can leverage the central counterparty model of CME Clearing Europe will allow us to align ourselves even more closely with our regional customers in both listed futures and over-the-counter markets, and provide additional opportunities to our expanding non-U.S. customer base.”
Four U.S. trade associations representing institutional participants in the swaps markets submitted a joint letter to the Commodity Futures Trading Commission on Aug. 7 raising concerns about “gaps” in the agency’s new customer protection framework for cleared swaps. The trade associations emphasized their expectation that the “legally segregated operationally commingled” segregation model must protect all customer margin from fellow-customer risk, and said futures commission merchants should be required to report to derivatives clearing organizations the identity, positions and margin of each of their customers. The associations expressed a concern that a customer’s variation margin and excess or unattributed margin could be used to satisfy or secure the obligations of a defaulting customer. The associations made specific recommendations as to where the CFTC should use rule revisions or interpretative guidance to address any ambiguities or inconsistencies. The group included Investment Adviser Association, Investment Company Institute, Managed Futures Association, and the Securities Industry and Financial Markets Association’s Asset Management Group.
FIA welcomes the following companies as associate members: Man Group, MCX Stock Exchange, Tyler Capital Partners and Zeptonics.
FIA IT Hosts Eurex Tech Update: Aug. 29
Join the FIA IT Division and Eurex for an online seminar that will preview the new trading architecture that Eurex will unveil in December. Eurex officials Richard Allen and Andreas Pee will discuss connectivity options, functionality, implementation and rollout timelines, with FIA IT Division President Greg Wood moderating the discussion. Anyone looking to learn more about Eurex's new trading technology can register online now. This will be the first in a series of "Exchange Sell-Side Forum" events hosted by the FIA IT Division.
To help swap dealers and major swap participants understand the new registration requirements mandated by the Dodd-Frank Act, FIA’s Law and Compliance Division is hosting an online briefing with three officials from National Futures Association. The 90-minute webinar, which is open to members and non-members, will provide information about the registration process for swap dealers and MSPs, including firm and individual registration filing requirements and the Section 4s submission and review process. The webinar will also provide an in-depth discussion of statutory disqualification issues. The webinar will be moderated by Michelle Broom of Macquarie Futures and Athena Eastwood of Cadwalader Wickersham & Taft.
New York Equity Options Conference: Sept. 12 and 13
The FIA is pleased to announce that the seventh annual FIA/OIC New York Equity Options Conference will be held at the New York Marriott Marquis on Sept. 12 and 13. Speakers include officials from the SEC and Finra as well as senior representatives from the exchanges. Topics include opportunities for retail investors, institutional use of the markets, changes in market structure, new market participants, OTC clearing and operational challenges.
LSOC and Customer Gross Margin—The Vendor Perspective
Join the FIA Futures Services Division on Sept. 20 for a panel discussion regarding the status of the LSOC and Customer Gross Margin mandates, both of which take effect on Nov. 8. Vincent Mattera of BMO Capital Markets will moderate a discussion with Calypso Technology, FFastFill, ION Trading, SunGard and Traiana on their preparations for the new requirements and their perspectives on the key issues for FCMs and the timelines required for successful implementation.
IOSCO Consults “Technological Challenges” to Market Surveillance
The International Organization of Securities Commissions issued a consultation paper on Aug. 22 seeking public comment on proposed recommendations for improving market surveillance. The consultation paper focuses in particular on the challenges posed by the latest technological developments, such as the rise of automated trading, the increasing speed of trading, and the greater dispersion of trading among multiple trading centers. “These developments pose challenges to regulators in conducting market analysis and surveillance, and in reconstructing important trading events,” IOSCO said. “The absence in many jurisdictions and within geographical zones of certain market surveillance tools (e.g., an audit trail system) seems to be one of the more significant problems facing the markets in light of these technological developments.” Comments are due by Oct. 10.
Australian Regulator Targets Risks of Automated Trading
The Australian Securities and Investments Commission on Aug. 13 issued a consultation on electronic trading and also released its fourth market supervision report. The proposed rules and guidance include requirements for risk filters on automated trading, rules that revise the process for certifying systems and reviewing changes at least yearly, and guidance on automated trading. Comments on the consultation must be submitted by Sept. 14.
Japanese Regulators Warn CFTC on Extra-Territorial Reach of Dodd-Frank Rules
Japan’s central bank and its markets regulator have warned the Commodity Futures Trading Commission that its proposed guidance on the cross-border application of Dodd-Frank threatens to create overlapping or conflicting regulations. In an Aug. 13 letter submitted to the CFTC, the Bank of Japan and the Financial Services Agency said they were particularly concerned about the CFTC’s application of registration and transaction requirements to operations of foreign financial institutions established outside the U.S.
The Japanese regulators noted that Japan is making “significant progress” in implementing the G-20 commitments for mandatory clearing and trade reporting, and added that while its regulations are not “identical” with U.S. regulations, they are consistent with the G-20 objectives and “share the same goals with the Dodd-Frank Act.”
The BOJ and FSA asked the CFTC to consider deferring the application of its regulations to cross-border transactions until an “internationally consistent approach” is developed. The BOJ and FSA also made three specific requests: extending the application of substituted compliance and making clear details such as due process and timing; deferring the application of CFTC regulations with respect to non-U.S. persons; and excluding certain transactions from the calculation of swap transactions in regards to the de mimimis threshold for non-U.S. persons.
The Commodity Futures Trading Commission on Aug. 17 unanimously approved an order exempting certain non-financial energy derivatives transactions between government-owned electric utilities and cooperatively owned electric utilities from most requirements of the Commodity Exchange Act. Transactions eligible for the proposed relief must be physically settled and entered into for the primary purpose of meeting current or anticipated contractual obligations to facilitate the generation, transmission and/or delivery of electricity. The CFTC said its general anti-fraud, anti-manipulation, enforcement and books and records inspection authorities will continue to apply.
The Commodity Futures Trading Commission’s division of market oversight issued a no-action letter on Aug. 14 offering market participants temporary relief from certain regulatory requirements for trade options. The temporary relief is effective until Dec. 31 or earlier if the CFTC takes final action on its trade option exemption interim final rules.
CFTC Approves Conforming Rule on Registration of Intermediaries
The Commodity Futures Trading Commission on Aug. 17 approved 4-1 a final rule to conform the CFTC’s existing intermediary registration rules to include Dodd-Frank-related changes to the Commodity Exchange Act. The final rule also is intended to create uniformity in treatment of previously regulated and newly regulated commodity interest transactions by registered intermediaries such as futures commission merchants. The final rule also expands an existing FCM registration exemption to foreign brokers and other foreign intermediaries that execute a swap transaction either bilaterally or subject to the rules of a designated contract market or a swap execution facility on behalf of non-U.S. persons. Finally, the rule includes technical changes that will permit legal entities (in addition to natural persons) to now register as floor traders—a change required to implement the exception from swap dealer consideration for cleared swaps entered into by floor traders on a swap execution facility. The final rule becomes effective 60 days after it is published in the Federal Register.
CFTC Commissioner Scott O’Malia voted against the final rule, explaining that it should have been more specific on how the CFTC will work with National Futures Association to provide customers with more information about intermediaries. “Instead of promising to take action in the future, the Commission’s final rule should do everything it can right now to protect customer funds,” O’Malia said.
CFTC Seeks Comment on Cantor Clearinghouse Petition
The Commodity Futures Trading Commission announced on Aug. 8 it is seeking public comment on a petition submitted by Cantor Clearinghouse LP amending its registration to permit clearing of foreign exchange spot index binary flex options. Comments must be submitted by Sept. 10.
Court Ruling Releases $130 Million for MF Global Customers
The trustee liquidating MF Global won court approval on Aug. 10 for an agreement with CME Group for the transfer of MF Global property to the trustee. According to the court, the agreement will allow the return of “at least $130 million” to the firm’s former customers. Once the trustee receives the funds, he will ask the court for authorization to make another distribution to customers, keeping aside a reserve for any disputed claims, according to a statement issued by the trustee’s office.
LCH.Clearnet Group announced on Aug. 15 that it has acquired International Derivatives Clearing Group from Nasdaq OMX and certain other investors. LCH.Clearnet said the acquisition will allow it to operate a U.S. domiciled clearinghouse, expand the range of its clearing solutions and facilitate its cross-product margining initiative with NYPC, DTCC and NYSE Euronext. Subject to regulatory approval, IDCG will begin operating as LCH.Clearnet LLC in the fourth quarter of 2012.
CME Group has provided its clearing members with details on how it plans to implement the transition to the new “legally segregated, operationally commingled” account structure for cleared swaps. This type of account must be in place for all customer cleared swap accounts by Nov. 8 under rules promulgated by the Commodity Futures Trading Commission last year. In a notice issued on Aug. 22, CME said it will implement LSOC in a two-phase process. The first phase will begin on Nov 5. In this initial period, LSOC will be implemented in an unallocated excess mode. The second phase will begin on Feb. 4, 2013. On that date, CME clearing firms may begin operating in a client-specific excess mode. Firms will have until May 27 to complete the transition; beginning on that date, all CME clearing firms with customer positions in cleared swaps must operate in a client-specific mode.
J.P. Morgan Offers Separate Location for Derivatives Collateral
J.P. Morgan announced on Aug. 14 that it will allow customers to move excess collateral for their listed derivatives and cleared swaps to accounts at an affiliated bank, JPMorgan Chase Bank N.A. The investment bank said this new service will enhance the security of excess collateral by putting it into a depository institution separate from the clearing broker. The service also will allow a client to centralize the movement of collateral to meet margin requirements across any clearing broker, “allowing clients greater operational efficiency by reducing the time needed to reconcile accounts,” the bank said.
The Miami International Securities Exchange passed a key hurdle in its efforts to enter the U.S. equity options marketplace. On Aug. 15, the Securities and Exchange Commission published its application to establish the new exchange, which sets in motion a public comment period. MIAX, as the proposed exchange is called, would become the 11th U.S. venue for trading equity options if approved.
The Depository Trust and Clearing Corporation and SWIFT on Aug. 21 launched a web portal to begin assigning interim compliant identifiers required by the Commodity Futures Trading Commission. Launch of the new portal (www.ciciutility.org) came after the CFTC announced on July 24 that it has designated DTCC-SWIFT as the provider of interim legal entity identifiers to be used by registered entities and swap counterparties to comply with the agency’s swap data reporting regulations.
ISDA Publishes Protocol to Address Tax Treatment under FATCA
The International Swaps and Derivatives Association announced on Aug. 15 the launch of the ISDA 2012 FATCA Protocol, a document which offers market participants a way to amend the ISDA Master Agreement tax provisions to address the effects of the Foreign Account Tax Compliance Act.
The Treasury Department tapped Jennifer Shasky Calvery as the director of the Financial Crimes Enforcement Network. She was previously head of the Justice Department’s asset forfeiture and money laundering section.
Russell Abramson joined Bank of America Merrill Lynch as global head of client facing technology strategy for futures and options and OTC clearing. He reports to Peter Johnson, global head of futures, OTC clearing and FX prime brokerage. Abramson previously was at J.P. Morgan, where he was head of electronic trading strategy for the Americas, head of client solutions for the Americas, and global head of electronic trading services.
CFTC Commissioners Jill Sommers and Scott O’Malia have tapped the agency’s regulatory staff to fill several vacancies among their advisors. Jon DeBord, a lawyer in the agency’s division of clearing and risk, has been detailed to Sommers’ office and will be advising her until the end of the Dodd-Frank rulemaking process. Kevin Batteh, who was working for Sommers on specific Dodd-Frank assignments, has been named permanent counsel. He will work alongside Marcia Blase. Laura Gardy, counsel to Commissioner O’Malia, left the agency to join the Office of the Comptroller of the Currency. O’Malia now has a three-person team of CFTC staffers comprised of Bella Rozenberg, Andy Menon and Ali Hosseini.
R.J. O’Brien has formed a team of soft commodity brokers to serve institutional clients from the firm’s New York office. The team includes Ron Epstein, Anthony Croce and Anthony Rizzo, all of whom were named senior vice presidents on the institutional softs desk. Epstein was most recently a senior trader at Marex Spectron, specializing in coffee options. Croce and Rizzo were both principals of JSG Futures, a floor brokerage.
Wouter de Klein joined APX-Endex as commercial manager for the exchange’s futures markets. He is based in Amsterdam and will focus on expanding the exchange’s TTF gas futures market and promoting the agency trading concept.
FIA hired David Alosi as sponsorship and exhibit manager. He has twenty years of experience in the tradeshow industry, most recently with Freeman Decorating as a senior designer.
Calendar of Upcoming IFM Courses
Futures and Options/Series 3 Exam Course Sept. 20-21, 9:00 a.m. to 5:00 p.m. in New York Sept. 24-25, 9:00 a.m. to 5:00 p.m. in Chicago Oct. 18-19, 9:00 a.m. to 5:00 p.m. in New York
Lifecycle of a Listed and OTC Derivatives Trade Sept. 21, 9:00 a.m. to 5:00 p.m. in New York Oct. 4, 9:00 a.m. to 5:00 p.m. in Chicago
Introduction to Exchange-Traded Futures and Options Oct. 9, 9:00 a.m. to 5:00 p.m. in Chicago
Markets DeMystified Sept. 6, 9:00 a.m. to 12:00 Noon in New York Oct. 11, 9:00 a.m. to 12:00 Noon in Chicago
Introduction to Treasury Futures: Factoring the Risks Sept. 6, 9:00 a.m. to 12:00 Noon in New York Sept. 28, 9:00 a.m. to 12:00 Noon in Chicago Oct. 10, 9:00 a.m. to 12:00 Noon in Chicago
Treasury Futures Basis: Beyond the Risks Sept. 6, 2:00 p.m. to 5:00 in New York Sept. 28, 2:00 p.m. to 5:00 in Chicago Oct. 10, 2:00 p.m. to 5:00 in Chicago
Treasury Futures: Using International Fixed-Income and Money Market Spreads Sept. 6, 2:00 p.m. to 5:00 in New York Oct. 11, 2:00 p.m. to 5:00 in Chicago
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