FIA Comment Letters

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Comment Letters

2012

FIA Urges CFTC to Withdraw or Substantially Modify Position Limits Rules (Jan. 17, 2012)

The Futures Industry Association submitted comments to the Commodity Futures Trading Commission on Jan. 17 related to the position limits rules that the agency adopted on Oct. 18, 2011. The final rules set limits for 28 physical commodity futures contracts as well as limits for swaps that are economically equivalent to such futures contracts , so called “referenced contracts.” The CFTC also set interim final position limit rules on spot month cash settled referenced contracts and asked for public comment on whether a different ratio or formula should be used to set these limits than the Commission used to set other position limits. The FIA letter addressed the interim rules.

The FIA requested that the CFTC either withdraw the rules until it has adequate data or substantially modify them. The FIA recommended that “at a minimum” the CFTC should establish higher and less restrictive limits rather than “automatically utilizing the same percentage of deliverable supply formula for different contracts linked only by a common commodity.” In addition, the FIA recommended that the CFTC provide a six-month safe harbor transition period, that the CFTC permit netting in the spot-month between all economically equivalent referenced contracts including physical delivery and cash-settled contracts, and that the CFTC only require aggregation of positions in cash-settled referenced contracts based on common control.

“Withdrawal of the position limits rules is the only action that will ensure the Commission does not impair liquidity, efficient price discovery, and the ability of market participants to hedge against risk at a particularly fragile time for the U.S. economy,” the FIA wrote.

Click here for the comment letter

Groups Warn of Extraterritorial Impact of Swap Dealer Registration Requirements (Feb. 2, 2012)

Six leading financial industry trade associations have expressed concern about the impact of U.S. swap dealer registration requirements on firms engaged in the global swap markets. The Commodity Futures Trading Commission has said it would accept comments on the extraterritorial aspects of financial reform rules. In a Feb. 2 letter to the CFTC, the six groups, which included the FIA, warned that the new rules could force dealers into “costly, disruptive, and time-consuming” restructuring of their operations.

“The new registration rules will require companies—whether headquartered in the U.S. or abroad—to make very significant decisions before they have the information necessary to evaluate the application of the CEA to their extraterritorial swap activities and determine the appropriate organizational structure for those activities,” the groups wrote in the letter submitted to the CFTC. “Legal entity restructuring is a costly, disruptive and time-consuming process, involving extensive re-documentation of client agreements, re-allocation of scarce capital, re-assignment or re-location of personnel as well as potentially extensive systems development and compliance infrastructure,” the groups warned.

In addition to the FIA, the signatories included the Securities Industry and Financial Markets Association, The Clearing House, The Financial Services Roundtable, ABA Securities Association, and Institute of International Bankers.

Click Here for Comment Letter

2011

FIA Backs ICE Petition for CDS Portfolio Margining (Dec. 21, 2011)

The FIA has expressed support for a petition filed by ICE Clear Credit for regulatory approval to hold customer positions in credit default swaps in a single futures account so that the clearinghouse and its members can offer portfolio margining to their customers.

The petition, currently under review by the Commodity Futures Trading Commission and the Securities and Exchange Commission, proposes to commingle credit default swaps held by customers, including broad-based index CDS, narrow-based index CDS and single-name CDS, as well as the funds posted by customers to margin these products, in a single customer omnibus account that is subject to section 4d(f) of the Commodity Exchange Act and Chapter 7 of the Bankruptcy Code. The ICE petition also asks for permission to calculate margin for the customer omnibus account on a portfolio margin basis, thus allowing margin offsets between index and single-name CDS.

In a comment letter submitted on Dec. 21 to the CFTC and SEC, the FIA said it supports the petition because of clarifying changes made in the Bankruptcy Code by section 713 of the Dodd-Frank Act. That law amended the Securities Exchange Act to provide that cash and securities, including security based swaps, that are carried in a futures segregated account in accordance with an approved portfolio margining program will be subject to commodity broker liquidation provisions of Chapter 7 of the Bankruptcy Code.

The FIA acknowledged in its letter that the association had raised concerns previously about the bankruptcy treatment of such commingled accounts, but said those concerns were addressed by the Dodd-Frank amendment, which removed “a major impediment to implementation of portfolio margining.” The FIA also said it agreed with ICE Clear Credit that a commingled portfolio margining account would allow the clearinghouse to provide its clearing members and their customers with “greater operational efficiencies, capital efficiency and a more comprehensive offering of products that can be cleared.”

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FIA Files Comment Letter on IRS Tax Proposal (Dec. 19, 2011)

The FIA filed a comment letter with the Internal Revenue Services on Dec. 19 in response to a proposed rule implementing a provision in the Dodd-Frank Act that excludes swaps from Section 1256 of the Internal Revenue Code. The provision was inserted into the law by Congress in order to prevent cleared swaps from becoming subject to Section 1256, which provides 60/40 tax treatment for gains and losses on exchange-traded futures and options.

In its letter, the FIA noted that the IRS proposal would define “notional principal contracts” in such a way that it might include certain futures contracts, and in so doing exclude those contracts from Section 1256. In addition, options on such futures contracts would no longer be classified as non-equity options under Section 1256 and would lose Section 1256 treatment.

“In our view, a far better approach to implementing the swap exclusion would be to simply exclude from Section 1256 treatment those futures contracts that have cash flow payments prior to maturity separate and apart from variation margin payments,” the FIA said. “Under this approach, traditional futures contracts and options on these contracts would continue to receive Section 1256 treatment, but futures contracts that are structurally equivalent to OTC swaps would be excluded from Section 1256.”

Click here for the comment letter

FIA and ISDA Comment on CFTC Clearing Documentation Proposal (Sept. 30, 2011)

The Futures Industry Association and International Swaps and Derivatives Association filed a joint comment letter on Sept. 30 responding to a proposed rule issued by the Commodity Futures Trading Commission regarding documentation for cleared swaps and the timing of acceptance or rejection of trades for clearing by derivatives clearing organizations and clearing members. In their letter, the two associations provided an overview of industry initiatives to facilitate client clearing through standardizing clearing execution documentation, including the drafting of version one of the FIA/ISDA Cleared Derivatives Execution Agreement. The two associations questioned the CFTC’s position that certain aspects of the FIA/ISDA agreement violate the Dodd-Frank Act and urged the CFTC to consider the “disparate” viewpoints on the current state of clearing before finalizing this proposal. The letter supported Commissioner Scott O’Malia’s request that the CFTC host a roundtable to discuss the issue.

Click Here for Comment Letter

FIA Files Comment Letter on FCM Risk Management (Sept. 29, 2011)

The Futures Industry Association submitted a comment letter on Sept. 29 responding to the Commodity Futures Trading Commission’s proposed Rule 1.73, which would require clearing member FCMs to adopt and implement comprehensive risk management policies and procedures. The FIA said it has long been a proponent of strong risk management practices but questioned whether a CFTC rule would be the “most appropriate means” for achieving this goal. The FIA suggested that instead the CFTC should rely on clearinghouses to assure that their members have adequate risk management policies and practices.

“Risk management best practices are continually evolving as markets and technology evolve,” the FIA said. “This is particularly true today, as the market structure for cleared swaps and the technology necessary to support these markets are uncertain at best. The Commission, therefore, should be hesitant to “freeze” the state of the art by imposing on market participants, directly or indirectly, a particular set of risk management controls. To do so may prevent certain enhancements and may stifle innovations that will make the markets safer.”

Click Here for Comment Letter

Trade Associations Urge U.S. Regulators to Exempt Most Inter-Affiliate Swaps from Dodd-Frank Rules (Sept. 8, 2011)

The FIA joined with six other U.S. financial trade associations in filing a joint letter on the treatment of derivatives trades involving two affiliates of the same organization under the Dodd-Frank Act. The Sept. 8 letter described how inter-affiliate swaps are used by financial institutions and customers and urged the regulators to limit the application of the derivatives requirements of Dodd-Frank to these transactions. The letter suggested that regulators instead should generally exempt swaps between consolidated affiliates under common control. The letter was sent to the Commodity Futures Trading Commission, the Securities and Exchange Commission, the Federal Reserve and several other federal regulatory agencies.

Click Here for Comment Letter

Trade Associations File Joint Comment on SEC's Proposed Business Conduct Standards for Security-Based Swap Dealers (Aug. 26, 2011)

The FIA joined with two other trade associations in filing a joint comment on the Securities and Exchange Commission's proposed rules regarding business conduct standards for dealers and major participants in the security-based swaps market. The other two associations were the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association. The 28-page letter, which was filed on Aug. 26, noted that the Commodity Futures Trading Commission issued proposed rules for business conduct standards for dealers and major participants subject to its jurisdiction, and praised the SEC for taking into account the public comments on the CFTC proposal. "As currently drafted, the [SEC's] proposal avoids many of the pitfalls and unintended consequences presented by the CFTC proposal," the three associations said. The letter stressed the importance of allowing market participants to establish the nature of their relationships with each other and urged the regulators to provide enough flexibility to accommodate the differences in organizational structures. The letter went on to describe a number of specific comments, clarifications, and recommendations regarding the details of the SEC's proposed rules.

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FIA Seeks Guidance from CFTC Regarding Large Trader Reporting for Commodity Swaps (Aug. 26, 2011)

The FIA filed a letter with the Commodity Futures Trading Commission on Aug. 26 seeking guidance on the large trader rules for physical commodity swaps. The FIA said that clearing firms will have to make significant changes to their systems in order to provide the CFTC with the full range of information required under these rules, and asked the CFTC to limit the range of data required during the first phase, which will start on Sept. 20. The letter identified 12 data fields that can be reported by using existing large trader reporting systems, and said that up to 79 “paired” commodity swaps traded through IntercontinentalExchange can be added to the 11 ICE swaps that are already reported through the existing large trader reporting systems. The letter asked the CFTC to confirm that this would be acceptable for the initial reports.

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FIA Submits Comment Letter on CFTC Collateral Segregation Proposal (Aug. 8, 2011)

The FIA submitted a comment letter to the Commodity Futures Trading Commission on Aug. 8 in response to the CFTC’s proposed rules governing the protection of cleared swaps customer contracts and collateral. The FIA noted that the CFTC proposal sought comment on several different models for protecting customer collateral, but the proposed rules would implement just one of those models, the complete legal segregation model. The FIA said it has concluded that the complete legal segregation model and the futures model meet the underlying purposes of section 4d(f) of the Commodity Exchange Act, as amended by the Dodd-Frank Act. The FIA also said that the three other models--physical segregation, legal segregation with recourse, and the optional model—are not “practical solutions” for the protection of cleared swaps collateral. The FIA defended the futures model, but acknowledged that a number of customers have expressed concern that this model does not protect them from “fellow customer risk” as well as the complete legal segregation model The FIA discussed a number of technical issues with this model and urged the CFTC to clarify certain provisions.

Click here for the comment letter

FIA Comments on Proposed Recordkeeping Rule for Oral and Written Communications (Aug. 8, 2011)

The FIA submitted comments to the Commodity Futures Trading Commission on Aug. 8 in response to proposed amendments requiring that futures commission merchants, introducing brokers and members of designated contract markets and swap execution facilities create and maintain records of certain oral and written communications. In the letter, the FIA recommended the CFTC re-propose amendments that are more consistent with those proposed by the U.K.’s Financial Securities Authority, the Hong Kong Securities and Futures Commission and France’s Autorité des Marches Financiers. “The nature and scope of the obligations that would be imposed on Commission registrants and non-registrant members of DCMs and SEFs under the proposed amendment is unclear and, in one case, simply impossible to meet. Moreover, the Commission has substantially underestimated the potential costs that Commission registrants would incur in complying with the recording requirement,” the FIA wrote.

Click Here for Comment Letter

FIA Comments on Regulatory Responses to the May 2010 Flash Crash (July 28, 2011)

The FIA on July 28 submitted a comment letter to the Commodity Futures Trading Commission and the Securities and Exchange Commission expressing its views on certain regulatory initiatives recommended by a joint advisory committee established by the two agencies in response to the market events of May 2010, also known as the “flash crash.” In the letter, the FIA cautioned that using trading halts to compensate for temporary reductions in liquidity and recommended instead that regulators use “proven market mechanisms” that are less disruptive. These include the CME’s “stop spike” functionality and the Eurex “volatility interruption functionality as well as “price banding” mechanisms used at CME and NYSE Liffe. The FIA letter also contained several recommendations regarding pre-trade risk controls and emphasized that the responsibility for risk mitigation should be shared among trading firms, executing brokers, clearing firms and exchanges. With respect to the regulation of market-making functions, the FIA recommended avoiding “overly prescriptive rules” and allowing each exchange to develop their own incentive structures to promote liquidity.

Click here for the comment letter

Trades Groups File Comment Letter on Capital Requirements for Swap Dealers and MSPs (July 7, 2011)

The FIA joined with the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association in filing a comment letter with the Commodity Futures Trading Commission on July 7 regarding the agency’s proposed capital requirements for swap dealers and major swap participants. The letter expressed support for those aspects of the proposal that incorporate existing regulations from the CFTC as well as the Securities and Exchange Commission and the Federal Reserve Board. The letter objected to the proposed minimum capital requirements for swap dealers and MSPs that are futures commission merchants, the conditions for using models to calculate capital requirements, and the methodologies for capital requirements when models are not allowed.

Click here for the comment letter

FIA Comments on Dodd-Frank Exemptive Order (July 1, 2011)

The FIA joined with several other trade associations in commenting on a proposed exemptive order that will temporarily delay the effective date for certain Dodd-Frank provisions that would otherwise take effect on July 1. The July 1 letter asked the Commodity Futures Trading Commission to clarify certain aspects of the order and grant additional relief “to enhance legal certainty and ensure an orderly and coordinated implementation process.”

Click here for the comment letter

FIA, Sifma Submit Additional Comments on CFTC’s Chief Compliance Officer Proposal (June 3, 2011)

The FIA and the Securities Industry and Financial Markets Association submitted comments on June 3 to the Commodity Futures Trading Commission on the agency’s proposed chief compliance officer rules. In the letter, the groups asserted, among other things, that the role of a chief compliance officer at a futures commission merchant, swap dealer or major swap participant must remain independent from the role of business supervisors. “The proposed rules would establish a compliance framework that is significantly different from that currently in place in the financial services industry,” the groups wrote. These latest comments are a supplement to earlier comments FIA and Sifma submitted to the CFTC on Jan. 18 and to confirm several points made during a May 17 meeting with staff from the CFTC and the Securities and Exchange Commission.

The supplemental letter addressed how compliance officers will “ensure compliance” as found in Section 731 of the Dodd Frank Act. Sifma and FIA stressed that this should be a test of taking reasonable steps to establish, maintain, review, modify and test the effectiveness of compliance policies. They suggested that compliance procedures may include procedures for escalating inadequate management responses to the appropriate level of senior management. The letter also discussed how the CCO’s could meet its duties to “resolve any conflicts of interest that may arise” and how this duty actually interrelates to the power to enforce compliance, which rests with a firm’s senior executives and supervisors. In addition, the letter addresses the annual report and certification. The group also urged the CFTC to harmonize its proposed rules with Rule 3130, set by the Financial Industry Regulatory Authority “to minimize confusion and the burden associated with multiple differing requirements.”

Click Here for Comment Letter

FIA Asks CFTC for More Time to Comply with Clearing Member Requirements for OTC Energy Swaps Cleared through ICE Clear Europe (June 1, 2011)

The FIA on June 1 asked the Commodity Futures Trading Commission to provide a temporary exemption from new regulatory requirements that will apply to clearing firms conducting OTC energy business in the U.S. through ICE Clear Europe. The FIA explained that more time is needed for clearing firms to comply with certain requirements regarding the FCM registration of firms who clear U.S. customer business on ICE Clear Europe as well as certain rules required by Dodd-Frank that have not yet been finalized. The FIA made the request in the form of a petition for an exemption under Section 4(c) of the Commodity Exchange Act. The FIA noted in its petition that other foreign clearing organizations and their clearing members may need similar relief.

Under Dodd-Frank, any clearing organization located outside the U.S. that clears swaps for participants located in the U.S. may be required to be registered with the CFTC as a designated clearing organization, and any clearing member that clears a swap on behalf of U.S. participants may be required to register as a futures commission merchant. The CFTC has taken the view that the FCM registration requirements are mandated by provisions in the Dodd-Frank Act that will come into effect on July 16.

The FIA suggested that the best approach to addressing this issue of extraterritorial impact would be for the CFTC to adopt a “Part 30” approach based on the current model for futures listed on foreign exchanges. In the absence of such a determination, the FIA requested no less than a 30-day exemption from the registration requirements for OTC energy transactions cleared through ICE Clear Europe and suggested that 90 days would be more appropriate. With respect to customer segregation requirements, the FIA noted that the CFTC is considering several models and has not yet finalized the rules on this matter. “FCMs and DCOs should not be required to guess which regulatory regime the Commission will adopt or to undertake to implement an interim scheme that may conflict with the rules the Commission ultimately elects to promulgate,” the FIA wrote.

Click Here for FIA Petition

Industry Groups Ask CFTC and SEC to Re-Propose Dodd-Frank Rules (May 31, 2011)

The FIA joined with six other industry groups in urging the Commodity Futures Trading Commission and the Securities and Exchange Commission to extend the consultation process on Dodd-Frank rulemakings. In a May 26 letter to the CFTC, the groups expressed their appreciation for the CFTC’s decision to provide an additional 30 days for comment, but said this would be inadequate to ensure an “efficient and timely” implementation and recommended that the CFTC re-propose the entire set of rules for a further round of comment. The groups explained that this would provide the industry with the opportunity to comment on any changes that the CFTC may have made to the proposed rules in response to prior comments. The groups also asked the CFTC to provide an implementation timetable and guidance on the extraterritorial impact of the proposed rules. The groups made a similar set of recommendations in a May 31 letter to the SEC. The letters were signed by the Financial Services Roundtable, the Institute of International Bankers, Insured Retirement Institute, International Swaps and Derivatives Association, Securities Industry and Financial Markets Association, and the U.S. Chamber of Commerce in addition to the FIA.

Click Here for CFTC Comment Letter
Click Here for SEC Comment Letter

FIA Asks CFTC to Re-Issue Position Limit Proposal to Clarify Aggregation Policy (May 25, 2011)

The FIA submitted a letter to the Commodity Futures Trading Commission on May 25 recommending that the agency re-issue its proposed speculative position limit rules to clarify how the agency intends to aggregate positions within a firm. The FIA submitted the letter after learning that the agency plans to aggregate positions on a firm-wide basis regardless of whether the positions are under common control or common ownership. This would include all positions held within a firm including asset management subsidiaries that operate separately from other divisions of the firm. The FIA stated that the public must be able to review this policy, which was not discussed in the proposed rules as published. Further, the FIA said the planned aggregation policy goes beyond the law, is unprecedented and would stifle legitimate use of the of the markets by investors and end-users. “In our view, compulsory firm-wide aggregation in such circumstances would not advance any regulatory policy or purpose and the consequences to the markets and the industry of imposing such an onerous standard would be harmful and vast,” the FIA wrote.

Click Here for Comment Letter

FIA and Sifma Comment on CFTC Interpretation Regarding Anti-Disruptive Practices (May 17, 2011)

The FIA and the Securities Industry and Financial Markets association jointly submitted comments on May 17 in response to the CFTC’s proposed interpretive order on anti-disruptive practices authority. The FIA and SIFMA warned in the joint letter that the CFTC’s proposed order does not go far enough in offering guidance to market participants and the associations offered several recommendations. “The proposed order is still unclear as to what constitutes proscribed, violative conduct,” FIA and SIFMA said. They suggested, among other things, that the CFTC identify specific problems that would necessitate additional enforcement authority to prosecute disruptive trading practices, that the CFTC further refine definitions of key terms, and that the CFTC further clarify its authority in the context of algorithmic and high-frequency trading activities.

“The Commission should identify the specific problems the new anti-disruptive practices authority seeks to address,” the associations said. “The Commission has yet to identify any specific problems or concerns where its pre-Dodd-Frank authority was lacking.” The associations added that the CFTC has yet to provide a clear definition of what “disruptive practice” means. “Absent identification of specific characteristics, problems or concerns, the Commission should urge Congress to repeal the new authority,” FIA stated, warning that without the needed clarity, the provision could “chill” legitimate trading and market participation.

Click here for the comment letter

FIA Comments on CFTC’s Proposed Registration of Intermediaries (May 10, 2011)

The Futures Industry Association on May 10 submitted a comment letter responding to the Commodity Futures Trading Commission’s notice of proposed rulemaking relating to the registration of intermediaries. The FIA letter expressed its support for a provision in the proposal that exempts foreign brokers who submit for clearing over-the-counter transactions that have been executed on a swap execution facility. FIA suggested this exemption be expanded to cover cleared bilateral transactions. “We anticipate that bilateral swap transactions will be an important part of the swaps market for some time as [designated contract markets] and SEFs gradually expand the swaps that they will list for trading,” FIA wrote.

Further, the FIA urged the CFTC to confirm that associated persons of futures commission merchants would be exempt from being registered as an FCM if their activities are limited to submitting swaps transactions that were entered into between a swap dealer and its customers. The CFTC proposal would not require associated persons of swap dealers or major swap participants to register, in accordance with the Dodd-Frank Act. FIA agreed with the CFTC that the statute did not contemplate registration of these individuals.

Click Here for FIA Comment Letter

Groups Respond to CFTC/SEC Dodd-Frank Implementation in Joint Comment Letter (May 4, 2011)

The Futures Industry Association co-signed a May 4 letter with the Financial Services Forum, International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association that included a series of recommendations to regulators on implementing Dodd-Frank rulemakings related to derivatives. In the letter, which was submitted to the Commodity Futures Trading Commission and the Securities and Exchange Commission, the groups highlighted the importance of providing enough time for market infrastructure and business operations to implement final rules to avoid disruptions. “New market infrastructure and technologies, including central clearing services, data reporting services and trading platforms, will be required to give effect to the new swap regulatory regime,” the groups wrote, warning that without sufficient time, market participants will face interruptions in their ability to enter into transactions.

The groups urged the regulators to allow for adequate testing and outreach to customers. They also recommended that regulators prioritize data reporting, including the registration of swap data repositories, to better inform regulators of market activity when crafting future rulemaking. “The commissions will learn much about the full range of swap markets from the data collected by SDRs,” the groups wrote. The group suggested the new Dodd-Frank requirements be phased in based on the type of market participant and asset class. Within each asset class and type of market participant, regulators should prioritize reduction of systemic risk, such as the use of centralized clearing. “Implementation of requirements designed to achieve other goals, such as trade execution, should be phased in only once clearing has been successfully implemented,” the groups wrote.

Finally, where different regulators will apply different rule sets to similar transactions, the groups recommended that regulators sequence implementation so the effectiveness of each rule set is coordinated.

Click Here for Comment Letter

Financial Industry Trade Associations Release Framework for a Global Legal Entity Identifier System (May 3, 2011)

A coalition of financial services trade associations on May 3 released a comprehensive set of requirements for establishing a legal entity identifier (LEI) system to aid regulators and industry in monitoring systemic risk. The trade associations noted that the requiremened document is meant to be an evolving solution that will be refined as others participate in the discussion on the topic.

"The accurate and unambiguous identification of legal entities engaged in financial transactions is foundational and critically important towards the improved measurement and monitoring of systemic risk by regulators and supervisors," the groups noted in the proposal. "A global standardized Legal Entity Identifier will help enable organizations to more effectively measure and manage counterparty exposure, while providing substantial operational efficiencies and customer-service improvements to the industry."

Click Here for Full Press Release
Click Here for Requirements Document

www.sifma.org/Legal-Entity-Identifier/Resources

Groups Respond to SEC’s Ownership, Governance Proposals for Security-Based Clearinghouses (April 29, 2011)

A group of financial trade associations including the Futures Industry Association warned the Securities and Exchange Commission that proposed limits on ownership and governance at swaps-based clearinghouses could curb the use of central clearing for swaps transactions. “We believe the proposed limits are neither necessary nor appropriate,” the group wrote in the April 29 letter. Imposing “unduly restrictive limits” on the voting interests of clearing agency participants would run counter to the intention of Congress to increase clearing of swap transactions,” the groups said, stating that concerns about conflicts of interest can be addressed through various other statutory and regulatory requirements. “We do not believe there is any need for a belt-and-suspenders approach that would layer on an additional limitation on aggregate ownership by participants,” the groups wrote.

Other groups that co-signed the letter were the ABA Securities Association, the Financial Services Roundtable, International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association.FIA, ISDA and SIFMA made similar concerns in a January letter submitted to the Commodity Futures Trading Commission on its proposed conflicts of interest and governance rules. In November, the FIA recommended the SEC and CFTC withdraw or defer ownership restrictions, asserting such limits are not mandated by Dodd-Frank and could have unintended consequences.

Click Here for Comment Letter

FIA Urges CFTC to Revise Proposed Requirements for Processing, Clearing and Transfer of Customer Positions (April 14, 2011)

The Futures Industry Association on April 14 submitted a comment letter responding to the Commodity Futures Trading Commission’s notice of proposed rulemaking relating to the processing, clearing and transfer of customer swap positions. The FIA letter expressed support for the underlying purposes of the proposed rules—to assure the financial integrity of swaps submitted for clearing and to confirm a customer’s ability to transfer cleared swaps positions from one clearing member to another clearing member willing to accept such positions promptly. The FIA said, however, that the proposed rules “fail to recognize” the role that clearing members play in the transmission and submission of executed swaps for clearing or in assuming responsibility for the financial obligations arising from such transactions. In particular, the FIA said that the proposed rule should recognize that customers wanting to transfer positions must direct their requests to the clearing firms carrying those positions, not to the clearinghouses. “We respectfully submit, therefore, that the proposed rules must be revised to recognize the central role that clearing members play in connection with the processing, acceptance and clearing of swaps.”

Click here for the comment letter

FIA Comments on CFTC’s Proposed Risk Management Requirements and Governance Requirements for Clearinghouses (April 7, 2011)

The FIA submitted a comment letter to the Commodity Futures Trading Commission on April 7 in response to the agency’s notice of proposed rulemaking establishing risk management requirements for derivatives clearing organizations. The proposed rules would set regulatory standards that DCOs would be required to meet in order to comply with Core Principles C (Participant and Product Eligibility), D (Risk Management), E (Settlement Procedures), F (Treatment of Funds), G (Default Rules and Procedures), and I (System Safeguards). The FIA said it believes the CFTC has properly identified many of the responsibilities that DCOs and clearing members must undertake in order to manage the risks of clearing swaps but urged the CFTC to rely on guidance rather than prescriptive rules. The FIA also asked the CFTC to revise a number of specific requirements in the proposed rules. The letter also commented on one aspect of the Commission’s proposed rules on governance requirements for DCOs, designated contract markets and swap execution facilities. The FIA recommended that customers should be represented on a clearinghouse board of directors rather than its risk management committee.

Click Here for the FIA Comment Letter

FIA and ISDA File Comment Letter on Commodity Options and Agricultural Swaps (April 1, 2011)

The Futures Industry Association and the International Swaps and Derivatives Association filed a joint letter on April 1 commenting on the Commodity Futures Trading Commission’s proposed rule on the regulation of commodity options and agricultural swaps that are traded over-the-counter. The two associations expressed support for the proposal to apply the same rules to agricultural swaps that apply to all other OTC commodity derivatives under the Dodd-Frank Act, rather than applying separate or more restrictive rules to these products. The two associations also expressed support for the CFTC’s proposal to treat agricultural trade options in the same way as all other commodity options (except for options on futures). Lastly, the two associations urged the CFTC to continue to treat certain transactions that have embedded options as forward contracts, and urged the CFTC to address the issue of whether agricultural options should be treated as swaps in the context of a separate rulemaking process being carried out jointly with the Securities and Exchange Commission.

Click Here for the FIA Comment Letter

FIA Recommends Changes in CFTC Position Limit Proposal (March 25, 2011)

The FIA on March 25 submitted a detailed response to the Commodity Futures Trading Commission’s proposed rulemaking on speculative position limits. Although the FIA continues to oppose implementation of hard limits and continues to challenge the view that speculative investments have caused an increase in commodity prices, the FIA set out a number of specific recommendations for revising the proposed rule, such as a different methodology for setting spot month limits, a broader definition of bona fide hedging transactions, an exemption process for liquidity providers, and the re-institution of the independent account controller exemption from mandatory aggregation. The FIA also expressed its appreciation for the CFTC’s decision to adopt a two-phase approach to the imposition of position limits, with the first phase applying only to spot months and the second phase delayed until after the CFTC collects position data on physical commodity swaps, and its appreciation for the CFTC’s decision to eliminate a proposal to “crowd out” a trader’s ability to take speculative positions once that trader relies on a hedge exemption. The FIA cautioned, however, that the CFTC has not yet provided sufficient empirical evidence to support this rulemaking and therefore asked the CFTC to withdraw the rule until after it has collected and analyzed the data necessary to determine that position limits are necessary and appropriate as required by the law.

Click Here for the FIA Comment Letter

FIA’s Law and Compliance Submits Comments on Definition of Fiduciary (March 7, 2011)

The Futures Industry Association’s Law and Compliance Executive Committee submitted a letter to the U.S. Department of Labor on March 7 raising concern over the Department’s effort to expand its definitions to clarify when a service provider is considered a retirement plan fiduciary. In the letter to the Department’s Employee Benefits Security Administration, FIA L&C cautioned that its proposed rule adds confusion rather than clarity. The letter emphasized that while FIA members act as agents for plans that use futures contracts in their portfolios, futures commission merchants do not provide fiduciary advice. If FCMs were deemed to be fiduciaries, they could not execute transactions. The FIA’s L&C urged the Labor Department to coordinate with the CFTC on any changes in the regulation that could potentially disrupt futures markets and limit retirement plan access to that market.

Click Here for FIA Law and Compliance Comment Letter

FIA President Testifies on Dodd-Frank Implementation (Feb. 15, 2011)

Speaking before the House Agriculture Subcommittee on Risk Management, FIA President John Damgard called for a “measured” implementation of the derivatives reforms contained in the Dodd-Frank Act and described a number of problems with the rules proposed by the Commodity Futures Trading Commission.

Oral Statement
Written Testimony

FIA , SIFMA Submit Comments on CFTC’s Whistleblower Proposal (Feb. 3, 2011)

The Futures Industry Association has co-signed a Securities Industry and Financial Markets Association letter submitted Feb. 3 to the Commodity Futures Trading Commission responding to the agency’s proposed rule to implement the whistleblower provisions of the Dodd-Frank Act. In the letter, the associations said that it is critically important that whistleblower provisions of the Dodd-Frank Act not undercut internal corporate compliance reporting systems “which are vital to what financial regulators have recognized as the first and foremost line of defense.” SIFMA and the FIA also urged the CFTC to harmonize its whistleblower rules with the recent proposals drafted byf the Securities and Exchange Commission to encourage cooperation in enforcement matters and to incorporate the whistleblower programs of self-regulatory organizations.

Click Here for SIFMA,FIA Comment Letter

Industry Groups File Joint Comment Letter on Uniform Legal Entity Identifiers (Feb. 1, 2011)

A coalition of financial industry trade associations on Feb. 1, 2011 submitted a comment letter to the Treasury Department’s Office of Financial Research on a proposal to develop a system of uniform legal entity identifiers to measure and evaluate systemic risk in the financial system. The coalition, which includes the Futures Industry Association, urged the Treasury Department to coordinate with all the major domestic and global financial services regulators so that there is only one LEI standard. The associations also offered some preliminary observations and said they plan to work together on an industry proposal. OFR is seeking to standardize how parties to financial contracts are identified in the data that it collects, which will be used to measure and evaluate systemic risk in the financial system. Other groups signing the letter included The Clearing House, Enterprise Data Management Council, the Financial Services Roundtable, International Swaps and Derivatives Association, the Investment Company Institute, the Managed Funds Association and the Securities Industry and Financial Markets Association.

Click Here for the FIA Comment Letter

FIA, SIFMA Submit Comments on CFTC’s Proposed Chief Compliance Officer Rules (Jan. 18, 2011)

The Futures Industry Association and the Securities Industry and Financial Markets Association submitted a joint comment letter on Jan. 18 in response to the Commodity Futures Trading Commission’s proposed new framework for the responsibilities of chief compliance officers at futures commission merchants, swaps dealers and major swap participants. The FIA and SIFMA stated that the proposed framework is “significantly different” from what is currently in place in the financial services industry by other federal regulators, including a compliance model adopted by the CFTC as recently as September 2010. Among other things, the associations warned against changing the role of the CCO to that of a business-line supervisor. “The proposed rules would put an end to the independence necessary to perform the CCO function effectively, and would undermine the long-standing regulatory principle that it is the business managers who have the supervisory responsibility in the firm, not the CCO,” the FIA and SIFMA said. The associations also recommended that the CFTC modify the proposal to clarify that CCOs are not responsible for guaranteeing absolute compliance. The groups further cautioned that CCOs should not be subject to potential criminal liability for the effective compliance at a firm. The groups further recommended that in the event the CFTC does not modify the proposed framework, the agency should establish an “alternative regulatory regime” for FCMs based on existing compliance practices, especially since many FCMs are also registered as broker-dealers and therefore are subject to the “broker-dealer” model for CCO responsibilities.

Click Here for Joint FIA, SIFMA Comment Letter

FIA Responds to CFTC Request for Comment on Protection of Cleared Swap Customer Collateral (Jan. 18, 2011)

The FIA filed a comment letter with the Commodity Futures Trading Commission on Jan 18 in response to the CFTC’s advance notice of proposed rulemaking regarding the protection of customer collateral posted with futures commission merchants in connection with the clearing of swap transactions. The CFTC’s notice asked for comment on several models for dealing with “fellow customer risk”, including the full segregation of each customer’s collateral in separate accounts. The FIA noted that the “baseline” model, i.e., the existing model used in the clearing of exchange-traded futures and options, has proven to be successful in protecting customers and cautioned that each one of the alternative models would pose “serious policy and operational concerns.” The FIA said it has resolved to work with its customers to attempt to address their concerns in a manner that does not inadvertently increase systemic risk generally and said it would work with CFTC, the self-regulatory organizations and other market participants in any form the CFTC deems appropriate to further enhance the financial integrity of the markets. The FIA also outlined some of the specific policy and operational issues that should be considered, such as the potential impact on margin requirements and clearing member default contributions, the potential impact on the amount of capital held by FCMs and clearinghouses, and the potential for increased systemic risk and changes to market structure.

Click Here for the FIA Comment Letter

Industry Coalition Files Joint Letter on Conflicts of Interest at FCMs and Swap Dealers (Jan. 18, 2011)

The Futures Industry Association, International Swaps and Derivatives Association, and Securities Industry and Financial Markets Association filed a joint letter on Jan. 18 commenting on two proposed rules issued by the Commodity Futures Trading Commission. The proposed rules are aimed at preventing conflicts of interest at futures commission merchants, introducing brokers, swap dealers and major swap participants.

The associations offered a number of suggestions relating to the CFTC’s proposed rules regarding conflicts of interest related to research. They asked the CFTC to narrow the scope of the proposed rules and harmonize them with Rule 2711, a comparable rule issued by the National Association of Securities Dealers. The associations also asked the CFTC to allow communications between research departments and sales and trading personnel, citing a number of examples to show the benefits of allowing research analysts to gather market information from sales and trading personnel.

The associations also commented on proposed rules regarding conflicts of interest related clearing services. The proposed rules would prohibit FCMs from permitting affiliated swap dealers or major swap participants from interfering with the FCM’s decision to provide clearing services to customers and would establish a number of specific requirements and “information partitions” between FCMs and affiliated dealers and MSPs. The associations argued that the proposed rules are “far broader” than the requirements of the Dodd-Frank Act and would restrict contacts between trading and clearing personnel in ways that would hurt customers and impair the firm’s ability to manage risks. The associations asked the CFTC to permit the involvement of trading business units in the establishment and support of customer relationships and asked the CFTC to clarify that the proposed restrictions would not apply to “control and support” functions such as compliance, operations and credit.

The associations also asked that the CFTC to delegate oversight and enforcement of these rules to self-regulatory organizations, saying this would allow the requirements to keep up with industry practice.

Click Here for the FIA Comment Letter

FIA Submits Comments on CFTC’s Proposed Framework for Rule and Product Approvals for DCOs, SEFs, SDRs (Jan. 3, 2011)

The Futures Industry Association submitted comments on Dec. 23 in response to the Commodity Futures Trading Commission’s proposal related to the certification and approval of new products, rules and amendments submitted to the agency by derivatives clearing organizations, swap execution facilities and swap data repositories. The FIA stated that in general it believes the CFTC’s proposal “appropriately implements” the new statutory framework for rule approvals and new products approvals submitted by DCOs, SEFs and SDRs. However, the FIA recommended the CFTC take this opportunity to remedy “a defect in the scheme of self regulation that allows registered entities to certify rules without the knowledge and participation of their members and other interested market participants.”

“FIA accordingly believes that the Commission should use this opportunity to increase the transparency of the rulemaking processes,” the FIA said. To improve transparency of rulemaking, the FIA recommended that the CFTC publish a daily notice of all rule and product filings submitted by registered entities and all of the agency’s related actions. This would be similar to the Daily Digest published by the Securities and Exchange Commission. The FIA also recommend the CFTC require registered entities to include a concise explanation of the proposed rule or action that could be published in the Daily Digest with a hyperlink to the full text of the rule submission. “We are suggesting that the Commission begin a daily publication containing this information in lieu of a requirement that the rules be published in the Federal Register, as is the practice for similar rules in the securities industry,” the FIA said. “Immediate notice is, therefore, a far superior alternative to waiting several days for Federal Register publication of the rule or product filing.”

Click Here for the FIA Comment Letter

2010

Trade Associations Comment on CFTC Manipulation Proposal (Dec. 28, 2010)

The FIA, SIFMA and ISDA filed a joint comment letter with the Commodity Futures Trading Commission on Dec. 28, 2010 regarding its proposed rules to implement new anti-manipulation authority in Section 753 of the Dodd-Frank Act. The FIA urged the CFTC to provide “clear and straightforward guidance” to market participants so that they can distinguish legitimate competitive trading practices from prohibited manipulative conduct. “Failure to give clear and straightforward guidance will only serve to add confusion to the markets and potentially chill legitimate trading activities in a competitive market where traders often make real-time trading decisions without the benefit of hindsight,” the FIA said.

The associations also made the following recommendations: 1) the CFTC should not incorporate the standards and case law under Rule 10b-5 of the Securities Exchange Act of 1934 because they are “inapplicable” to the futures and derivatives market; 2) the CFTC should clarify that the proposed rules will not impose any new duties of disclosure, inquiry or diligence should be imposed between two sophisticated parties to a bilateral transaction; 3) the CFTC should clarify that nothing in the proposed rule will impede the ability of market participants to take positions and trade on the basis of material nonpublic information they obtain legitimately; 4) extreme recklessness, not recklessness alone, should be the “scienter standard” under the CFTC’s proposed rule under Section 6(c)(1) so that it does not capture inadvertent conduct or mere mistakes; 5) the CFTC should clarify the scope of the proposed rule under 6(c)(1) and the Commission’s already existing anti-manipulation authority under CEA Sections 9(a)(2); and 6) the CFTC should clarify that Section 6(c)(3) does not extend its enforcement authority beyond existing judicial precedent aside from extending its enforcement authority to cover swaps.

Click Here for the FIA Comment Letter

FIA Submits Alternative OCR Proposal for CFTC Review (Dec. 23, 2010)

After several months of consultation with a working group of industry representatives, the FIA has developed an approach to collecting information about customer accounts that could serve as an alternative to the ownership and control reports proposed by the CFTC in July 2010. Although the alternative approach would require clearing firms to make significant changes in the collection, storage and transmission of customer and trade data, it would be "more practical and cost-effective" than the CFTC's OCR proposal and could be implemented more quickly, the FIA said in a Dec. 23 letter to the CFTC. The alternative reporting system also could be used to automate the submission of Form 102 information, saving time and money for both clearing firms and the CFTC, the FIA added. The FIA provided a detailed description of the alternative OCR proposal as well as cost estimates for industry implementation in two appendices attached to the Dec. 23 letter. The FIA working group that developed the alternative OCR proposal included representatives of 16 clearing firms, several U.S. exchanges, back-office service providers and other experts.

Click Here for the FIA Comment Letter

FIA Offers Recommendations on CFTC’s Disruptive Practices Rulemaking (Dec. 23, 2010)

The FIA submitted a letter to the Commodity Futures Trading Commission on Dec. 23 responding to the agency’s request for comments on the disruptive practices authority contained in the Dodd-Frank Act. The FIA warned that this section of the Dodd-Frank Act is “impermissibly vague and unenforceable” and could discourage market participants from engaging in many legitimate trading practices. The FIA recommended that the CFTC clearly identify the specific characteristics, problems or concerns that would be subject to additional enforcement authority and clarify that manipulative intent is required to breach the prohibitions on disruptive trading. The FIA also defended the use of automated and algorithmic trading systems and urged the agency to avoid stifling this type of technological innovation.

Click Here for the FIA Comment Letter

FIA Files Comment on CFTC’s Proposed Financial Resource Requirements for DCOs (Dec. 13, 2010)

The FIA filed a comment letter with the Commodity Futures Trading Commission on Dec. 13 responding to the agency’s proposed financial resource requirements for derivatives clearing organizations. The FIA urged the CFTC to require that all clearinghouses maintain sufficient resources to withstand the default of the two largest clearing members, rather than setting a lower standard for clearinghouses that are not systemically important. The FIA cautioned that the agency’s proposed two-tier approach could have the unintended effect of putting systemically important clearinghouses at a competitive disadvantage to other DCOs. “The FIA accordingly recommends that all DCOs, including SIDCOs, be required to maintain resources sufficient to withstand the default of the two clearing members representing the largest financial exposure to the DCO,” the FIA said. The FIA further suggested that the CFTC give DCOs a reasonable amount of time to come into compliance with the enhanced requirement. With respect to stress testing, the FIA urged the CFTC to issue guidance regarding minimum standards and suggested several specific recommendations. The FIA also made several recommendations regarding the valuation of clearing member assessments and default insurance policies.

More generally, the FIA cautioned that the subject of clearinghouse financial resources is interconnected with other CFTC proposals under consideration, including alternative models for the segregation of customer funds. “As the Commission moves forward on these proposals, FIA urges the Commission to bear in mind that these subjects are interconnected,” the letter said. “Much like the individual legs of a stool, it is important that any rules that may be adopted by the Commission that affect DCOs’ ability to discharge their responsibilities in the event of a clearing member default remain in balance at all times.”

Click Here for the FIA Comment Letter

Trade Associations Urge CFTC and SEC to Implement Dodd-Frank Derivatives Rules in Phases (Dec. 7, 2010)

Eleven financial trade associations including the FIA have urged the Commodity Futures Trading Commission and the Securities and Exchange Commission to use their discretion in setting the effective dates for the new derivatives regulations mandated by the Dodd-Frank Act. In a letter submitted to the two agencies on Dec. 7, the associations said participants in derivatives markets need sufficient time to do the work necessary to comply with the new clearing, execution and reporting requirements. They said they are concerned that “market participants will be asked to do too much in too short a time” and warned that some participants may simply stop trading if they cannot comply in time, leading to reduced liquidity and increased risks. The associations therefore urged regulators to take into account the “practical realities” facing market participants and to phase in the application of new regulatory requirements over “a reasonable period of time” determined through discussions with market participants.

The 11 associations also urged the two agencies to adjust the rulemaking process so that the definitions of swap dealers and major swap participants come before the requirements that depend on those definitions. In their letter they noted that the CFTC has proposed rules that would apply to swap dealers and major swap participants before the terms have been addressed, and said this makes it difficult for many firms to know whether they should submit comments on particular rules. The associations therefore recommended extending the deadlines for commenting on proposed rules so that they are at least no earlier than the deadlines for commenting on the proposed definitions.

“We are committed to working with the SEC and CFTC to develop and implement the rules mandated by Dodd-Frank and we strongly support completion of these efforts in a prompt and timely fashion,” said the 11 associations. “We urge the Commissions to use their discretion to propose, adopt and implement rules in a sequence that will achieve these important goals.”

The 11 associations are: American Bankers Association, ABA Securities Association, The Clearing House Association, Financial Services Forum, Financial Services Roundtable, Futures Industry Association, Institute of International Bankers, International Swaps and Derivatives Association, International Swaps and Derivatives Association, Investment Company Institute, Managed Funds Association, and Securities Industry and Financial Markets Association.

Click Here for the Comment Letter

FIA Files Comment on CFTC Proposal for Reporting Commodity Swaps (Dec. 2, 2010)

The FIA filed a comment letter with the Commodity Futures Trading Commisson on Dec. 2 responding to the agency's proposed rule for the reporting of positions in physical commodity swaps. The proposed rule is intended to serve as a "transitional tool" for gathering information until swap data repositories are operational, the FIA noted. Once the data repositories are operational, mostly likely sometime after July 2011, they will become the primary source for swap position data. The FIA said that the derivatives industry does not yet have the operational infrastructure in place to provide the proposed reports. The FIA therefore suggested that rather than requiring a new data collection infrastructure that could be in place for possibly less than one year, the CFTC should instead rely on the reports that futures commission merchants have been providing through the agency’s special call process since 2008. The FIA suggested a modified special call process for collecting that data more frequently by shifting to weekly rather than monthly filings. This approach would be "less burdensome and disruptive" than building a new reporting system that may be used for only a year or less, the FIA said. If the agency decides against taking this approach, the FIA recommended providing reporting entities with more time to develop the necessary reporting systems, narrowing the data that must be reported, and setting reporting levels based on the liquidity of each contract.

Click Here for the Comment Letter

FIA and ISDA File Joint Comment Letter on Proposed Amendments to CFTC Rules 1.25 and 30.7 (Dec. 2, 2010)

The Futures Industry and the International Swaps and Derivatives Association on Dec. 2 filed a joint comment letter responding to proposed amendments to Rules 1.25 and 30.7 of the Commodity Futures Trading Commission, which govern the investment of customer funds in connection with trades on U.S. futures exchanges and foreign boards of trade. The proposed amendments were drafted by the CFTC in response to the financial crisis of 2008-2009 and would significantly curtail the range of securities into which customer funds can be invested. The CFTC is also currently seeking separate comment on the investment of customer funds related to customer collateral for uncleared swaps, an issue not covered in this rulemaking.

The two trade associations expressed support for the CFTC's goals and supported the proposed requirement that any investment securities must be "highly liquid." The associations expressed opposition to the proposed restrictions, however, and objected in particular to the proposed ban on investments in foreign sovereign debt and securities issued by government sponsored enterprises that are not guaranteed by the U.S. government, the proposed limits on investments in money market mutual funds, and the proposed ban on repos and reverse repos with affiliated banks and broker-dealers.

Click Here for the Comment Letter

FIA Recommends SEC, CFTC Withdraw or Defer Ownership Restrictions (Nov. 17, 2010)

The Futures Industry Association recommended that the Commodity Futures Trading Commission and the Securities and Exchange Commission withdraw or defer acting on rules to limit ownership of clearinghouses and swap execution facilities. “FIA believes that the adoption of ownership restrictions—and, in particular, the 40% aggregate ownership restrictions that have been proposed for clearinghouses—are likely to have unintended and undesirable consequences,” the FIA wrote in its Nov. 17 comment letter. The FIA stated that restrictions on ownership of clearinghouses and SEFs are “inappropriate, at least at this time” and noted that the Dodd-Frank Act does not specifically mandate such limits.

FIA said it supported aspects of the CFTC/SEC proposals that would require at least 35% of the board of directors of a clearinghouse or SEF be public directors, but highlighted the risks of requiring that risk management committees be comprised largely of outside directors. “FIA is concerned that public directors and customer representatives, who can provide meaningful knowledge and insight when serving on the board of a DCO or SEF, will typically lack the specialized knowledge and hands-on experience with margin and other risk systems,” FIA wrote.
Click Here for FIA Comment Letter

FIA Co-Signs ISDA Letter on Reporting Requirements for Pre-Enactment Swaps (Nov. 12, 2010)

The Futures Industry Association co-signed an International Swaps and Derivatives Association letter submitted on Nov. 12 to the Commodity Futures Trading Commission on the agency’s interim final rule for reporting swap transactions that were entered into prior to the enactment of the Dodd-Frank Act. The letter asked the CFTC to clarify certain requirements and also proposed alternatives to some of the reporting requirements, leveraging from existing reporting standards. The letter also recommended that the CFTC consider having swap transaction data recorded under a single electronic data standard. The associations also proposed requiring that transactions be recorded by the parties involved or third-party data services, rather than providing electronic confirmations of the trades to the CFTC. The ISDA, FIA letter also noted that having one designated single swap data repository per asset class “would provide the commission and market participants with valuable efficiencies.” In addition, the letter raised concerns about the treatment of confidential customer information, cautioning that compliance with the terms of potentially thousands of confidentiality agreements will be challenging and time-consuming.
Click Here for ISDA/FIA Letter

FIA Takes a Stand on Pending CFTC Rules (November 2010)

In July, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, giving the Commodity Futures Trading Commission and other agencies a year to implement a vast range of regulations impacting the derivatives industry. The CFTC and the Securities and Exchange Commission have begun seeking industry input as they draft the regulations. In response, the Futures Industry Association has provided the agencies with comments on several critical issues, including speculative position limits and the definitions of certain key terms in the Dodd-Frank Act. In addition, the FIA has been actively involved in other CFTC rulemakings related to ownership and control reporting and acknowledgement letters from depositories accepting customer funds.

Click Here for a Summary of FIA Comment Letters Published in the November 2010 Issue of Futures Industry

FIA Urges CFTC to Treat Ag Swaps Like Other OTC Derivatives (Oct. 22, 2010)

Responding to an advanced notice of proposed rules published by the Commodity Futures Trading Commission, the FIA on Oct. 22 filed a letter arguing that agricultural swaps should be treated in the same way as other types of OTC derivatives. The FIA also argued against the “onerous” capital requirements that currently apply to agricultural options traded over-the-counter, saying treating them like other swaps would make them more available to market participants.

“We are not arguing for agricultural swaps to be subject to any lesser degree of regulation than other swaps,” the FIA said. “To the contrary, we believe agricultural swaps should be subject to all of the same requirements and restrictions as other types of swaps. Under Dodd-Frank and the CFTC’s regulations, virtually all derivatives that were previously traded over-the-counter will in the future be traded on regulated platforms and cleared through regulated clearinghouses, subject to public reporting, disclosure and other protections. As a result, any concerns that might previously have existed with respect to agricultural swaps should not prevent them from being regulated in the same manner as other swaps.”

Click Here for the FIA Comment Letter

FIA Calls for Joint Industry-CFTC Cooperation to Develop Ownership and Control Reporting System (Oct. 7, 2010)

Washington, D.C. – Oct. 11, 2010 - The futures industry is working on an ownership and control reporting system that will serve as a practical and cost-effective alternative to the OCR system proposed by the Commodity Futures Trading Commission, the Futures Industry Association said in comments submitted to the agency on Oct. 7.

“We recognize and support the CFTC’s need to develop a more robust trade practice and market surveillance program,” said FIA President John Damgard. “The FIA OCR Working Group has devoted considerable time to developing an industry solution that we hope will meet the Commission’s goal, but CFTC feedback is critical to the progress of the initiative.”

The FIA working group, comprised of 16 firms and all the U.S. exchanges, is actively involved in designing an industry-wide reporting solution that is expected to be submitted to the CFTC by the end of this month. The industry solution is designed to use data currently available in existing systems. It is also designed to be less costly and less time-consuming to implement, and have less impact on small entities.

The FIA comment letter reiterated the need for the CFTC to work with the industry and highlighted the significant costs and major structural changes that would need to take place to implement the CFTC’s current proposal. Members of the working group participated in a CFTC roundtable last month, outlining the challenges that the industry would face in collecting the data as proposed.

In July, the CFTC proposed the new ownership and control rules. The proposed rule requires “reporting entities” such as exchanges to collect ownership and control data from root data sources such as FCMs and correlate the data to the trade register on a daily basis. The CFTC included 28 different data items in the proposed rulemaking to help identify a customer. The CFTC is proposing to collect this information to enhance, among other things, its trade practice and market surveillance capabilities.

The Futures Industry Association is a principal spokesman for the commodity futures and options industry. The FIA's regular membership is comprised of approximately 30 of the largest futures commission merchants in the U.S. FIA's associate members include representatives from virtually all other segments of the futures industry, both national and international.

Click here for the comment letter

FIA Submits Pre-Rulemaking Comment on Dodd-Frank Position Limits (Oct. 1, 2010)

The Futures Industry Association on Oct. 1, 2010 submitted a letter to the Commodity Futures Trading Commission on the application of speculative position limits on listed and over-the-counter derivatives involving exempt and agricultural commodities. The FIA submitted the letter ahead of the CFTC’s proposed rulemaking, which is expected sometime this fall. Under the Dodd-Frank law, the CFTC must finalize a position limit rule for energy and metals contracts by January 17 and for agricultural contracts by April 17. The FIA recommended that the limits be set on an interim rather than permanent basis and that they be flexible. The FIA also recommended that any interim position limits apply only to net positions in economically equivalent contracts and “be set at a level that will not reduce market liquidity or cause migration of the price discovery function to foreign markets.” In addition, the FIA recommended that the CFTC consider proposing an interim rule that aggregates positions only in commonly controlled accounts. The FIA stressed the need for the agency to provide guidance on the definition of a bona fide hedge position and requested that it issue guidance on the process for granting exemptions for these and other types of positions that perform similar risk-reducing functions.

Click Here for FIA Pre-Rulemaking Position Limit Comment Letter

FIA Offers Views on Dodd-Frank Definitions (Sept. 20, 2010)

The Futures Industry Association on Sept. 20, 2010 filed a comment letter with the Commodity Futures Trading Commission and the Securities and Exchange Commission outlining its views on certain definitions in the derivatives section of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The FIA letter argued against requiring futures commission merchants to register as swap dealers if they are acting as clearing brokers and not holding themselves out as swap dealers. The FIA letter also argued that swap dealers should not be required to register as FCMs if they are acting only in a dealer capacity and are not providing clearing services or other services characteristic of an FCM. The FIA letter also asked the regulators to clarify the associated person requirement for swap dealers and major swap participants and the legal distinctions between forwards, futures and swaps.

Click here for the comment letter

FIA Submits Comments on CFTC’s Acknowledgment Letter Proposal
(Sept. 8, 2010)

The Futures Industry Association on Sept. 8 submitted comments to the Commodity Futures Trading Commission on the agency’s proposals that would require futures commission merchants and derivatives clearing organizations to obtain a standardized acknowledgement letter from depositories accepting customer funds. FIA has worked with depository banks on developing a standard agreement to be used.

The FIA lauded the CFTC for taking into account many of the concerns it had raised in earlier comments when the agency first proposed the changes in 2009, but it requested setting a longer effective date than the 90-day period proposed. “The need for additional time is especially critical with respect to the numerous non-U.S. depositories located across multiple foreign jurisdictions,” FIA wrote. FIA also recommended, among other things, that the CFTC confirm that the proposed acknowledgement letters may also be used for funds deposited in the recently created customer account class for cleared over-the-counter derivatives.

Click Here for FIA Comment Letter

FIA and FIA PTG Support CFTC Co-Location Proposal (July 12, 2010)

Responding to a request for comment from the Commodity Futures Trading Commission regarding a proposed rule on co-location and proximity hosting services, the Futures Industry Association filed a comment letter on July 12 expressing its support for the CFTC’s efforts to promote transparency and fair access to the futures markets. The FIA comment letter also reflects the views of the FIA Principal Traders Group, a forum for firms trading their own capital to identify and discuss issues confronting the principal trading community. One of the group’s stated goals is to promote cost-effective, equal and transparent access to U.S. and non-U.S. markets. The FIA expressed support for the CFTC’s proposed requirement that exchanges provide equal access to co-location facilities and allow third parties to provide proximity services. The FIA asked the CFTC to consider third party sites as well as an exchange’s own co-location facility as meeting access requirements rather than the exchange facility alone. The FIA also supported requiring exchanges to publish latency data for direct connections from their co-location facilities and other access points to an exchange matching engine, but recommended against applying a similar requirement to other types of connections between market participants and third party providers of access. The latency data should cover average, shortest and longest latency and should be reported quarterly, the FIA said. The association also encouraged exchanges to ensure equality of access within data centers by establishing the same distance from rack space to matching engine throughout the data center.

Click here for the letter

FIA, SIFMA, ICI Comment on Joint FinCEN, SEC Guidelines Regarding Beneficial Ownership Information (June 9, 2010)

The Futures Industry Association, the Securities Industry and Financial Markets Association and the Investment Company Institute co-signed a June 9 letter to the Treasury Department’s Financial Crimes Enforcement Network and the Securities and Exchange Commission regarding guidelines on the information securities and futures firms should obtain to verify beneficial ownership information of their customer relationships. The groups in the letter said they fully support efforts of regulators to provide guidance on anti-money laundering compliance, but they warned the guidelines issued on March 5 do not reflect the current laws that apply to securities and futures firms. “We do not believe that the Bank Manual is an appropriate vehicle to provide guidance to securities and futures firms not subject to examinations under the Bank Manual,” FIA, SIFMA and ICI wrote.

The groups requested a meeting with FinCEn, the SEC and the Commodity Futures Trading Commission to begin a dialogue about providing revised guidelines that are tailored to the specific and varied operations of securities and futures firms.

Click here for the comment letter

FIA Submits Direct Market Access Recommendations to SEC (May 6, 2010)

The FIA on May 6, 2010 submitted to the U.S. Securities and Exchange Commission a report recently released by the FIA recommending several principles for managing the risks in direct access to derivatives exchanges. The FIA submitted the report in response to the agency’s request for comment on proposed rules requiring broker-dealers to establish, document and maintain risk management controls for firms with direct access to U.S equity markets.

The report identifies several principles for addressing DMA risk issues and recommends specific implementation of solutions by direct access participants, clearing firms and exchanges. “An underlying principle of the report is that risk management of direct access market participants is the shared responsibility of exchanges, clearing firms, and the direct access firms themselves,” the FIA wrote in its letter to the SEC.

The report specifically recommends that exchanges establish certain risk controls and apply those risk controls across all trading firms, ensuring a level playing field in terms of the latency of trading and avoiding creation of competitive pressures among clearing firms and trading firms to reduce the latency of trading by applying fewer risk controls.

The report was drafted by a working group consisting of representatives from U.S and European derivatives exchanges, clearing firms and trading firms. The report is the latest in a series of FIA initiatives that promote best practices in the listed derivatives markets worldwide.

Click here for the comment letter

FIA Comments on CFTC Proposal Regarding Confidential Information (April 30, 2010)

The FIA filed a comment letter with the Commodity Futures Trading Commission on April 30, 2010 on the proposed amendments to rules 140.72 and 140.73. These amendments relate to the CFTC’s ability to delegate to CFTC staff its authority to disclose confidential information. The FIA said it supports the proposed amendments, with one exception, but urged the CFTC to adopt enhanced policies and procedures to guide CFTC staff in the exercise of their authority under the proposed rules.

The FIA noted that legislation currently pending in Congress would require over-the-counter derivatives market participants to submit “a substantial amount of confidential information” to the CFTC. The FIA also noted that the CFTC would be authorized to disclose this information to self-regulatory organizations in the futures industry. The FIA said that it is therefore “particularly important” that the CFTC adopt an agency-wide policy statement to guide the staff in determining which confidential information to release and for which purpose.

Another concern raised by the FIA related to the use of confidential information gathered by exchanges in the course of their examinations of futures commission merchants. The FIA noted that such information may include "confidential proprietary and business information that an FCM would not otherwise disclose" and urged the CFTC to limit the ability of exchange self-regulatory arms to share this information with other divisions of the exchange.

Though the FIA generally supported the proposed amendments, the one exception was the proposed repeal of Rule 140.73(b), which currently provides that the CFTC’s enforcement director or the director’s designee must approve the disclosure of confidential information to other federal, state and foreign regulatory authorities. “To the extent confidential information is disclosed to other governmental authorities, both within and outside of the U.S., it is essential that one office at the Commission act as a central clearinghouse to make an initial determination that the requesting agency is acting within the scope of its authority and to assure that only the information that is responsive to the request is being disclosed,” the FIA letter said.

Click here for the letter

FIA Files Letter in Lehman Bankruptcy Proceeding (March 25, 2010)

The FIA filed a letter with the U.S. bankruptcy court in New York to support the request of the CME Group to preserve the confidentiality of the firms that submitted bids in the September 2008 emergency auction of open positions of Lehman Brothers. CME requested that the names of bidders with their specific bid information not be publicly revealed and asked instead that descriptive terms such as “bidder 1” and bidder 2” be used in order to mask the identity of actual bidders and their connection to a specific bid. The FIA supported this arrangement in our letter to the court.

Click here for the letter

FIA Opposes CFTC Position Limit Proposal

WASHINGTON, D.C.—March 18, 2010—The Futures Industry Association today filed a major comment letter in opposition to the adoption by the Commodity Futures Trading Commission of its proposed speculative position limits on energy commodities. “The FIA strongly supports the CFTC’s ongoing efforts to prevent price manipulation and to conduct effective market surveillance to protect price discovery,” said FIA President John Damgard. “Based on our analysis, the proposed rules would harm these public interests and should not be adopted.”

Click Here for a Summary of the FIA Comment Letter
Click Here for the Full Text of the FIA Comment Letter

FIA Comments on Revised CME Petition to Commingle CDS Margin

On Feb. 4, 2010, the FIA filed a comment letter with the Commodity Futures Trading Commission regarding a revised petition from CME Group seeking permission to commingle customer funds used to margin cleared credit default swaps with customer funds used to margin exchange-traded futures and options. The letter noted that CME had made “fundamental changes” to the structure of its default fund in support of CDS clearing without giving all clearing members an opportunity to express their views on these changes. The letter urged the CFTC to ensure greater transparency in the process for approving such changes. The FIA also reiterated concerns expressed in an earlier comment letter about the potential risks if a clearing member were to default. In such a scenario, having cleared CDS in a customer segregated account could threaten the integrity of customer segregated accounts and could delay or even prevent the transfer of exchange-traded positions to a solvent FCM. The FIA therefore reiterated its recommendation that the CFTC defer action on the CME petition until the regulator had adopted “objective standards” for determining which cleared over-the-counter derivatives can be held in customer segregated accounts.

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FIA Urges CFTC to Support “Comprehensive Review” of Bankruptcy Issues

The Futures Industry Association submitted a comment letter to the Commodity Futures Trading Commission on Jan. 15, 2010 responding to a CFTC proposal that would authorize a bankruptcy trustee to operate a commodity brokerage business for a limited period of time. The FIA agreed that the proposed authorization would be appropriate when dealing with insolvent firms, as in the case of Lehman Brothers Inc. But the FIA said it could not support the proposal in its present form for three main reasons. First, the FIA urged the CFTC to address this issue in the context of a “comprehensive review” of the bankruptcy code and the CFTC’s rules in this area. Second, the FIA urged the CFTC to work with the Securities and Exchange Commission on “uniform procedures” to guide a trustee of an insolvent firm that is registered as both a broker-dealer and a futures commission merchant. Third, the FIA recommended that the proposal should provide more detailed guidance to a trustee and CFTC staff.

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FIA Voices Strong Opposition to Proposed FINRA Rule Limiting Leverage in Retail FX Trading

The Futures Industry Association submitted a comment letter to the Securities and Exchange Commission on Jan. 4, 2010 urging the agency to reject a proposal by the Financial Industry Regulatory Authority that would set a limit on the amount of leverage used in retail trading of off-exchange currency products. The proposed limit is not coordinated with the current requirements set by the National Futures Association and would result in unequal treatment for firms that are dually registered as broker-dealers and futures commission merchants.

The letter noted that broker-dealers are only one of many different types of financial institutions that are permitted to act as counterparties to retail customers with respect to over-the-counter retail forex transactions. These include futures commission merchants, forex dealers, banks and insurance companies. By proposing to fix a leverage limitation that is significantly lower than market convention, the proposed rule effectively would prohibit dually registered entities from competing in this line of business, the letter argued.

“We respectfully submit that such a result is both self-defeating and unsound as a matter of regulatory policy,” the letter said.

Instead the SEC and FINRA should pursue a “coordinated regulatory approach” with the other regulatory agencies with authority in this area, namely the Commodity Futures Trading Commission and the National Futures Association. “Such a coordinated regulatory approach would also provide a more level playing field, thereby assuring that no category of registrant…would have a competitive advantage,” the letter said.

Click Here for the Comment Letter

2009

FIA, SIFMA Comment on FINCEN Proposals on Information Sharing Procedures

The Futures Industry Association and the Securities Industry and Financial Markets Association co-signed a Dec. 16 letter to the Treasury Department's Financial Crimes Enforcement Network. The two associations commented jointly on proposals regarding the expansion of special information sharing procedures that are intended to deter money laundering and terrorist activity. While FIA and SIFMA support efforts to combat terrorism and money laundering, they cautioned that the proposals could go beyond the intent of current law.

Click Here for the Comment Letter (1.5 MB)

FIA Supports KCBT Petition to Clear Wheat Swaps

The Futures Industry Association filed a comment letter on Dec. 14 supporting a petition by the Kansas City Board of Trade related to the clearing of wheat calendar swaps that are traded over-the-counter. The KCBT has asked the Commodity Futures Trading Commission for permission to hold the positions and the associated customer margin in segregated accounts. In supporting this request, the FIA noted that the CFTC had approved similar requests from ICE Clear U.S. and CME Group. The FIA also reiterated prior comments that the CFTC should develop “objective standards” for determining what OTC cleared-only products may be included in segregation.

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FIA Submits Comments on Changes to COT Reports

The Futures Industry Association on Oct. 1, 2009 submitted a comment letter to the Commodity Futures Trading Commission in connection with the recent amendments to the commitment of traders report. FIA suggested that the Commission add information to the report clarifying trading included in each category and provide a review process of categories assigned to market participants. Additionally, FIA expressed strong support for the long-standing Commission policy of requesting public comment whenever possible before taking action that affects industry participants.

Click Here for Complete Text

FIA Sets Out Views on CFTC-SEC Regulatory Harmonization

The Futures Industry Association on Sept. 14, 2009 submitted a comment letter to the Commodity Futures Trading Commission and the Securities and Exchange Commission regarding the possible harmonization of market regulation. The letter, which supplemented the FIA's participation in the joint hearings held by the two agencies on Sept. 2, emphasized that the goal of harmonization should be "comparable, not identical, regulation." The letter summarized the FIA's position on such issues as the listing of new products, the review of new rules, portfolio margining, insider trading, customer protections and mutual recognition. The letter also expressed support for fungibility and competition among execution platforms, recommended the adoption of uniform procedures for the liquidation of firms registered as both securities broker-dealers and futures commission merchants, called for a comprehensive review of market structure, supported principles-based regulation and opposed changes to the CFTC's anti-manipulation standard.

Click Here for the Text of the FIA's Comment Letter

FIA Comments on the Treatment of Cleared-Only Derivatives

The Futures Industry Association on Sept. 14, 2009 filed comment letters with the Commodity Futures Trading Commission regarding two regulatory proposals related to the clearing of over-the-counter derivatives. One letter responded to proposed amendments to the CFTC's bankruptcy rules and the other to a petition by CME Group to commingle margins on credit default swaps with margins on exchange-traded futures and options.

Click Here for FIA Response to CFTC Proposal
Click Here for FIA Response to CME Petition

FIA Responds to CFTC Proposal to Collect Account Ownership Information

The FIA on Aug. 17, 2009 submitted a comment letter to the Commodity Futures Trading Commission in response to a proposal to collect certain ownership, control and related data regarding customer accounts in the futures industry. The FIA recommended that the CFTC should proceed on this proposal only after establishing an industry-wide committee to address operational and other issues relating to the process for collecting such data. The FIA cautioned that these types of data are not uniform across the industry and are not collected in a uniform way, and warned that the proposed reporting requirements could put a heavy cost burden on the industry. The FIA also suggested that the CFTC’s work in this area should be coordinated with the broader efforts proposed by the Obama administration to collect more data on over-the-counter derivatives trading, and noted that the CFTC may be asked to work with the Securities and Exchange Commission to harmonize their reporting and record-keeping requirements.

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FIA Seeks SEC, CFTC Coordination on Retail Foreign Currency Market Safeguards

The Futures Industry Association supports efforts to protect investors in the retail foreign currency markets and urged the Securities and Exchange Commission to coordinate with the Commodity Futures Trading Commission on setting these safeguards. “FIA believes the best way to serve the interests of fair competition and investor protection would be to have the Commission and the CFTC coordinate policies in the retail FX area,” FIA wrote in its July 27, 2009 comments to the SEC on a proposal by the Financial Industry Regulatory Authority, the self-regulatory organization for the securities industry. The FINRA plan, which must be approved by the SEC, establishes customer eligibility requirements and sets limits on leverage at a ratio of 1 to 1.5, in direct conflict with NFA rules that set ratios at 100 to 1 for major currencies and 25 to 1 for others. If the SEC approves FINRA’s rule, it is unlikely that entities registered as both broker-dealers and futures commission merchants would be able to participate in this market. FIA recommended that the SEC coordinate with the CFTC on these protections rather than approving the FINRA proposals, which the FIA believes would not only comport with the directive from President Obama to the two agencies to harmonize their respective regulatory approaches, it would also follow the path set out in the March 2008 Memorandum of Understanding agreement between the CFTC and SEC.

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FIA Submits Comments on CFTC Rule 1.25, Regarding Investment of Customer Funds

The Futures Industry Association has recommended a range of changes to Rule 1.25 and 30.7 regarding the investment of customer funds. In its July 20 comment letter to the Commodity Futures Trading Commission, FIA noted the current guidelines, which include several provisions that were recommended by the FIA, have “weathered the financial turmoil of the past year.” Despite the overall success of the current guidelines, the FIA offered several recommendations, including expanding the list of permitted investments while tightening certain provisions for the protection of customer assets. The FIA stated that it has “not identified any reason” to alter the requirement that investments purchased with customer funds be readily marketable. Furthermore, FIA stated that concentration limits set out in Rule 1.25 are generally appropriate, but among other things recommended shorter weighted average maturity and narrower parameters for investment in any one product.

Click Here for Comment Letter

FIA Responds to CFTC’s Proposed Changes to Capital Requirements

The FIA filed a comment letter with the Commodity Futures Trading Commission on July 6 regarding proposed amendments to the minimum financial requirements for futures commission merchants and introducing brokers. The FIA letter endorsed several of the proposed amendments, including an increase in the minimum adjusted net capital of FCMs to $1 million, an increase in the capital required to calculate the risk-based capital requirement of non-customer positions, and the inclusion of cleared OTC derivatives in capital computations.

The FIA letter opposed several other proposed amendments, however. In particular, the FIA letter objected to the proposed increase in the percentage used in calculating the risk-based capital requirements for FCMs from 8% to 10%. The FIA letter also expressed strong opposition to requiring a joint FCM/broker-dealer to maintain adjusted net capital equal to the sum of the firm’s CFTC and SEC capital requirements, rather than the greater of the two requirements as the rule currently provides. The FIA letter warned that these latter changes would increase by “hundreds of millions of dollars” the capital requirements that each of the larger FCMs would face and could harm competition by encouraging the further concentration of customer funds in a handful of FCMs.

Click here for the PDF

FIA Comments on FINRA Suitability, Know-Your-Customer Proposals

The Futures Industry Association opposed suitability and know-your-customer rules proposed by the Financial Industry Regulatory Authority, warning the securities industry regulator that application of these securities rules “fails to recognize the inherent differences of the structure and customer base between traditional futures contracts and securities products” and should not be applied to commodity futures trading. In a June 29, 2009 comment letter to FINRA, FIA stated that commodity futures are exclusively governed by the Commodity Futures Trading Commission and that under the CFTC’s delegated powers, suitability standards are set forth by the National Futures Association. “Additionally, FIA does not support the extension, without further justification, of FINRA’s regulatory reach to unrelated activities of a FINRA-regulated entity, as a matter of principle,” FIA wrote, asserting that there is a “definitive difference” in the various types of products overseen by the CFTC and the Securities and Exchange Commission.

Click Here for Comment Letter

FIA/SIFMA File Joint Comment Letter on Fincen SAR Proposals

FIA and SIFMA filed a joint comment letter on rules proposed by the Treasury Department's Financial Crimes Enforcement Network regarding Suspicious Activity Reports. In the June 8, 2009 joint letter, FIA and Sifma stressed the importance of firms being able to share these reports with all affiliates within the organiz ation regardless of whether foreign or domestic. In addition, FIA and SIFMA stressed the importance of permitting each organization to make its own assessment of how to maintain confidentiality among affiliates receiving those SARs rather than imposing an obligation to establish confidentiality agreements between affiliates.

Click here for full .pdf version

Joint Trade Association Letter Opposing Dorgan Amendments to Energy Bill

FIA, Financial Services Roundtable, ISDA, SIFMA and The Financial Services Fourm sent a joint letter to the Senate Energy and Natural Resources Committee expressing strong concern over amendments offered by Senator Byron Dorgan (D-ND), warning of their potential adverse impact to markets.

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FIA Submits Comments on IOSCO’s Report on Direct Electronic Access

The Futures Industry Association on May 26, 2009 submitted comments to the International Organization of Securities Commissions regarding its consultation paper on direct electronic access. The comments covered a number of issues, including minimum customer standards, the importance of legally binding agreements, the delegation of access privileges, customer identification, pre- and post-trade information, and risk systems and controls. The FIA highlighted some of the findings in its September 2007 joint study with the Futures and Options Association on risk controls, and emphasized that futures commission merchants rather than regulators are best situated to determine appropriate risk management for their business.

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FIA Responds to CFTC Proposal to Clarify Seg Funds Obligations

The Futures Industry Association filed a comment letter with the Commodity Futures Trading Commission on March 23, 2009 regarding a CFTC proposal to clarify the obligations incurred by depository banks when accepting customer funds. The FIA said it “generally supports” the proposed regulations, but asked the CFTC to provide more time for the industry to comply with the regulations. The obligations are spelled out in acknowledgement letters provided by depositories to futures commission merchants and designated clearing organizations, and changing the terms of these letters “is frequently a lengthy process,” the FIA said. To streamline the process, the FIA recommended that the CFTC support an industry-wide effort to develop a standardized acknowledgement letter and also consider electronic filing.

Click here for full .pdf version

FIA Opposes FINRA’s Proposed Leverage Limitation for Retail Forex

The FIA filed a comment letter with the Financial Industry Regulatory Authority on Feb. 20, 2009, to express its opposition to a proposed “leverage limitation” on retail foreign exchange trading. The proposed rule would apply to registered broker-dealers that engage in off-exchange forex transactions with retail customers. The FIA noted that most large futures commission merchants are either registered as broker-dealers or affiliated with broker-dealers and therefore may be affected by the proposed rule. The FIA said the proposed leverage limitation would be “far lower” than necessary and would effectively ban broker-dealers from this line of business. The FIA also noted that the proposed rule would run counter to the judgment of Congress, as expressed in the Commodity Futures Modernization Act of 2000, and urged FINRA to coordinate with other regulators with jurisdiction in this area.

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FIA Supports Amendments to CFTC Conflict of Interest Practices

The FIA filed a comment letter with the Commodity Futures Trading Commission on Feb. 20, 2009 to express its support for proposed amendments to the CFTC’s “Acceptable Practice” for compliance with the core principle on avoiding conflicts of interest. A central feature of this acceptable practice is the standard that public directors should comprise 35% of a designated contract market’s board of directors.

“As the Commission’s Acceptable Practice makes plain, any potential director with a relationship to the DCM or its members that could affect the independent judgment of that director should not be a public director,” the FIA said. “FIA believes the Acceptable Practice for Core Principle 15 will achieve its goal of strengthening self-regulation in the futures industry consistent with the public interest. We look forward to the adoption of the proposed amendments and the implementation of the Acceptable Practice.”

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FIA Suggests Changes to Anti-Money Laundering Reporting Form

The Futures Industry Association submitted a letter to the Financial Crimes Enforcement Network on Feb. 3, 2009 suggesting several changes to the form used by securities and futures firms to report suspicious activity. Among other things, the FIA said the form should be revised so that there is more space for information and recommended several specific changes to accommodate the international scope of the futures industry. FinCEN is the anti-money laundering arm of the U.S. Treasury Department.

Click here to download the PDF Version

2008

FIA “Strongly Supports” Proposed CFTC Exemption for Foreign Brokers

Washington—Feb. 27, 2008—The FIA has filed a comment letter with the Commodity Futures Trading Commission saying it “strongly supports” a proposed exemption from the CFTC’s registration requirements for foreign brokers that are affiliated with U.S. futures commission merchants. The proposed exemption, which was requested by the FIA Law & Compliance Division, “has become increasingly important to FCMs and their affiliates as their institutional customers extend their trading activities to a growing number of international markets,” the FIA letter said. As explained in the letter, the proposed exemption would codify several no-action letters adopted by the CFTC’s Division of Clearing and Intermediary Oversight, “pursuant to which foreign affiliates of certain U.S. FCMs have been authorized to accept orders from U.S. institutional customers for execution on U.S. designated contract markets notwithstanding that such affiliates are not registered with the commission as introducing brokers.” The exemption would be limited to foreign firms that are affiliated with a registered FCM and that already have obtained exemptive relief from the CFTC pursuant to Regulation 30.10. In addition, the foreign firm would not be permitted to solicit any U.S. customers for trading on U.S. markets nor handle any U.S. customer funds for trading on U.S. markets.

FIA Urges Treasury to Endorse Principles-Based Regulation, Says Merger of CFTC with SEC Should Be Last Step

The Futures Industry Association submitted a comment letter to the Treasury Department on Nov. 20, 2007 outlining its views on the structure of financial services regulation in the U.S.

Read more »

FIA Files Comment Letter with U.K.’s FSA Regarding Proposed Telephone Recording Requirement

The FIA filed a comment letter with the Financial Services Authority on Aug. 3, 2007, expressing opposition to a proposed requirement that all telephone conversations be recorded.

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Comments on Proposed National Instrument 31-103 - Registration Requirements

The Futures Industry Association (“FIA”) is pleased to provide this comment letter to the Canadian Securities Administrators (“CSA”) with respect to Proposed National Instrument 31-103 – Registration Requirements (“NI 31-103”).

View Comment letter

“What Constitutes a Board of Trade Located Outside of the United States,” 71 Fed. Reg. 34070 (June 13, 2006)

The Commodity Futures Trading Commission has requested public comment on when a board of trade should be considered to be "located outside the Unites States" for purposes of Section 4(a) of the Commodity Exchange Act. 71 Fed. Reg. 34070 (June 13, 2006).

View Comment letter

Exemption From Registration for Certain Foreign Persons

The Commodity Futures Trading Commission recently proposed amendments to its futures commission merchant registration rules to exempt from U.S. registration brokers outside the U.S. that are engaged in the offer and sale of futures and options traded on U.S. exchanges solely to non-U.S. customers.

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"Regulatory Governance," Proposed Acceptable Practices

FIA response to CFTC request for public comment on its "Proposed Acceptable Practices for compliance with section 5(d)(15) of the Commodity Exchange Act".
August 28, 2006
» FIA Comment Letter

Review of Ontario's Commodity Futures Act

Comment Letter to the Ontario Commodity Futures Act Advisory Committee with respect to the Committee's Interim Report.
August 25, 2006
» FIA Comment Letter

Regulation of Derivatives Markets in Quebec

FIA response to the AMF report entitled "Regulation of Derivatives Markets in Quebec"
August 25, 2006
» FIA Comment Letter

What Constitutes a Board of Trade Located Outside of the United States

FIA responds to CFTC request for comments on when a board of trade should be considered to be "located outside the United States".
August 1, 2006
» FIA Comment Letter

FIA Seeks Clarification of Proposed Rules for Debt Index Futures

Proposed Rules: Application of the Definition of Narrow-Based Security Index to Debt Securities Indexes and Security Futures on Debt Securities
May 16, 2006
» FIA Comment Letter

FIA Comment Letter on Section 312 of USA PATRIOT Act

Joint Comment Letter on the Notice of Proposed Rulemaking issued by the Department of the Treasury and the Financial Crimes Enforcement Network relating to a proposed regulation to implement the provisions of Section 312 of the USA PATRIOT Act that require enhanced due diligence for correspondent accounts established, maintained, administered or managed for certain types of foreign banks.
March 6, 2006
» Joint Comment Letter

FIA Outlines Views on Self-Regulation

Responding to a request from the Commodity Futures Trading Commission, the FIA on Jan. 23 filed a comment letter outlining its views on a number of issues related to the futures industry's self-regulatory system, including the governance of self-regulatory organization, the composition of disciplinary committees, and the need for transparency in exchange rule-making.
January 25, 2006
» FIA Comment Letter

Opposition to Proposed CFTC Reauthorization Legislation

Associations urge postponement of December 7 markup to allow further revisions to House Agriculture Committee draft bill.
December 7, 2005
» Joint Comment Letter

FIA Comments on CSE Rules

FIA comments on amendments proposed in CFTC Federal Register from October 11, 2005: Alternative Market Risk and Credit Risk Capital Charges for Futures Commission Merchants and Specified Foreign Currency and Inventory Charges.
November 28, 2005
» FIA Comment Letter

CESR-CFTC Communiqué Requests Comments on Common Work Program to Facilitate Trans-Atlantic Derivatives Business

Filed May 25, 2005
» FIA Comment Letter

Consultation Paper on The Proposal for the Removal of Barrier 1 of the Giovannini Report

SWIFT s.c.
Filed April 14, 2005
» FIA Comment Letter

Proposed Withdrawal of Staff Interpretation

70 Fed. Reg. 5417 (February 2, 2005)
Filed April 5, 2005
» FIA Comment Letter

CBOE/NYSE Customer Portfolio and Cross Margining Requirements

CBOE Customer Portfolio and Cross Margining Requirements File Number SR-CBOE-2002-03, 69 Fed.Reg. 77275
NYSE Customer Portfolio and Cross Margining Requirements File Number SR-NYSE-2002-19, 69 Fed.Reg. 77287
Filed March 4, 2005
» FIA Comment Letter

Proposed Amendments to Commission Rule 1.55(d)(1)—Distribution of Risk Disclosure Statement

69 Fed.Reg. 64873 (November 9, 2004)
Filed December 7, 2004
» FIA Comment letter

The Governance of Self Regulatory Organizations

69 Fed.Reg. 32326
Filed September 30, 2004
» FIA Comment Letter

Execution of Transactions: Rule 1.38 and Guidance on Core Principle 9

69 Fed.Reg. 39880
Filed August 27, 2004
» FIA Comment Letter

Futures Market Self-Regulation

69 Fed.Reg. 19166
Filed June 18, 2004
» FIA Comment Letter

Futures Commission Merchant and Introducing Broker Customer Identification Rule—Request for No-Action Position

Filed May 5, 2004
» FIA Comment Letter

NASD Notice to Members 04-07: Policy on Trail Commissions in Publicly Offered Commodity Pools

» FIA Comment Letter

Designation of U.S. Futures Exchange L.L.C. as a Contract Market

» FIA Comment Letter

Joint Trade Association Letter regarding the Eurex US Application

» FIA Comment Letter

Joint Industry Letter Opposing Feinstein Amendment

The FIA is participating in a broad coalition of trade groups that are urging members of the Senate to oppose energy derivatives legislation proposed by Senator Dianne Feinstein (D-Calif.) and co-sponsored by several other members of the Senate. Feinstein is preparing to offer her bill as an amendment to the comprehensive energy legislation now being considered on the Senate floor. In a letter sent to Senate Majority Leader Bill Frist (R-Tenn.) and Senate Minority Leader Tom Daschle (D-S.D.), the coalition warned that Feinstein's bill contains provisions that would expand the Federal Energy Regulatory Commission's jurisdiction and create "uncertainty and unnecessary jurisdictional confusion" between the FERC and the Commodity Futures Trading Commission. The coalition also warned that the amendment would create legal uncertainty within the OTC derivatives markets and call into question the CFTC's exclusive jurisdiction over futures and options on futures.
» Joint Industry Letter (May 2003)

Joint industry letter opposing the Energy Markets Amendment sponsored by Sens. Dianne Feinstein (D-Calif.), Carl Levin (D-Mich.), and Richard Lugar (R-Ind.)
» Joint Industry Letter (Nov. 2003)

US Futures Exchange LLC

» FIA Comment Letter

Proposed Amendments to Rule 1.25—Investment of Customer Funds

68 Fed.Reg. 38654 (June 30, 2003)
» FIA Comment Letter

Minimum Financial and Related Reporting Requirements for Futures Commission Merchants and Introducing Brokers

68 Fed.Reg. 40835 (July 9, 2003)
» FIA Comment Letter

Customer Identification Programs for FCMs and IBs

» FIA Comment Letter

FIA Comment Letter on CBOT and CME Rules

» FIA Comment Letter

NPRM—Suspicious Transaction Reporting—Futures Commission Merchants and Introducing Brokers in Commodities

68 Fed. Reg. 23,653 (May 5, 2003)
» FIA Comment Letter

FIA Comments on CBOT/CME Link

» FIA Comment Letter

Proposed Amendments to Rule 1.35(a-1)(5)—Post-Execution Allocation of Bunched Orders

68 Fed.Reg. 12319 (March 14, 2003)
» FIA Comment Letter
» CFTC Proposed Rule Revisions

Advanced Notice of Proposed Rulemaking on CPO and CTA Registration Exemptions

» FIA Comment Letter

Proposed Rules Relating to Credit by Brokers and Dealers; Security Futures

67 Fed. Reg. 62,214 (October 4, 2002); Docket No. R?1131
» FIA Comment Letter

Reserve Requirements for Margin Related to Security Futures Products

67 Fed.Reg. 59748 (September 23, 2002), File No. S7-34-02
» FIA Comment Letter

Proposed Rule 1.49—Foreign Depositories

67 Fed.Reg. 52641 (August 13, 2002)
» FIA Comment Letter

Proposed Suspicious Activity Report by the Securities and Futures Industry (SAR-SF)

October 4, 2002
» FIA Comment Letter

Joint Association Letter to U.S. Senate

Against adoption of proposed energy derivativeslegislation as a part of final legislative initiatives opposing any attempt to approve controversial, detrimental and anti-competitive derivativeslegislation.
» Joint Comment Letter

NASD Gross Income Assessments, 67 Fed.Reg. 55893

August 30, 2002
» CFTC Comment Letter

Section 326 Proposed Rule—Customer Identification

67 Fed.Reg. 48238, July 23, 2002
» FIA Comment Letter

FIA/SIA Review of the FATF Forty Recommendations Consultation Paper

August 30, 2002
» FIA/SIA Comment Letter

Release No. 34-46186; File No. SR-NASD-2002-40

August 9, 2002
» FIA Comment Letter

Interim Relief Related to the Trading of Foreign Security Futures Products

July 3, 2002

Notice of proposed rulemaking on anti-money laundering due diligence programs for certain foreign accounts

July 1, 2002
» FIA Comment Letter

FIA/SIA Joint Comment Letter

National Futures Association Proposed Interpretive Notice to NFA Compliance Rule 2-4 Regarding Broker-Dealer Best Execution Obligations with Respect to Security Futures
Release No. 34-45720; SEC File No. SR-NFA-2002-02
» Joint Comment Letter

NFA Interpretive Notice Regarding Supervision of Automated Order Routing Systems

67 Fed.Reg. 14701 (March 27, 2002)
April 26, 2002
» FIA Comment Letter

Senator Feinstein’s amendment to S.517

April 8, 2002
» FIA Comment Letter

Study of the Commodity Exchange Act and Rules Thereunder

66 Fed. Reg. 33531 (June 22, 2001)
April 5, 2002
» FIA Comment Letter

Special Information Sharing Procedures to Deter Money Laundering and Terrorist Activities

Attention: Proposed Rule -- Special Information Sharing Section 314
April 3, 2002
» FIA Comment Letter

NPRM – Suspicious Transaction Reporting – Brokers or Dealers in Securities

March 1, 2002
» FIA Comment Letter

Interim Report: Recommendations for Standardization of Protocol and Content of Order Flow

February 20, 2002
» Comment Letter