Regulatory Information
| FIA Urges Indian Government to Drop Proposed Tax on Commodity Futures TransactionsWASHINGTON, D.C.-April 23, 2008-The Futures Industry Association today released the text of a letter sent to the Indian government that expressed strong opposition to the recently proposed transaction tax on commodity futures. The letter was sent to Prime Minister Manmohan Singh, Minister of Finance P. Chidambaram, Minister of Agriculture Sharad Pawar and other senior government officials as well as key members of Parliament. In the letter, FIA President John Damgard described the "negative consequences" that typically flow from such proposed taxes, and warned that the proposed tax could result in driving trading volume to foreign exchanges and hampering the future growth of India's commodity futures exchanges. |
| Futures Industry Association Security Agreement Assignment of Hedging Account (or “Security Agreement” Industry Standard)The FIA’s Law and Compliance Executive Committee has adopted the attached Security Agreement Assignment of Hedging Account (“security agreement”) as a proposed industry standard to be used when a Client (“Debtor”) must grant to a third party (“Secured Party”) a security interest in Client’s futures account (“Account”) held at a futures commission merchant (“Commodity Intermediary”). The names of the parties and other wording used in this explanation and the Agreement have been intentionally used in order to be consistent with relevant UCC terms. |
 The FIA commends the Treasury Department for taking a comprehensive look at the U.S. regulatory system and for recognizing the many benefits of the regulatory system that now applies to U.S. futures markets administered by the Commodity Futures Trading Commission. The FIA has long agreed with Treasury’s view that modern market realities compel the CFTC and the Securities and Exchange Commission to enhance their coordination and cooperation efforts. The Memorandum of Understanding recently entered into by the two agencies also reflects this view and the leadership of both agencies should be commended for their efforts. In the longer term, FIA stands ready to work with all interested parties on the many important issues raised by this proposal in order to develop constructive solutions that benefit our customers and the financial integrity of our markets. The FIA is the leading trade organization for the futures industry. Its membership includes the world’s largest futures brokers as well as leading derivatives exchanges from more than 20 countries. For more information, please contact Mary Ann Burns (maburns@futuresindustry.org) or Will Acworth (wacworth@futuresindustry.org) at (202) 466-5460. |
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| FIA Urges Treasury to Endorse Principles-Based Regulation, Says Merger of CFTC with SEC Should Be Last StepThe 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. |
| FIA Objects to CME Petition for Exemption on Behalf of China's CFETSThe Futures Industry Association filed a comment letter with the Commodity Futures Trading Commission on Oct. 9, 2007 regarding a petition filed by the CME Group on behalf of the China Foreign Exchange and Interbank Trading System, an arm of China's central bank. The petition asks the CFTC to allow CFETS to become a "super clearing member" of the CME Group and clear foreign exchange and interest rate futures transactions without having to register as a futures commission merchant with the CFTC. The FIA's comment letter objected to the granting of such a petition, saying that this would undermine the principle of "fair competition" and would "adversely affect the ability of the Commission and the CME to discharge their responsibilities." |
| FIA Participates in Coalition Defending CFTC's Exclusive Jurisdiction in Amaranth CaseWashington, D.C.--Oct. 3, 2007--A broad coalition of institutions and industry organizations today filed a "friend of the court" brief in the US District Court for the Southern District of New York regarding the Commodity Futures Trading Commission's lawsuit against Amaranth Advisors. The coalition consists of the Futures Industry Association, the CME Group, the New York Mercantile Exchange, the Managed Funds Association and the International Swaps and Derivatives Association. The brief argues that the court should grant Amaranth's motion to stay an enforcement action undertaken by the Federal Energy Regulatory Commission on the basis of the CFTC's exclusive jurisdiction over futures, which was granted by Congress to prevent overlapping jurisdiction from causing legal uncertainty. |
| FIA Files Comment Letter with U.K.’s FSA Regarding Proposed Telephone Recording RequirementThe FIA filed a comment letter with the Financial Services Authority on Aug. 3 expressing opposition to a proposed requirement that all telephone conversations be recorded. |
| FIA Files Brief in Supreme Court Case Involving FuturesThe FIA filed an "amicus curiae" brief on July 19 urging the Supreme Court to reverse a lower court ruling in Klein & Co. Futures Inc. vs. Board of Trade of the City of New York Inc., et al. |
| Anti-Money Laundering: FIA Receives Guidance on Application of Customer Identification Rules to Give-Up ArrangementsIn response to a request from the FIA, the Commodity Futures Trading Commission and the Financial Crimes Enforcement Network, the anti-money laundering arm of the U.S. Treasury Department, on April 19 issued guidance clarifying the application of customer identification requirements to give-up arrangements. The guidance confirmed that CIP requirements apply only to the clearing broker in a give-up transaction, not to the executing broker. The guidance was developed through extensive consultation with representatives of the futures industry. The FIA thanks the members of the FIA Law & Compliance division for their years of work on this initiative. View the CFTC press release View the FIA letter to the CFTC |
| FIA Files Brief with Supreme Court in Klein CaseThe FIA filed an "amicus curiae" brief on April 18 urging the Supreme Court to take up the case Klein & Co. Futures Inc. vs. Board of Trade of the City of New York Inc., et al. The FIA’s brief argues that the Second Circuit "clearly erred" in reaching a decision that deprives futures commission merchants of a private right of action against registered entities such as exchanges. "That error affects the interests not only of the parties to this case, but of the entire futures industry, by exposing futures commission merchants to substantial financial harm resulting from bad faith misconduct by registered entities without any remedy," the FIA’s brief stated. Brief of Amicus Curiae FIA In Support of Petitioner
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House Passes Hedge Fund Study BillThe U.S. House of Representatives has approved a bill that would require the President's Working Group on Financial Markets to study the impact of the hedge fund industry on financial markets.
» H.R. 6079, "Hedge Fund Study Act" |
In a June 5, 2006 letter, FinCen addressed how the correspondent account rule applies to to FCMs acting as executing brokers and clearing brokers in give-up arrangements. FinCen has stated that a FCM operating as the carrying broker - and not a FCM operating as an executing broker - is subject to compliance with the due diligence provisions of the correspondent account rule. FinCen also states that in situations where an IB introduces an account of a foreign financial institution to an FCM, the FCM executes an account agreement directly with the foreign financial institution and accepts margin and funds to secure trades, thereby establishing a "formal relationship" with the introduced foreign financial institution. Therefore, the FCM is subject to compliance with the due diligence provisions of the correspondent accounts rules for these introduced accounts. FinCen also states that it does not view the solicitation or acceptance of orders alone as sufficient to make IBs subject to the correspondent account rule. However, the letter suggests that administering or managing a correspondent account for a foreign financial institution by performing services beyond solicitation or acceptance or orders would subject IBs to the correspondent account rules. Regarding the application of the correspondent account private banking rules, FinCen states that when an FCM imposes minimum aggregate account requirements of not less than $1 million on an introduced account for a non-US person and assigns an officer, employee or agent to act as a liaison between the FCM and the beneficial owner or owners of the introduced account the introduced account will be considered a private banking account of the FCM subjecting the FCM to compliance with the due diligence provisions of the private banking rule. Response from FinCENJune 5, 2006May 5, 2006 FIA/SIA Letters to the Financial Crimes Enforcement Network regarding the Final Rule for Section 312 of the USA Patriot Act.
Rule 312 Comment Letter Mar. 06, 2006Rule 312 Comment Letter Mar. 03, 2006Rule 312 Comment Letter Feb. 23, 2006
Federal Register, March 30, 2006: http://www.fincen.gov/71fr16040_1506_aa29.pdf |
Nymex questions CFTC Policy on Foreign TerminalsThe New York Mercantile Exchange has asked the CFTC to prevent IntercontinentalExchange, its chief rival, from moving ahead with plans to list unleaded gasoline and heating oil futures on its ICE Futures subsidiary. ICE Futures, originally known as the International Petroleum Exchange, is a U.K. registered exchange that makes its products available in the U.S. through a foreign terminals no action letter. In an April 13 letter to CFTC Chairman Reuben Jeffery, Nymex General Counsel Christopher Bowen argued that the policy was designed to provide access to foreign futures contracts, and that the ICE contracts should be treated instead as U.S. products that directly involve physical energy markets in the U.S. "Such contracts should be traded only on a futures market that is directly regulated by the CFTC," Bowen said.
» Nymex Letter to CFTC |
» SEC Letter regarding Short Option Value Charge |
Such a tax, the groups argued in a joint March 2 letter to Congress, would "significantly reduce the vital liquidity on U.S. futures exchanges" and create "an enormous incentive" for trading activity to migrate to foreign futures exchanges or into over-the-counter markets. The coalition also questioned whether the proposed tax would actually raise the anticipated revenue, and pointed out that the industry already underwrites the costs of self-regulatory programs at the exchanges as well as the $35 million annual budget of the National Futures Association.
The letter was sent to the House and Senate leadership, the House and Senate agriculture committees, the House and Senate agriculture appropriations subcommittees, the House and Senate budget committees, and the delegations from the following states: Illinois, New York, Kansas, Minnesota and Missouri.
» Transaction Tax Letter
» Feb. 7 Press Release
» Budget 2007: CFTC |
Testifying on the panel on composition of SRO boards of directors, Damgard reiterated the FIA's proposed standard that the board be comprised of at least 50% non-industry (or independent) directors and stated that "by sharing power with objective and intelligent decision-makers who have no stake in the game, U.S. exchanges will show the kind of strength and self-confidence that has always been their hallmark." For the panel discussing alternative regulatory structures, the FIA's prepared statement suggested that SROs create formal regulatory oversight committees comprised of non-industry directors to be responsible for the exchange's self-regulatory activities. "The 'ROC' should be empowered to select compliance personnel, supervise their activities and determine their compensation," Damgard said. "It is vitally important that the ROC’s self-regulatory staff be independent of management for the SRO's business operations. The ROC also would be charged with selecting the members of exchange disciplinary panels."
Additional topics discussed at the roundtable included SRO transparency and disclosure and SRO disciplinary committees. FIA board members Jeffrey Jennings, managing director and global head of futures, Lehman Brothers; and Michael Schaefer, managing director, Citigroup Global Markets; also particpated in the roundtable.
FIA prepared statements:
» Panel 1
» Panel 2
» FIA Comment Letter
» CFTC Opening Remarks
» Comment Letter on SRO Roundtable
» Transcript for SRO Hearing |
"By concluding that a commodity broker does not have the power to combine or 'net' the sub-accounts when a customer is in receivership, the receiver insists on disaggregating what the industry regards as an integrated whole--based on both practice and applicable law," the brief stated. "In this case, the receiver would have the court ignore these long-established practices and the law in favor of cherrypicking only the gains and foisting the customer's losses back on the commodity broker."
The district court is hearing a case filed by the Commodity Futures Trading Commission against Philadelphia Alternative Asset Management, a hedge fund that allegedly hid severe losses from its customers. Man Financial was PAAM's broker and held two sub-accounts for the fund. Last June, the court took control of the fund and appointed a receiver. In response to a court order, Man Financial liquidated the open positions in PAAM's accounts and paid the net balance to the receiver. The receiver objected to the fact that Man Financial offset the positive balance in one sub-account with the negative balance in the other sub-account, and filed a motion to have Man Financial held in contempt. The Joint Audit Committee and the National Futures Association also filed amicus briefs. The court will most probably issue a decision on this issue in mid March.
» FIA Amicus Brief |
The House also approved a controversial amendment aimed at providing "transparency" to the natural gas markets. The amendment charges the CFTC with preventing and detecting manipulation of the natural gas markets, outlines increased record keeping requirements for large traders operating on the exchanges, and increases the civil and criminal penalties for violations of CFTC anti-manipulation rules. The amendment was opposed by the Federal Reserve and the Treasury Department as well as a coalition of financial services trade associations, including the FIA. Federal Reserve Chairman Alan Greenspan, in a Dec. 13 letter to Congress, warned that the amendment contained "rather vague" language that could be read to require the CFTC to conduct surveillance of cash markets and over-the-counter derivatives, and would broaden the CFT's record-keeping and reporting requirements beyond futures.
The bill will not become law until approved by the Senate. The Senate Agriculture Committee approved a version of the bill in July, and is working with the Senate Banking Committee on a compromise. Floor action on the Senate bill has not been scheduled yet.
» Goodlatte Statement on Passage of HR 4473
» Text of Bill as Approved by the House
» CFTC Letter to Oxley
» Federal Reserve Letter to Oxley
» Treasury Letter to Oxley
» Coalition Letter Opposing Natural Gas Amendment
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FIA President John Damgard Testifies Before Senate Banking CommitteeFIA President John Damgard testified on September 8 at a Senate Banking Committee hearing on the reauthorization of the Commodity Futures Trading Commission. He addressed four main issues: off-exchange retail foreign currency transactions; security futures; SRO transparency and governance; and competition among exchanges and clearinghouses.
» Statement on Reauthorization of the CFTC |
Greenspan Letter on Natural Gas LegislationFederal Reserve Board chairman Alan Greenspan comments to Congressman John R. Kuhl on H.R. 1638, the Commodities Exchange Improvement Act of 2005.
» Greenspan Letter |
President's Working Group Recommends CEA Amendments to CongressThe President's Working Group on Financial Markets ("PWG") on Nov. 3 recommended several changes to the Commodity Exchange Act. The recommended changes, which were drafted in response to Congressional requests, cover the CFTC's jurisdiction in foreign currency trading, portfolio margining for security futures and security options, and the trading of futures on debt security indexes and foreign security indexes. The recommended changes are intended for consideration as part of the legislation to reauthorize the CFTC. The PWG consists of the Treasury Department, the Federal Reserve, the Securities and Exchange Commission and the CFTC.
» PWG Letter to Chairman Oxley
» Text of Amendments |
"Currently, firms trying to do transatlantic business face a myriad of confusing, inconsistent and conflicting regulatory requirements.," said John Damgard, President, Futures Industry Association. "Regulatory simplification and harmonisation, as we have proposed here, would have the benefits of lowering the cost of doing business and increasing competition on both sides of the Atlantic. This should result in better service for the many institutions trading equities and equity derivatives in our two markets". |
Senate Agriculture Committee CFTC Reauthorization HearingThe Senate Agriculture Committee held a "mark-up" hearing on Thursday, July 21 for the legislation reauthorizing the Commodity Futures Trading Commission. The bill was redrafted late on Wednesday, July 20 to limit the scope of the more controversial provisions of the bill. In the new draft, the fraud provision was limited to forex markets, although the Senate is still considering widening the provision to all commodities. At the hearing, Senate Agriculture Chairman Saxby Chambliss indicated that the bill is a “placeholder” and that the industry, CFTC, President’s Working Group on Financial Markets and the Senate Banking Committee should continue to work on the language. The Senate Banking Committee has announced that it will hold hearings in September.
» Senate Bill
» PWG Letter
» Joint Trade Association Letter |
» Legislative Proposals for Reauthorization
» Cover Letter to House Agriculture Committee |
| Sharon Brown-Hruska Speaks at FIA ConferenceIn a March 17 speech at the FIA’s annual International Futures Industry Conference in Boca Raton, Fla., Sharon-Brown-Hruska, the acting chairman of the Commodity Futures Trading Commission, reviewed the priority issues that she hopes Congress will address during CFTC reauthorization, and hinted that the CFTC has a favorable view of the proposed phase two of the Eurex-Clearing Corp. linkage. |
| International Regulators Discuss Risk-Based Supervision in Boca RatonFinancial services regulators from 19 countries attended a closed-door meeting to discuss “risk-based supervision” on March 16 in Boca Raton, Fla., according to the Commodity Futures Trading Commission, the host of the meeting. Panelists addressed how risk-based supervision models are applied to markets and firms, what types of general oversight are necessary components of risk-based supervision models, what risks should be in the model, and the differences in how risk-based supervision is applied to financial and physical commodity markets, the CFTC said in a press release. The countries represented were: the Bahamas, Canada, France, Germany, Hong Kong, Indonesia, Ireland, Israel, Italy, Japan, Korea, Mexico, the Netherlands, Singapore, Spain, Taiwan, Turkey, the U.K., and the U.S. |
FIA and MFA file motion to intervene in the TT v eSpeed litigationThe trade associations moved to intervene for the limited purpose of opening the proceedings and securing access to certain pleadings filed under a "restricted" designation by both Trading Technologies and eSpeed.
» Motion to Intervene
» Supporting Memorandum |
“In my view, duplicative and prescriptive regulation is neither necessary nor well-suited to address the problems being experienced in the energy sector, and instead may exacerbate a liquidity shortage in the energy complex by unnecessarily imposing costs on industry participants, and creating regulatory and legal uncertainty,” Brown-Hruska said. “As a result, in our effort to squelch illegal behavior, we may end up unwittingly nurturing it by encouraging noncompetitive, illiquid markets. In my view, the true enemy of manipulation and market power is competition and liquid markets.” |
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