Proposed Rules

Residual Interest Deadline for Futures Commission Merchants

On November 3rd, the CFTC published for comment a proposed amendment to Regulation 1.22, which prohibits a futures commission merchant (“FCM”) from using one customer’s funds for the benefit of another customer. The amendment would remove the December 31, 2018 termination date for the phased-in compliance schedule for FCMs to adopt the new 9:00 AM Residual Interest Deadline. The deadline will still move to 6:00 PM on the settlement date beginning November 14, 2014, as previously scheduled. However, the move to the 9:00 AM deadline will only occur after the CFTC conducts a separate study of the effect of moving to an earlier time and only after it completes a separate rulemaking. Comments should be submitted within 60 days after publication in the Federal Register, which is expected shortly.

Records of Commodity Interest and Related Cash or Forward Transactions

On November 3rd, the CFTC published for comment proposed amendments to Regulation 1.35, which requires market participants to keep written and oral records of transactions. The amendments would revise the rule to codify and expand previously issued no-action relief. Under an amended rule, members of designated contract markets and swap execution facilities that are not registered with the CFTC would not have to keep text messages or store their other records in a manner that is identifiable and searchable by transaction. In addition, commodity trading advisors would not have to record oral communications regarding their swap transactions. The proposed amendments would also clarify the requirement that records must be identifiable and searchable by transaction and what “identifiable and searchable” means. Comments should be submitted within 60 days after publication in the Federal Register.

Forward Contracts with Embedded Volumetric Optionality

On November 3rd, the CFTC voted to publish for comment a proposed clarification of its interpretation concerning forward contracts with embedded volumetric optionality. The proposal would clarify when such contracts would fall within the forward contract exclusion from the swap definition. See Fact Sheet.


Notification and Reporting Requirements for Uncleared Swap Transactions

On October 31st, the CFTC’s Division of Swap Dealer and Intermediary Oversight issued interpretive guidance as to the applicability of certain provisions of Commission Regulations 23.701 and 23.704. These regulations impose notification and reporting requirements on swap dealers (“SDs”) and major swap participants (“MSPs”) with respect to margin posted by their counterparties in uncleared swap transactions. The interpretation clarifies that the requirement that a SD or MSP must provide annual notification to each counterparty to an uncleared swap transaction of such counterparty’s right to elect to require segregation of initial margin continues to apply in any calendar year in which the SD or MSP enters into a new uncleared swap transaction with the counterparty. The SD or MSP is required to provide the annual notification whether or not the counterparty previously made an election to require the SD or MSP to segregate initial margin. The annual notification and quarterly reporting requirements are not applicable if no initial margin is required to be posted by a counterparty or collected by an SD or MSP either by contract or regulation. Under certain conditions an SD or MSP is not prohibited from relying on negative consent in complying with its obligations to obtain from its counterparty: (a) confirmation of the counterparty’s receipt of the annual notice provided by the SD or MSP under Regulation 23.701, and (b) the counterparty’s election to require or not require segregation. CFTC Press Release.

Regulatory Relief

Clearing and Execution Relief Extended for Inter-Affiliate Swaps

On November 7th, the CFTC’s Divisions of Clearing and Risk and Market Oversight each extended to December 31, 2015, previously-issued no-action relief for certain inter-affiliate swaps transactions. CFTC Letter No. 14-135 permits Eligible Affiliate Counterparties to continue to use the alternative compliance framework for certain outward-facing swaps. CFTC Letter No. 14-136 provides relief from the trade execution requirements to Eligible Affiliate Counterparties. CFTC Press Release.

Reporting Relief Granted to Southwest Airlines

On November 6th, the CFTC’s Division of Market Oversight issued time-limited, no-action relief to Southwest Airlines and its counterparties to allow additional time to comply with the reporting obligation in Section 43.3(a), in the context of transactions in long-dated Brent and WTI crude oil swaps and swaptions. The relief expires upon the CFTC’s determination that Brent and WTI crude oil swap and swaption contracts are subject to the mandatory clearing requirement and/or upon DMO’s determination that there is sufficient liquidity in such contracts and thus a shorter time period for the real-time reporting is warranted. CFTC Press Release.

Relief from Regulation 1.57(a)(1)

On October 31st, the CFTC’s Division of Swap Dealer and Intermediary Oversight granted no-action relief from Regulation 1.57(a)(1)’s requirement that a guaranteed introducing broker (“GIB”) open and carry each customer account solely with its guarantor futures commission merchant (“FCM”) on a fully-disclosed basis. The relief allows a GIB to open and carry customer accounts with other than its guaranteeing FCM. It is understood that customers would be eligible contract participants and it is anticipated that the ultimate owner of the guaranteeing FCM would be the ultimate owner of an interest in the GIB.

Other Developments

CFTC Enforcement Results

On November 6th, the CFTC reported the agency’s enforcement results for fiscal year 2014. The CFTC obtained a record $3.27 billion in monetary sanctions imposed against companies and individuals. This year’s civil monetary penalties total more than eight times the Commission’s operating budget for the fiscal year. CFTC Press Release.

Commissioner Wetjen Discusses Bitcoin

On November 4th, CFTC Commissioner Mark Wetjen wrote an op-ed article for the Wall Street Journal on why regulators should pay attention to digital currencies like Bitcoin. Because those drawn to virtual currencies have expressed an interest in hedging their exposure, the CFTC in particular should be paying attention. Wetjen Op - Ed.