Proposed Rules

End-User exemption. The Commodity Futures Trading Commission (CFTC) proposed a rule that would reduce reporting and recordkeeping requirements for trade option counterparties that are neither swap dealers nor major swap participants (Non-SD/MSPs), including commercial end-users. If adopted, the proposed rule would eliminate the Form TO annual notice reporting requirement for otherwise unreported trade options. A Non-SD/MSP would only need to provide notice to the Division of Market Oversight (DMO) within 30 days after entering into trade options having an aggregate notional value in excess of US$1 billion in any calendar year. Alternatively, a Non-SD/MSP would provide notice by email to DMO that it reasonably expects to enter into trade options having an aggregate notional value in excess of US$1 billion during any calendar year. Comments should be submitted within 30 days after publication in the Federal Register, which is expected shortly. (4/30/2015) CFTC press release. 


End-user guidance. The Division of Clearing and Risk published a letter interpreting Section 2(h)(7)(C)(iii) of the Commodity Exchange Act to clarify that a securitization special purpose vehicle that is wholly-owned by, and consolidated with, an entity described in Section 2(h)(7)(C)(iii) of the Act qualifies as a captive finance company and, therefore, is eligible to elect the end-user exception from a clearing requirement determination issued by the CFTC under Section 2(h) of the Act. (5/4/2015) CFTC press release.

SEF guidance. DMO published guidance to swap execution facilities (SEF) regarding the calculation of projected operating costs for purposes of complying with the financial resource requirements under SEF Core Principle 13 and CFTC Regulation 13.1303. The guidance notes the differences between variable commissions and fixed salaries or compensation. (4/23/2015) CFTC press release.

Other Developments

Market Risk Advisory Committee. The CFTC’s Market Risk Advisory Committee will meet on June 2, 2015, to discuss issues related to cybersecurity threats and market liquidity. (5/5/2015) CFTC press release. 

Global Markets Advisory Committee. The Global Markets Advisory Committee will meet on May 14, 2015, to consider issues related to assessing clearinghouse safeguards and the CFTC’s proposal on the cross-border application of its margin requirements for uncleared swaps. The meeting will consist of two panels, one on clearinghouse capital contributions and clearinghouse stress testing and the other on the CFTC’s proposal regarding cross-border application of its margin requirements for uncleared swaps. (4/28/2015) CFTC press release.

Erroneous trade reporting relief. DMO and the Division of Clearing and Risk issued a no-action letter providing time-limited relief to SEFs and designated contract markets to allow trades voided as a result of clerical or operational errors or errors discovered after a trade has been cleared to be corrected. Separately, DMO issued a no-action letter providing relief to SEFs from certain requirements concerning trade confirmations required from SEFs for non-cleared swaps. (4/22/2015) CFTC press release. 

Charges filed against alleged flash crash trader. The CFTC announced the filing of civil and criminal charges against Nav Sarao Futures Limited PLC and Navinder Singh Sarao for unlawfully manipulating, attempting to manipulate, and spoofing with regard to the E-mini S&P 500 near month futures contract. The CFTC alleges that for over five years, defendants used a variety of large, aggressive, and persistent spoofing tactics and were exceptionally active in the E-mini S&P on May 6, 2010, commonly known as the flash crash day. The CFTC alleges defendants utilized a layering algorithm for over two hours immediately prior to the precipitous drop in the E-mini S&P price, applying close to $200 million worth of persistent downward pressure on the E-mini S&P price, contributing to the market conditions that led to the flash crash. The CFTC further alleges defendants engaged in a variety of other manual spoofing techniques to exacerbate the price impact of the layering algorithm. (4/21/2015) CFTC press release.