Monday, February 18, 2013

Valentines Day Was No Bed of Roses for SEC and CFTC Heads

Author: David Schwartz J.D. CPA
The Senate Banking Committee spent the best part of its Valentine's Day grilling Fed officials and agency heads about the regulatory implementation of Dodd-Frank. Despite holding the hearings on a day dedicated to romance and love, the Senators certainly did not woo their witnesses with bonbons and soft questioning. The Banking Committee invited an impressive list of witnesses for the day's round of tough questions focused mainly on coordination both domestically and internationally, and the need for adequate cost benefit analysis associated with all this new regulation. Though the banking regulators received a fair share of the questioning, the heads of the SEC and CFTC received the majority of the Committee's attention.
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Wednesday, January 30, 2013

When it Comes to Swaps, Futurization Means Innovation

Author: David Schwartz J.D. CPA
“Given the inconsistency in the Commission’s interpretation of its own rules, the lack of regulatory certainty and the increased cost of compliance with the Commission swaps regulations, including the complicated and controversial swap dealer definition rules, swap customers have turned to futures markets for regulatory certainty. ICE will become the first exchange to take such a step ahead of new financial regulations, but I suspect they will not be the last.”
--CFTC commissioner Scott O’Malia, September 27, 2012

As new regulations under Dodd-Frank move swaps from the OTC swaps marketplace into the futures marketplace, exchanges and swap participants have come up with new products that trade as futures, but provide the benefits of swaps transactions. They have also begun to devise swap products that are custom designed, and therefore ill-suited to exchange trading and clearing, and thus are exempt from the new regulations.  Futurization, the movement of swaps from the OTC derivatives marketplace into the futures marketplace, has not led to the end of swaps, but to a small renaissance of financial innovation.

  
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Wednesday, January 9, 2013

CFTC Kicks Cross-Border Swaps Guidance Further Down the Road

Author: David Schwartz J.D. CPA
On December 21, 2012, the CFTC issued a final exemptive order providing temporary relief from compliance with certain swap regulations and further proposed guidance relating to the application of certain swap-related provisions of the U.S. Commodity Exchange Act to swap activities outside the United States. The December 21 exemptive order adopts a number of provisions proposed by the CFTC in a July 2012 release, and addresses many of the topics covered in the CFTC’s proposed cross-border guidance ("Proposed Cross-Border Guidance") also issued in July 2012.

The CFTC elected not to finalize the Proposed Cross-Border  Guidance at this time. It did, however, include in the December 21 exemptive order proposed further guidance (“Proposed Further Guidance”) regarding the definition of the term “U.S. person” and aggregation requirements for non-U.S. persons.
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Saturday, December 22, 2012

CFTC Buys Swaps Dealers More Time for Compliance

Author: David Schwartz J.D. CPA
On December 18, 2012, the CFTC issued an interim final rule extending the compliance date for the business conduct standards and documentation requirements for swap dealers and major swap participants. The rule extends the compliance deadline for the business conduct standards and certain documentation requirements to May 1, 2013. The compliance date for the other documentation requirements has been extended to July 1, 2013. This change means that swap dealers will now have until May 1, 2013 to amend their master swap agreements and other counterparty documentation rather than the previous December 31, 2012 deadline. By extending the compliance date, the CFTC has bought swap dealers and major swap participants four more months to bring their agreements and documentation in line with the ISDA's Dodd-Frank Protocol.
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Monday, December 3, 2012

The Transparent Future of Swaps Markets

Author: David Schwartz J.D. CPA
CFTC Chairman, Gary Gensler, says he believes that the days of the opaque swaps market are ending and a new era of transparency and commonsense rules of the road is on the horizon. Gensler's October 10, 2012 address before the George Washington University Center for Law, Economics and Finance Conference provides some insights into how Mr. Gensler and his agency are paving the way for this new era. For starters, regulation of the swaps markets is now catching up to the great financial market reforms of the 1930s, such as public reporting of transactions, central exchange trading, and regulation of dealers. According to Gensler, these new Dodd-Frank regulations are implementing the same kinds of protections that have worked for decades in the securities and futures markets, bringing transparency to and lowering the risk of the swaps market.  Mr. Gensler believes applying some time-tested tenants of risk management to swaps markets, and shining a bright light on its activities and players, is the best way to protect investors.
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