Commodity Futures Trading Commission
Congress and the Trump Administration may be embarking on making far-reaching changes that will recalibrate the manner in which financial services are regulated in the United States, including, but not limited to, amending the Dodd-Frank Act and its implementing rules. Changes affecting asset managers subject to CFTC regulation may come as changes to the Commodity Exchange Act and CFTC rules directly applicable to commodity pool operators and commodity trading advisors or as changes applicable to federal banking institutions, swap dealers and exchanges, which may have an indirect effect on asset managers. We expect to see vigorous debate regarding the appropriate approach to financial services regulation, leading to rewrites of the structures and goals of federal banking and securities agencies and other government agencies.
This page is dedicated to tracking legislative and regulatory developments related to the CFTC.
For more information, please contact Philip T. Hinkle or Audrey Wagner.
Sponsor: Rep. Hill (R-AR)
House Financial Services Committee passed 50-10, March 21, 2018.
The Bill would give the FRB sole rulemaking authority for the Volcker Rule as compared to the current joint rulemaking authority that is shared among the FRB, FDIC, OCC, SEC and CFTC. The Bill would also allocate examination and enforcement authority for the Volcker Rule so that the primary Federal banking agency (as defined in the Bill) for a banking entity would have sole authority to conduct examinations of the all affiliates of the banking entity and to enforce Volcker Rule with respect to the affiliates consistent with the FRB’s interpretations.
The Bill would also exclude community banks from the Volcker Rule by providing an exemption from banking entity status to any entity that has total consolidated assets of $10 billion or less.
The Volcker Rule’s requirement for cooperation among five financial regulatory agencies has been widely viewed as complicating and impeding the rulemaking and interpretation processes for the Volcker Rule. This problem would be addressed by the Bill.
The Bill, similar to S. 2155 which recently passed the Senate with bipartisan support, would provide an exemption from the Volcker Rule for smaller institutions. The broad bipartisan support for the Bill suggests that Congress may be prepared to pass a significant relaxation of the Volcker Rule during this session.
Alleviating Stress Test Burdens to Help Investors Act (H.R. 4566)
Bill Sponsor: Rep. Poliquin (R-ME)
House of Representatives passed 395-19 on March 20, 2018.
The Dodd-Frank Act provided for certain regulatory agencies to issue rules establishing requirements for company-conducted stress tests to be undertaken on an annual basis by financial institutions (that were not SIFIs or large bank holding companies) that have consolidated assets in excess of $10 billion. The Bill would repeal the potential application of this stress test requirement to financial companies whose primary Federal financial regulatory agency is the SEC or CFTC. The proposed repeal is based on the view that the principles associated with stress testing do not appropriately apply to entities such as asset managers and investment funds.
The Bill would, however, authorize the SEC and the CFTC to issue regulations requiring financial companies as to which they are the primary financial regulatory agency to conduct periodic analyses of the financial condition, including available liquidity, of such companies under adverse economic conditions.
The Bill is significant since it shows a broad bipartisan consensus in the House recognizing the significant differences in addressing bank related financial stability concerns as compared to asset management industry financial stability concerns.
Financial Institution Bankruptcy Act of 2017 (H.R. 1667)
Sponsor: Rep. Marino (R-PA) (4 Co-Sponsors – 2 R, 2 D)
House of Representatives passed by voice vote on April 5, 2017
The Bill would establish a special resolution regime under a new subchapter of Chapter 11 of the Bankruptcy Code for bank holding companies and nonbank financial companies with at least $50 billion of assets (excluding stock brokers, commodity dealers, insurance companies and a range of depository institutions). It would authorize the formation of a bridge company to which certain assets and liabilities of the debtor could be transferred if a court found, among other things, that it was necessary to prevent serious adverse effects on financial stability in the U.S. The equity of the debtor would not be transferred to the bridge company and generally, the bridge company would not assume the debtor’s liabilities. The equity securities of the bridge company would be held by a special trustee and the proceeds of any sale of such securities would be held in trust pending distribution under an approved plan. The Act would entitle the FRB, SEC, OCC, CFTC and FDIC to be heard on any issue arising in a proceeding under the subchapter.
The Bill would create an alternative to the Orderly Liquidation Authority provisions contained in Title II of the Dodd-Frank Act, which authorize the Secretary of the Treasury under extraordinary circumstances to appoint the FDIC as receiver for certain nonbank financial institutions under rules and procedures similar to the ones that apply to the receivership of an FDIC-insured depository institution. The Financial CHOICE Act, which was approved by the House Financial Services Committee in September 2016, contained provisions substantially identical to the Bill, but would have taken the additional step of repealing Title II.
The Commodity End-User Relief Act of 2017 (“Act”) (H.R. 238)
Sponsor: Rep. Conaway (R-TX) (3 Co-Sponsors – 2 R, 1 D)
House of Representatives passed 239-182: on January 12, 2017
Received in the Senate January 17, 2017
The Act would make significant changes to the Commodity Exchange Act (CEA) including to: (i) impose additional requirements for CFTC rulemaking cost-benefit analysis; (ii) require harmonization of CFTC advertising regulations with SEC regulations under the JOBS Act; (iii) require CFTC to obtain a subpoena before compelling production of algorithmic trading code from traders (including asset managers); (iv) strengthen confidentiality protections for proprietary data of commodity pool operators (CPOs) and commodity trading advisors (CTAs); (v) limit the CFTC’s rulemaking authority with regard to setting position limits for swaps and other contracts under the Dodd-Frank Act; (vi) exempt charitable organizations and advisers and funds that hold only “financial commodity interests” from the definition of CPO and CTA; and (vii) delay and change the thresholds and other requirements, including the reporting of natural person controllers of accounts, relating to CFTC Ownership and Control Reports (OCR).
The Act would expand the cost benefit considerations the CFTC must consider to include impact on market liquidity in the futures and swaps markets, which would likely take into account institutional investors as they are often considered to be liquidity providers. Currently, asset managers operating as either registered or exempt CPOs cannot market their funds to the public as permitted by the JOBS Act because of marketing restrictions in the CFTC rules. SEC rules already permit asset managers to take advantage of the JOBS Act.
The CFTC’s proposed Regulation AT could have significant implications for their trade secrets and cybersecurity if the CFTC could access trading source code using its special call power. Special calls to gather information often become routine once a process is implemented (e.g., CFTC Form 40 requests). Limiting CFTC access to source code only when the CFTC has obtained a subpoena would further protect traders subject to the proposed rule.
Registered CPOs and CTAs have been concerned about the CFTC’s confidential treatment of the extensive and detailed proprietary information that they must provide to the CFTC. The Act would give the information the CFTC obtains in connection with those filings of reports on CFTC Form CPO-PQR and CFTC Form CTA-PR the same heightened protection as information gathered during investigations.
The CFTC has not yet finalized rules that would require position limits on swaps or aggregation of trades across exchanges and swap counterparties, and the Act would significantly roll back Dodd-Frank Act changes and curtail the anticipated significant operational challenges of measuring and limiting these exposures.
The CEA and CFTC rules currently do not include carve-outs from the CPO and CTA registration requirements for CPOs and CTAs to (a) charitable organizations that rely on exemptions from investment company status or (b) to registered investment companies that do not hold instruments based on exempt commodities and agricultural commodities.
Not having to provide natural person controller information to FCMs for OCR would be operationally easier for asset managers and would reduce confusion that sometimes threatens to halt trading.