On June 17, the Commodity Futures Trading Commission's
Division of Market Oversight extended the no-action relief it
previously granted to any person or entity offering, entering into,
or rendering advice or services with respect to any agreement,
contract or transaction in any agricultural, exempt or excluded
commodity as set forth in paragraphs (2) through (4) of the
CFTC's Second Amendment to the July 14, 2011 Order. This
no-action relief allows a facility currently operating as an exempt
commercial market, exempt board of trade or under the provisions of
now-repealed sections (2)(d)(2), 2(e) or 2(g) of the Commodity
Exchange Act to continue to operate under the no-action relief
until October 2, 2013. Such a facility will not be able to rely
upon the no-action relief after October 2, 2013, if it has not
previously applied for temporary registration as a swap execution
facility or has not registered as a designated contract market. More information is available here. On June 19, the National Futures Association (NFA) issued a
notice to its members regarding the implementation of the second
phase of the segregated account balance reporting requirements
under Section 4 of the NFA's Financial Requirements. The second
phase requires derivatives clearing organizations (DCOs) and
clearing futures commission merchants (FCMs) acting as segregated
funds depositories for customer funds of another FCM (non-clearing
FCM) to report the end-of-day balances in all customer omnibus
accounts held by DCOs and clearing FCMs to the non-clearing
FCM's designated self-regulatory organization. The NFA's
notice provides specific instructions that FCMs must follow to
ensure compliance with the new requirements, which will become
effective on September 4, 2013. The Chicago Mercantile Exchange is
expected to issue a bulletin regarding the reporting of this
information by DCOs within the next few weeks. More information is available here. On June 17, the Chicago Mercantile Exchange, Chicago Board of
Trade, New York Mercantile Exchange and Kansas City Board of Trade
issued an advisory notice that provides updated guidance on
compliance with the exchanges' rules prohibiting wash trades,
as well as information regarding the introduction of self-match
prevention functionality on CME Globex. Beginning in June, the
exchanges will introduce an optional self-match prevention
functionality that, when employed, will automatically block the
matching of buy and sell orders that are submitted to CME Globex
with the same executing firm ID and the same self-match prevention
ID. When the self-matching function is enabled, the trading engine
will prevent opposing orders that have been entered with the same
self-match prevention ID from matching by cancelling the resting
order(s) and processing the incoming order. Additional information on the self-matching prevention
functionality and registration process for obtaining self-match
prevention IDs can be found here. The Market Regulation Advisory Notice is available here. The US Supreme Court affirmed a ruling by the US Court of
Appeals for the Third Circuit upholding an arbitrator's
decision that a contract provided for class arbitration. The Court
held that where parties consent to arbitrate an issue, neither
party can challenge an arbitrator's decision on fact or law if
the arbitrator made a good-faith effort to interpret the
contract. Plaintiff-pediatrician is a member of Petitioner Oxford Health
Plans' (Oxford) network. He brought suit on behalf of himself
and a proposed class of New Jersey doctors, claiming that Oxford
had failed to make prompt payments in violation of the parties'
contract, as well as state law. Oxford successfully moved to compel
arbitration and the parties agreed that the arbitrator should
decide whether the contract authorized class arbitration. The
arbitrator relied on the text of the contract and concluded that it
did. Oxford moved to vacate the decision as exceeding the
arbitrator's powers under § 10(a)(4) of the Federal
Arbitration Act (FAA); the district court denied the motion and the
Third Circuit affirmed. During the arbitration, the Supreme Court
held in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S.
662, 684 (2010), that a party may not be compelled to submit to
class arbitration unless there is a contractual basis for
concluding that the party agreed to do so. Upon Oxford's
request, the arbitrator reconsidered his decision and reached the
same conclusion, distinguishing Stolt-Nielsen. Oxford again moved
to vacate under § 10(a)(4); the district court again denied
the motion and the Third Circuit affirmed. The Supreme Court, in an opinion by Justice Kagan, unanimously
affirmed the Third Circuit. The Court distinguished the case from
Stolt-Nielsen on the basis that in Stolt-Nielsen the parties had
stipulated that they had not reached an agreement on class
arbitration. Therefore, in the absence of intent, class arbitration
was unavailable. Here, however, the parties agreed that the
arbitrator should decide the availability of class arbitration
under the contract and Oxford had twice submitted to arbitration on
the issue. The Court held that the arbitrator did not exceed his
powers under § 10(a)(4), because, unlike the arbitrators in
Stolt-Nielsen, he had not abandoned his interpretive role. Oxford Health Plans LLC v. Sutter, No. 12-135, slip op. (US June
10, 2013). The Delaware Court of Chancery recently determined that the
appropriate remedy for a corporation's failure to comply with
court orders to hold a long overdue stockholders' meeting was
to appoint a receiver with authority to ensure that a meeting
occurred. The court had twice previously ordered Defendant Fuqi
International Inc. (Fuqi) to hold an annual stockholders'
meeting. After Fuqi failed to comply, plaintiff moved to hold Fuqi
in contempt of court, seeking monetary sanctions or appointment of
a receiver to liquidate the corporation. Fuqi argued that it could
not hold a stockholders' meeting without violating Regulations
14A and 14C promulgated by the Securities Exchange Commission
because the company had not filed audited financial statements. The court disagreed with Fuqi's argument, noting Fuqi's
failure to explain why it had not filed audited financial
statements for several years, and the lack of any indication of
when it might do so. The court also determined that the
plaintiff's suggested remedy of a significant daily fine would
only further damage stockholders, and that the appointment of a
receiver to liquidate the corporation would be
"draconian." Instead, the court decided to appoint a temporary receiver
consistent with its decision in Judy v. Preferred Communication
Systems, Inc., C.A. No. 4662-CC, at 50-54 (Del. Ch. Dec. 4, 2009).
The court determined that the receiver should "(1) evaluate
whether audited financials sufficient to comply with SEC
regulations can be filed; (2) if not, evaluate whether an exemption
should be sought from the SEC; and (3) explore any other
considerations to a holding of the stockholders' meeting."
The court ordered that a stockholders' meeting be held within
90 days, but allowed the receiver to seek modification of the
timetable if necessary. Rich v. Fuqi International Inc., C.A. No. 5653-VCG (Del. Ch.
June 12, 2013). The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
CFTC
CFTC Extends No-Action Relief for Certain Transactions
and Trading Platforms
NFA Issues a Notice Regarding Segregated Account
Balance Reporting
CME Group Introduces Self-Match
Prevention
LITIGATION
US Supreme Court Defers to Arbitrator's Decision to Allow
Class Arbitration in Healthcare Action
Delaware Court of Chancery Appoints Receiver to Ensure
Stockholders' Meeting