United States: Corporate And Financial Weekly Digest - November 8th 2013

Last Updated: November 8 2013
Article by Robert Weiss

DERIVATIVES

CFTC Adopts Rules for Segregation of Initial Margin for Uncleared Swaps

On October 31, the Commodity Futures Trading Commission adopted final rules with respect to the segregation of initial margin for uncleared swaps. The rules impose new obligations on swap dealers (SDs) and major swap participants (MSPs) that amplify and go beyond the notification and segregation requirements that are set out in Section 4s(l) of the Commodity Exchange Act.

The notification to each counterparty that it has the right to require segregation of initial margin must now include the following information:

1. The names of one or more possible custodians, one of which must be a creditworthy non-affiliate and all of which must be independent of both parties.

2. Information about the price of segregation for each custodian identified (to the extent the SD/MSP has such information).

The rules also contain detailed specifications concerning the manner in which the notification must be given. The preferred recipient of the notice is the "officer of the counterparty responsible for the management of collateral," but if no such officer had been identified by the counterparty, the notification must be sent to the counterparty's chief risk officer or, if there is no person with that title, to the counterparty's chief executive officer or equivalent. SDs and MSPs must now obtain confirmation of receipt of the notice by the addressee and an affirmative response from the counterparty indicating whether the counterparty is exercising its segregation right. As to timing, the rule states that notice may be given either on a swap-by-swap basis or once per calendar year; so in practice annual notifications should be the norm.

If a counterparty does not elect to segregate initial margin, an SD or MSP must submit a report to the counterparty no later than the 15th business day of each calendar quarter on whether its back-office procedures relating to margin and collateral requirements were in compliance with the agreement of the parties during the preceding calendar quarter. A counterparty has the right to change its election at any time by written notice to its SD or MSP, but only for swaps executed after delivery of such notice.

The rules dictate certain of the terms that must be included in the agreement covering a segregation arrangement elected by a counterparty. In particular, the rules state that (1) the segregated collateral must be held in an account designated as being for and on behalf of the counterparty, (2) withdrawal can be made only by agreement of both parties and (3) any notice to the custodian for the purpose of obtaining exclusive control of the collateral must be given under oath and under penalty of perjury. The rules also limit the investments that can be made with segregated initial margin to those that are consistent with CFTC Regulation 1.25. They do not, however, specify the allocation of the out-of-pocket costs of establishing and maintaining these custodial arrangements. The right to segregation does not apply to variation margin, but a segregated account for initial margin can also be used to hold variation margin if the parties so agree

The rules are effective on January 6, 2014, and SDs and MSPs must be in compliance with them no later than May 4, 2014 for new counterparties and no later than November 3, 2014 for existing counterparties.

The final rules are available here.

CFTC

CFTC Extends Time-Limited Relief for Foreign Exchange Swaps

The Commodity Futures Trading Commission's Division of Market Oversight issued No-Action Letter No. 13-68, which extends to November 29 the deadline set forth in CFTC No-Action Letters 13-55, 13-56 and 13-58 for swap execution facilities (SEFs) and participating counterparties that effect foreign exchange swaps. Summaries of those letters can be found in the Corporate and Financial Weekly Digest edition of October 4, 2013. SEFs and SEF participants that desire to rely on this extension must follow the requirements of those letters in order to be eligible for the extension of time granted in Letter 13-68.

CFTC Letter No. 13-68 is available here.

CFTC Approves Position Limits Proposals

The Commodity Futures Trading Commission has proposed amendments to its existing speculative position limit regulations. The proposed amendments, which are being published in two separate releases, are being re-proposed by the CFTC in response to a 2012 court order that vacated the CFTC's Part 151 Rules, which were adopted in 2011.

The first proposal would expand the scope of the CFTC's current speculative position limits and establish federal speculative limits on 28 physical commodity futures contracts, as well as futures and swaps that are directly or indirectly linked to the price of those contracts or to the price of the same underlying commodity. The 28 contracts include nine "legacy" and ten non-"legacy" agricultural contracts, four energy contracts and five metal contracts. The proposal seeks to establish initial position limits at levels that are based on current futures exchange limits and deliverable supply estimates, with separate spot-month limits for physically delivered and cash-settled contracts. These preliminary limits would be periodically adjusted based on deliverable supply estimates for spot-month contracts and open interest calculations for non-spot-months. Bona fide hedging positions and positions established in good faith prior to the effective date of any final regulations would be exempt from these requirements.

As discussed in detail in the Katten Client Advisory of November 7, 2013, the CFTC also issued a second proposal that addresses the manner in which market participants must aggregate their positions for purposes of determining whether they are in compliance with the CFTC's position limit rules. Under the CFTC's current rules, a trader is required to aggregate, for purposes of applying the speculative position limits, all positions in accounts in which the trader either (i) holds direct or indirect ownership of 10 percent or more, or (ii) controls trading by power of attorney or otherwise, subject to certain limited exceptions. The proposed rules retain but modify many of the existing exemptions to the aggregation requirements, including those for independent account controllers, passive pool participants and futures commission merchant customer trading programs. The CFTC proposal would create new disaggregation exemptions that may be available to persons who own 10 percent to 50 percent of another entity that holds positions that are subject to position limits, as well as a stricter exemption for persons who own more than 50 percent of another entity. Other proposed exemptions would address underwriting and broker-dealer activities and entities that may be prohibited by law from sharing position information.

Each of the two CFTC rule proposals will be open for public comment for a period of 60 days following its publication in the Federal Register.

The proposed position limits rules are available here

The proposed aggregation rules are available here

CFTC Proposes Rules to Require that IBs, CPOs and CTAs Become Members of a Registered Futures Association

The Commodity Futures Trading Commission has proposed rules requiring that all registered introducing brokers (IBs), commodity pool operators (CPOs) and commodity trading advisors (CTAs) become members of at least one registered futures association. The National Futures Association (NFA) is currently the only registered futures association in existence.

CFTC Regulation 170.15 requires that all futures commission merchants (FCMs) be members of a registered futures association. NFA Bylaw 1101, in turn, prohibits an NFA member from doing business with a person that is required to be registered with the CFTC as an FCM, IB, CPO or CTA if that person is not also an NFA member. Because not all swaps are required to be cleared through a futures commission merchant, IBs, CPOs and CTAs could do business with customers without having to deal with an NFA member FCM and, in turn, without becoming members of the NFA. The CFTC proposal would eliminate this possibility by requiring that all IBs, CPOs and CTAs become members of a registered futures association.

The CFTC's proposing release is available here.

LITIGATION SEC Issues Latest Whistleblower Award for $150K On October 30, the Securities and Exchange Commission announced an award of nearly $150,000 to an unnamed whistleblower whose tips helped the agency stop a scheme that was defrauding investors. The tips provided by the whistleblower allowed the SEC to open an investigation and to provide emergency relief before more investors were harmed. The award represents 30 percent of the money collected by the SEC in the action, the maximum permitted by law. The award is a clear sign that the whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act continue to gain momentum. This is the sixth whistleblower award since the implementation of the SEC's whistleblower program two years ago. The largest award, announced on October 1, was for more than $14 million. Sean McKessy, chief of the SEC's Office of the Whistleblower, observed that "This is continued momentum and success for the SEC's whistleblower program that is bringing our investigators valuable and timely information to stop ongoing frauds before additional investors can be harmed."

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.