May 13, 2022
Cadwalader, Wickersham & Taft LLP
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The first in-person ISDA Annual General Meeting (“AGM”) following the COVID-19 pandemic concludes today in Madrid, Spain. This conference follows the Futures Industry Association Law and Compliance (“FIA L&C”) Annual Conference held in Washington, DC in late April and the topics covered were broadly similar, albeit approached from a different angle.
First and foremost, the emerging regulation, documentation and infrastructure of the digital asset markets were discussed at length. Participants acknowledged that markets for cryptos have matured beyond a mere curiosity and, from a regulatory perspective, now pose significant systemic risks that need to be addressed by regulators. Commodity Futures Trading Commission (“CFTC”) Chairman Russ Behnam pointed to the CFTC’s efforts to oversee digital asset markets, and Securities and Exchange Commission (“SEC”) Chairman Gary Gensler specifically went responded to regulatory jurisprudence issues, claiming that most digital asset contracts would likely constitute “securities”. Emerging documentation issues for crypto derivatives were addressed as part of the ISDA working groups. It is clear from this discussion that many issues remain subject to further regulatory resolution, such as a proposed memorandum of understanding between the CFTC and the SEC and the coordination of the CFTC and the SEC with other US federal agencies and international regulators.
Second, sustainability-related derivatives (“SLDs”) and broader issues related to ESG investing and markets for ESG products were also addressed. Socially responsible business practices and climate change and accident risks for global financial markets were discussed, although few solutions were proposed at the time to achieve net zero targets. The CFTC has identified developing reliable markets for carbon credits and other environmental products (both over-the-counter and exchange-traded) as one of its priorities, while gaining greater expertise in monitoring fraud and greenwashing. ” Many market participants emphasized that the development of verifiable Key Performance Indicators (“KPIs”) of green products and SLDs will be one of the solutions for a sustainable market infrastructure.
Third, regulators and market participants alike have been addressing other issues that have either come to light in the wake of the COVID-19 pandemic or are still on the regulatory agenda for implementation. These priorities include the implementation of phase 6 for initial margin deposits, reporting rules and the use of reliable data, the LIBOR transition, crypto product brokerage and clearing, and retail investor protection.
Finally, ISDA representatives had identified several documentation initiatives and published several consultation papers on these market regulatory priorities.
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