Much like taxes and mortality, it is certain that in 2023 the US Commodity Futures Trading Commission (“CFTC”) will issue new rules, issue interpretations and guidance, issue cease and desist letters, initiate investigations and pursue enforcement procedures to monitor its markets and participants . However, the direction changes from year to year and depending on the administration. It is likely that the CFTC will pursue the following agenda based on the public statements made by the CFTC commissioners and based on the list of rules that the CFTC filed with the US General Services Administration in the fall of 2022 (the Unified Agenda of Federal Regulatory and Deregulation Actions): .
trading facilities
One of the main traditional priorities of the CFTC is the regulation of trading facilities such as Commodity Exchanges (Designated Contract Markets (“DCMs”) and Swap Execution Facilities (“SEFs”). In response to dramatic growth in forecasting and event contract markets, the CFTC is likely to issue rulemaking for event contract markets (eg, binary options for political events or sports scores). Recent enforcement and regulatory actions point to a critical mass of requests that need to be addressed by a federal agency decision.
Although the rules for SEFs were introduced 10 years ago, the CFTC continues to refine its regulations, such as: B. Revisions to the rules on Made Available for Trading, conflicts of interest and governance of SEFs, and the regulations of Part 40 that apply to all registered entities. It is likely that the CFTC will issue a regulation amending its no-action positions on Section 37.6(b) on Confirming Swaps Executed on an SEF and on Maintaining Swap Documentation, Package Transactions and Reporting of SEF executed swaps.
It is also expected that there will be further guidance (including through enforcement) regarding DeFi and Decentralized Autonomous Organizations (“DAO”) facilities. It is hoped that the CFTC will also provide further guidance on its controversial September 29, 2021 SEF Opinion.
Swap Dealers and FCMs
Although swap dealers (“SDs”) have been subject to CFTC regulation and registration for over 10 years, they are still “tentative” registered. Now that the CFTC has completed its rules on position limits, and in particular in relation to swaps, this “interim” category is expected to be phased out in 2023. As with SEFs, the CFTC will continue to adjust its rules – e.g. B. in relation to capital and risk management via SDs.
The National Futures Association (“NFA”) is also expected to continue its increased oversight of SDs and other registered members. The CFTC also proposes additional rules on system security and testing for CFTC registrants.
reporting
Even though the CFTC recently revised its reporting rules in Parts 43 and 45, it will continue to work on many more detailed aspects of these rules, such as also working on reporting and information requirements, amendments and rules for DCOs.
crypto regulation
The collapse of FTX in the fall of 2022 upended efforts by Congress to propose a regulatory framework for the digital asset industry. The CFTC argues that none of the CFTC-regulated FTX entities (the DCM, the DCO, and an SEF) have defaulted and are not part of the bankruptcy filing. However, there is concern that neither the CFTC nor the SEC needed additional jurisdiction to prevent the fraud that eventually brought down both Alameda and FTX.
Nonetheless, the CFTC continues to advocate for expanded jurisdiction of the spot and futures markets in commodities to have jurisdiction over the regulation and oversight of crypto and other digital asset markets. It is likely that there will be a lot of regulatory activity in 2023 in response to the collapse of FTX.
carbon and climate change
The CFTC commissioners have noted on several occasions that the CFTC has a role to play in overseeing and regulating voluntary and even compliant carbon and other environmental commodity markets. In 2022, the CFTC had held its first voluntary carbon markets convening, gathering comment on the impact of climate change on US financial markets.
customer protection
There are a number of regulatory proposals aimed at strengthening customer protections for futures, futures and swaps customer accounts. The CFTC intends to establish rules for the investment of client money, netted swap client money, and foreign futures and foreign options accounts (the Section 30.7 Accounts) and separate rulemaking for segregated and segregated futures commission dealer accounts (“FCMs”).
clearing
The CFTC is required under the Dodd-Frank Act of 2010 to periodically review the markets and determine whether additional swap contracts should be designated for clearing. It is likely that the CFTC will review the list of cleared swaps in addition to the currently cleared interest rate swaps (“IRS”) and credit default swaps (“CDS”). The CFTC began this work in 2022 with the LIBOR transition and will continue to address governance standards of Designated Clearing Organizations (“DCOs”).
The CFTC has been working on governance requirements for DCOs and is expected to complete its amendment revisions in 2023. Following the CFTC’s revisions to its Part-190 rules in 2021, the CFTC will address recovery and resolution plans for systemically important DCOs and other clearing organizations.
Apparently, at this point, the CFTC decided not to pursue several issues in the implementation of initial margin requirements for uncleared swaps (financial end-users, margin affiliates, eligible initial margin collateral, etc.), as noted by CFTC Commissioner Summer Mersinger.
investment management
There is a large body of no-action letters, advice and interpretations regarding Commodity Trading Advisors (“CTAs”) and Commodity Pool Operators (“CPOs”). Many of these companies are also dual-registered with the Securities and Exchange Commission (“SEC”). The CFTC intends to amend the reporting requirements under Form PF for reporters and large hedge fund advisers, as well as several regulations in its Part 4 for CTAs and CPOs.
Cross-border orientation
It is expected that the CFTC will continue its work on finalizing its cross-border swap rules related to reporting, agreeing, negotiating and executing provisions and other provisions not addressed in its 2022 cross-border rule. In addition, it is likely that the CFTC will address its cease and desist letters regarding Brexit and mutual recognition of UK-based companies doing business with US persons (e.g. Exempted SEFs).
enforcement
The CFTC will continue to vigorously monitor its markets, and it is likely that enforcement, as discussed in the context of the CFTC’s jurisdiction over digital assets, will increasingly focus on fraud and manipulation of commodities traded in interstate commerce, even if there are none Derivatives (such as futures or swaps or options). It is also likely that the CFTC will address greenwashing and fraud related to trading in environmental commodities such as carbon.
As in the past, the CFTC will continue to investigate violations of reporting and record keeping, compliance with SD business conduct requirements, its new position limitation rules, general fraud and manipulation, FCPA-like commodity fraud and manipulation, misappropriation of material nonpublic information (aka Insider trading) acting as unregistered entities (e.g., crypto exchanges or intermediaries), spoofing, wash trading, and other trading violations.
Administration
There are a number of proposals aimed at streamlining the CFTC’s operations and “cleaning up” its duplicate or incorrect language in the regulations. As part of this effort, the CFTC will clarify the definition of “small business,” update guidance on ethical standards for CFTC employees, and continue to implement the Privacy Act of 1974.
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