March 15, 2024
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From the Derivatives practice group: This month we have seen both national and international activity around voluntary carbon markets. This issue addresses both an ISDA response to IOSCO and the CFTC Climate-Related Market Risk Subcommittee.
New developments
- The Future of Finance and Climate-Related Market Risks subcommittees of the Market Risk Advisory Committee will meet on March 15. Two subcommittees of the Market Risk Advisory Committee will hold public meetings on Friday, March 15, from 9:30 a.m. to 12:30 p.m. (EDT) at CFTC headquarters in Washington, DC. The Future of Finance Subcommittee and the Climate-Related Market Risks Subcommittee will continue their work separately, including examining the potential risks arising from and the risks associated with the increasing adoption of artificial intelligence in global financial markets in the carbon derivatives markets. There is a particular focus on fraud and greenwashing, market integrity, product design and disclosure. [NEW]
- The CFTC's Global Markets Advisory Committee proposes three recommendations. On March 7, the CFTC's Global Markets Advisory Committee (GMAC), under the auspices of Commissioner Caroline D. Pham, issued three new recommendations aimed at (1) promoting the resilience and efficiency of U.S. Treasury markets, (2) Provide resources for the upcoming transition to T+1 securities settlement and (3) publish a first-ever taxonomy of digital assets to support U.S. regulatory clarity and international focus.
- CFTC Market Risk Advisory Committee Meeting. The CFTC's Market Risk Advisory Committee (MRAC) will meet on April 9 at 9:30 a.m. ET. The MRAC will consider current issues and developments in the areas of key counterparty risk and governance, market structure, climate-related risks and emerging technologies impacting derivatives and related financial markets.
- CFTC Staff Provides Guidance on FBOT Regulatory Applications. On March 1, the CFTC's Division of Market Oversight announced that it had issued an advisory informing all foreign boards of trade (FBOTs) registered under Part 48 of the CFTC Rules that, effective March 1, April 2024 certain regulatory filings (Covered Filings) must be made through the CFTC's online filing portal, which has been updated for FBOT use. The portal has been available for registered FBOTs to submit public submissions since March 1. Covered submissions will be accepted via email until March 31st. Beginning April 1, FBOTs should submit all covered submissions exclusively through the portal.
- CFTC extends the public comment period for the proposed rule on real-time public reporting requirements and swap data recording and reporting requirements. On February 26, the CFTC announced that it was extending the public comment period on a proposed rule making certain changes to the CFTC's swap data reporting rules in parts 43 and 45 related to the reporting of swaps in the other commodity asset class and the Data Element Appendices to Parts 43 and 45 of the CFTC Rules. The deadline is extended to April 11, 2024. The proposed rule was published in the Federal Register on December 28, 2023, with a 60-day comment period ending February 26, 2024.
New developments outside the USA
- SFC issues guidance on disciplinary procedures under the virtual assets regime. On February 28, Hong Kong's Securities and Futures Commission (SFC) published a guide describing the disciplinary process under the new licensing regime for virtual asset trading platforms (AMLO VATP regime). Under the new regime, introduced by an amendment to the Anti-Money Laundering and Terrorist Financing Regulation (Cap. 615), the SFC has the power to license its licensees, including companies, their responsible officials and those involved in their management discipline. if it finds that the conduct of such licensee indicates that he is guilty of, or has at any time been, guilty of misconduct or was not proper and orderly. The disciplinary process under the AMLO-VATP regime is largely based on the disciplinary process applicable to persons licensed by or registered with the SFC (including those involved in its administration) under the Securities and Futures Ordinance (Cap . 571). The SFC noted that when deciding whether to take disciplinary action and the level of the sanction, the SFC will consider, among other things, the nature and severity of the conduct, the amount of profits made or losses avoided, and company-specific circumstances on an individual basis.
New industry-led developments
- ISDA submits response to IOSCO voluntary consultation on carbon markets. On March 1, ISDA submitted a response to IOSCO's Voluntary Carbon Markets Consultation Report. The response welcomes IOSCO's work to develop best practices for regulating voluntary carbon markets (VCMs) and recognizes the critical role that financial market participants play in VCMs. ISDA explains that clear legal and regulatory categorization of voluntary carbon credits is key to building liquidity to support scaling of VCMs and developing safe, efficient markets for voluntary carbon credit derivatives. [NEW]
- ISDA submits response to UK Financial Conduct Authority consultation on money market funds. On March 8, ISDA responded to the UK Financial Conduct Authority's (FCA) consultation on updating the money market fund (MMF) regime. In the response, ISDA underlines its support for the use of MMFs as collateral for unsettled derivatives margin requirements and the further development of tokenized MMFs as collateral to increase collateral mobility, reduce collateral transaction costs and associated settlement risks. [NEW]
- ISDA releases white paper outlining the next phase of India's OTC derivatives market. On March 4, ISDA released a new white paper that examines the growth of India's financial markets and provides a series of market and policy recommendations to promote the further development of a safe and efficient over-the-counter (OTC) derivatives market. The white paper suggests several initiatives that industry participants and regulators could take that ISDA believes will create deeper and more liquid domestic derivatives markets and improve risk management practices. The recommendations focus on five key pillars: (1) expanding product development, innovation and diversification; (2) promote the adoption of similar market and risk principles across regulatory systems; (3) improving market access and diversification of participants in the OTC derivatives market; (4) ensure growth in a safe and efficient manner; and (5) promote greater alignment with international principles and practices.
- ISDA expands Digital Regulatory Reporting InitiativeDRR: The answer to the regulatory frenzy in reporting. On February 26, ISDA reported that it has been working to expand its Digital Regulatory Reporting (DRR) initiative to cover the onslaught of reporting requirements starting with Japan on April 1, followed by the EU on April 29 and the United Kingdom on September 30th, Australia and Singapore on October 21st. ISDA explained that in any case, regulators are revising their rules to incorporate globally agreed data standards to improve the cross-border consistency of the data reported and the format in which it is submitted – a process that began rolling out in December 2022 the first phase of the US Commodity Futures Trading Committee's revised swap data reporting rules.
The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Marc Aaron Takagaki, Hayden McGovern and Karin Thrasher.
Gibson Dunn's attorneys are available to answer any questions you may have regarding these developments. Please contact the Gibson Dunn attorney with whom you typically work, a member of the firm's Derivatives practice group, or the following practice leaders and authors:
Jeffrey L. Steiner, Washington, DC (202.887.3632, [email protected])
Michael D. Bopp, Washington, DC (202.955.8256, [email protected])
Michelle M. Kirschner, London (+44 (0)20 7071.4212, [email protected])
Darius Mehraban, New York (212.351.2428, [email protected])
Jason J. Cabral, New York (212.351.6267, [email protected])
Adam Lapidus – New York (+1 212.351.3869, [email protected])
Stephanie L. Brooker, Washington, DC (202.887.3502, [email protected])
Roscoe Jones Jr., Washington, DC (202.887.3530, [email protected])
William R. Hallatt, Hong Kong (+852 2214 3836, [email protected])
David P. Burns, Washington, DC (202.887.3786, [email protected])
Marc Aaron Takagaki, New York (212.351.4028, [email protected])
Hayden K. McGovern, Dallas (214.698.3142, [email protected])
Karin Thrasher, Washington, DC (202.887.3712, [email protected])
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