CFTC Commissioner Urges Regulators to “Do No Harm” as Blockchain Technology Develops

On March 29, CFTC Commissioner J. Christopher Giancarlo delivered remarks before the Depository Trust and Clearing Corporation 2016 Blockchain Symposium. According to Giancarlo, blockchain technology — also known as distributed ledger technology — has the ability to “revolutionize the world of finance” by potentially linking networks of legal recordkeeping in a similar fashion to how the “Internet connects data and information.” Giancarlo spent much of his remarks heralding the technology’s potential, opining that blockchain technology may (i) “be able to provide regulators with visibility into the trading portfolios of swaps counterparties that they lacked during the financial crisis and that Dodd-Frank mandated”; (ii) “make possible new ‘smart’ securities and derivatives that can value themselves in real time”; and (iii) “help market participants manage the enormous operational, transactional and capital complexity brought about by the legion of disparate mandates, regulations and capital requirements promulgated globally in the wake of the 2008 financial crisis.” Read more…


CFTC Issues Cease and Desist Order to Unregistered Bitcoin Options Trading Platform, States Bitcoin and Other Virtual Currencies are Commodities

On September 17, the Commodity Futures Trading Commission (CFTC) issued an Order against an unregistered San Francisco-based bitcoin options trading platform and its CEO for alleged violations of the Commodity Exchange Act (CEA) and CFTC Regulations. According to the Order, from March 2014 to at least August 2014, the company and its CEO operated an online website that allowed for the trading or processing of swaps between buyers and sellers of bitcoin options contracts. For the first time, bitcoin and other virtual currencies “are encompassed in the definition and properly defined as commodities,” making them subject to the same regulations as options or swaps. According to the CFTC, the company operated without being properly registered as a swap execution facility or designated contract market, violating the CEA and CFTC regulations. The CFTC’s Director of Enforcement Aitan Goelman noted, “While there is a lot of excitement surrounding Bitcoin and other virtual currencies, innovation does not excuse those acting in this space from following the same rules applicable to all participants in the commodity derivatives markets.” The Order did not impose any monetary sanctions on the company, but required the company to cease and desist any action violating the CEA and CFTC regulations and to cooperate in future investigations conducted by the CFTC or other governmental agencies.


DOJ and International Investment Bank Enter Into Plea Agreement to Resolve LIBOR Manipulation Claims, Bank Agrees to Pay $2.5 Billion Penalty

On April 23, the DOJ announced that an international investment bank and its subsidiary agreed to plead guilty to wire fraud for its alleged conduct, spanning from 2003 through 2011, in manipulating the London Interbank Offered Rate (LIBOR), which is used to set interest rates on various financial products. In addition, the DOJ announced that the bank entered into a deferred prosecution agreement to resolve wire fraud and antitrust claims for manipulating both the U.S. Dollar LIBOR and Yen LIBOR. Under terms of the agreement, the $2.5 billion in penalties will be divided among U.S. and U.K. authorities – $800 million to the Commodity Futures Trading Commission, $775 million to the DOJ, $600 million to the New York Department Financial Services, and roughly $340 million to the U.K.’s Financial Conduct Authority. The authorities also ordered the bank to install an independent compliance monitor.


CFTC Holds Open Meeting to “Fine-Tune” Derivatives Rules

On October 27, the CFTC announced that it will hold an open meeting on November 3 to clarify: (i) when residual interest must be posted by futures merchants; (ii) record keeping requirements of commodity interest and related cash or forward transactions; and (iii) the  interpretation of when an agreement, contract, or transaction that contains embedded volumetric optionality falls outside the exception of being considered a swap. The November 3 meeting will be held at the CFTC headquarters in Washington, DC and will be available via webcast or conference call.

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Senate Banking Committee Leaders Seek Regulators’ Views On Virtual Currencies

On May 19, the Senate Banking Committee’s chairman and ranking member, Senators Tim Johnson (D-SD) and Mike Crapo (R-ID), sent a letter to the leaders of the Treasury Department, the SEC, the CFTC, the OCC, the FDIC, and the Federal Reserve Board regarding recent developments in the use of virtual currencies and their interaction with the global payment system. The Senators ask the regulators a series of questions related to the role of virtual currencies in the U.S. banking system, payment system, and trading markets, and the current role of federal regulators in developing local, national, and international enforcement policies related to virtual currencies. The Senators also seek the agencies’ expectations on virtual currency firms’ BSA compliance, and ask whether an enhanced regulatory framework for virtual currencies is needed.