Financial Services Bulletin: Action At The CFTC And Fed

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The CFTC Adopts Clearing Requirement Rules

On Thursday, December 13, 2012, the Commodity Futures Trading Commission ("CFTC") announced that it is adopting regulations to establish a clearing requirement under Section 2(h)(1)(A) of the Commodity Exchange Act, enacted under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act").  The regulations require that certain classes of credit default swaps and interest rate swaps be cleared by a derivatives clearing organization registered with the CFTC.  The CFTC announced it is also adopting regulations seeking to prevent evasion of the clearing requirement and related provisions.

Read the CFTC rule

The Fed Proposes Increased Supervision of U.S. Operations of Foreign Banks

On Friday, December 14, 2012, the Federal Reserve Board (the "Fed") proposed rules to strengthen the oversight of U.S. operations of foreign banks pursuant to Sections 165 and 166 of the Dodd-Frank Act.  The proposal would require foreign banking organizations with a significant U.S. presence to create an intermediate holding company over their U.S. subsidiaries, which would help facilitate consistent and enhanced supervision and regulation of the U.S. operations of these foreign banks.  Foreign banks would also be required to maintain stronger capital and liquidity positions in the United States, helping to increase the resiliency of their U.S. operations. The proposal generally applies to foreign banking organizations with a U.S. banking presence and total global consolidated assets of $50 billion or more.  More stringent standards are proposed for foreign banking organizations with combined U.S. assets of $50 billion or more.

Read the Fed Press Release

The CFTC Adopts Clearing Requirement Rules

On Monday, December 17, 2012, CFTC approved a final rule to enhance the CFTC's enforcement program for the futures market pursuant to Title VII of the Dodd-Frank Act.  The rule amends CFTC regulations 1.35(a) and 1.31 to conform them to recordkeeping requirements for swap dealers and major swap participants under Title VII.

The final rule amends regulation 1.35(a) to require that futures commission merchants, certain introducing brokers (with aggregate gross revenue exceeding $5 million over the preceding three years), retail foreign exchange dealers, and certain members of designated contract markets or swap execution facilities record all oral communications.  These market participants will be required to record quotes, solicitations, bids, offers, instructions, trading, and prices, that lead to the execution of a transaction in a commodity interest, whether communicated by telephone, voicemail, mobile device, or other digital or electronic media.

Regulation 1.31 is being amended to require that records of oral communications be kept for one year.

Read the CFTC press release

The CFTC Issues Interim Final Rules Regarding Business Conduct and Documentation Requirements for Swap Dealers and Major Swap Participants

On Tuesday, December 18, 2012, the CFTC approved interim final rules for swap dealers and major swap participants who would otherwise be required to comply with certain business conduct and documentation requirements found in provisions of subpart F, subpart H, and subpart I to part 23 of the CFTC’s Regulations.  Specifically, the compliance date for CFTC Regulations 23.502 and 23.504 is deferred until July 1, 2013.  Additionally, the compliance date for Commission Regulations 23.201(b)(3)(ii); 23.402; 23.410(c); 23.430; 23.431(a)-(c); 23.432; 23.434(a)(2), (b), and (c); 23.440; 23.450; and 23.505 is deferred until May 1, 2013.  The compliance dates for all other provisions of subpart F, subpart H, and subpart I of part 23 remain unchanged.  All market participants are subject to the revised compliance dates.

Read the CFTC press release