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CFTC set to hold roundtable including discussion panels on three commonly-requested topics surrounding the Dodd-Frank Act following requests for clarification by commercial end users
2013 was most certainly a year of regulatory wranglings, especially among the two North American authorities responsible for overseeing the
electronic trading activity which takes place under its jurisdiction.
In the first six months of last year the finalization of the Dodd-Frank Wall Street Reform Act’s full critera relating to how OTC derivatives
should be regulated was well underway, interspersed with a number of government-level meetings involving senior lawmakers, regulatory figures and influential industry figures.
The two regulators which have been instrumental in instigating an entire overhaul of the entire FX landscape are the Commodity Futures Trading Commission (CFTC) and Securities and Exhange Commission (SEC) which, although having both firmed up their rulings pertaining to FX in the United States in June last year, continue to consult at senior government level post-implementation.
To this end, the CFTC has announced that a roundtable will be held on April 3 this year, to discuss certain issues regarding end users and how the Dodd-Frank Wall Street Reform Act relates to them.
Whilst not exclusive to FX, the roundtable intends to cover important aspects via a discussion panel which aim to address a series of comments and requests for clarification from commercial end users that have been impacted by the implementation of the Dodd-Frank Act.
Three panels are scheduled to take place in forming the roundtable, which is to be held at the Conference Center within the CFTC’s headquarters at Three Lafayette Centre, 1155 21st Street, N.W., Washington, DC, the first of which is set to debate the obligations of end-users under Regulation 1.35 concerning recordkeeping for commodity interest and related cash or forward transactions.
The basic structure of the United States authorities’ regulatory authorities methodology in which cash and forward transactions differentiates from that of swaps, with the swap definition in the Dodd-Frank Act excluding forward contracts in nonfinancial commodities.
At the outset, the CFTC is had proposed that this forward exclusion be interpreted in a manner that is consistent with the CFTC’s historical interpretation of the existing forward contract exclusion with respect to futures contracts. A proposal had also been included to treat commodity options embedded in forward contracts under the Dodd-Frank Act consistently with its prior interpretations regarding such embedded options.
A degree of ambiguity prevailed, hence its inclusion in the forthcoming discussion.
The second panel to take place attempts to address the appropriate regulatory treatment of forward contracts with embedded volumetric optionality, following on from the subject of the first, which will give way to the final panel of the roundtable focusing on the appropriate regulatory treatment for purposes of the $25 million (special entity) de minimis threshold for swap dealing to government-owned electric utilities.
In the United States, the reporting of FX trading activity has to clear via swap execution facilities (SEFs) and trade repositories, with last year’s implementation of such a ruling having resulted in the CFTC providing temporary approval of a vast number of institutional FX companies’ requests to register as SEFs, paving the way for Europe and Singapore to follow suit this year and early next year respectively.