CFTC looks at credit ratings and manipulation

The Commodity Futures Trading Commission (CFTC) released the third set of proposed rules to come out of Dodd-Frank on Oct. 26. Five rule proposals and one advanced notice of rulemaking were released with much of the days’ rules focused around antimanipulation efforts. Below is a short summary of each rule along with links to CFTC released documents.

The first proposed rule amends the CFTC’s current Part 40. Significant changes include the addition of new registered entities, such as Swap Execution Facilities (SEFs) and Swap Data Repositories (SDRs). Additionally, the proposed rule implements a new “framework for certification and approval procedures for new products, new rules and rule amendments submitted to the Commission by registered entities.” The proposed rule has a 60 day comment period.

CFTC released Part 40 Fact Sheet
CFTC released Part 40 Q&A

The second proposed rule works to eliminate the CFTC’s reliance on credit rating agencies by working to eliminate any reliance on credit ratings in rule making. Additionally, it goes on to say that the commission will need to create an appropriate and fair substitution for credit ratings. The proposed rule has a 30 day comment period.

CFTC released Credit Rating Fact Sheet
CFTC released Credit Rating Q&A

The third proposed rule amends the CFTC’s Reg. 1.25. The proposed rule makes two main changes. First, it eliminates the use of credit ratings for evaluating investment vehicles. Second, it limits the concentration a futures commission merchant (FCM) or derivatives clearing organization may hold in money market mutual funds (MMMF). “Investments in MMMFs would be subject to a 10% instrument-based concentration limit, meaning that an FCM or DCO may invest a maximum of 10% of its total assets in segregation in interests in MMMFs.”

CFTC released Reg. 1.25 Fact Sheet
CFTC released Reg. 1.25 Q&A

The fourth proposed rule puts in place the process for reviewing swaps. Based on this rule, the CFTC has 90 days to review. During that time, the CFTC will post it for a 30-day public comment period, after which the commission will issue a ruling. The proposed rule has a 60 day comment period.

CFTC released Swaps Review Process Fact Sheet
CFTC released Swaps Review Process Q&A

The fifth proposed rule expands the CFTC’s authority to prohibit “fraudulent and manipulative behavior.” The proposed rule works to explain what the CFTC will be looking for when it is examining cases of manipulation. The proposed rule has a 60 day comment period.

CFTC released Antimanipulation Fact Sheet
CFTC released Antimanipulation Q&A

Finally, in the advanced notice of rulemaking the CFTC asks the public to comment on disruptive trading practices. Among the practices the commission seeks comment are actions that violate bids or offers, demonstrates intentional or reckless disregard for execution of trasactions during the closing period and the practice of “spoofing” – that is bidding or offering with the intent to cancel the bid or offer before execution. The comment period is 60 days.

CFTC released Disruptive Trading Fact Sheet
CFTC released Disruptive Trading Q&A

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