In a joint comment letter regarding proposed market manipulation regulations, industry organizations warn the Commodity Futures Trading Commission against implementing rules that could “reduce the liquidity and depth of the markets.”
The comments, representing the views of the Futures Industry Association, the Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association, insist the regulator strive for clarity and restraint as it writes new anti-manipulation rules.
The rule, which is open for comment until Jan. 3, expands and codifies the CFTC's powers to police market manipulation. Those powers were granted by the sweeping financial reform package that passed in 2010.
The organizations' recommendations, submitted on Dec. 28, included:
“No new duties of disclosure, inquiry or diligence should be imposed between two sophisticated parties to a bilateral transaction. Such new duties may discourage legitimate trading activities, increase transaction costs and as a result reduce the liquidity and depth of the markets;
“The Commission should clarify that nothing in the proposed rule under Section 6(c)(1) will impede the ability of market participants to take positions and trade on the basis of material, nonpublic information they obtain legitimately;
“Extreme recklessness, not recklessness alone, should be the scienter standard under the Commission’s proposed rule under Section 6(c)(1);
“The Commission should clarify the scope of the proposed rule under 6(c)(1) and the Commission’s already existing anti-manipulation authority under CEA Section 9(a)(2);
“The Commission should clarify that, aside from extending its enforcement authority to cover swaps, Section 6(c)(3) does not extend its enforcement authority beyond the DiPlacido precedent.”
