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Regulation

Deutsche Bank Fined $205m by New York DFS for FX Misconduct The New York Department of Financial Services (DFS) has fined Deutsche Bank $205 million as part of a consent order for violations of New York banking law, specifically relating to the bank’s FX business. As investigation by DFS determined that from 2007 to 2013 Deutsche Bank repeatedly “engaged in improper, unsafe, and unsound conduct in its foreign exchange business due to its failures to implement effective controls”. In addition, the DFS says that for certain time periods parts of Deutsche Bank’s electronic trading platforms had the potential to improperly disadvantage customers and improperly affect markets, when certain applications did not perform as intended.
SEC Official Clarifies Bitcoin, Ether Aren’t Securities A Securities and Exchanges Commission (SEC) official explicitly stated today that he does not consider bitcoin and ether (the native cryptocurrency of the Ethereum network), to be securities. Speaking at the Yahoo Finance All Markets Summit in San Francisco, William Hinman, the Director of the Division of Corporation Finance at the SEC, gave a speech about whether digital assets should be considered as securities. Hinman pointed out that the network upon which bitcoin functions has always been decentralised and therefore there is no central third party “whose efforts are a key determining factor in the enterprise”.
CFTC Releases Crypto Guidance The Commodity Futures Trading Commission’s Division of Market Oversight and Division of Clearing and Risk have issued a joint staff advisory that gives exchanges and clearinghouses registered with the Commission guidance for listing virtual currency derivative products. In 2015, the CFTC found virtual currencies such as bitcoin to be commodities subject to oversight under its authority under the Commodity Exchange Act. The latest guidance is another effort to ensure the CFTC is exercising appropriate oversight, while encouraging innovation and growth in these products, the Commission says.
CFTC Proposes Rule to Ease Regulatory Burden The Commodity Futures Trading Commission has approved a proposed rule that it says will reduce regulatory burdens for US market participants in order to promote economic growth and job creation, by bringing certain CFTC requirements in line with other US regulators. The proposed rule amends the CFTC’s margin requirements for uncleared swaps for swap dealers and major swap participants. It would ensure that master netting agreements are not excluded from the definition of “eligible master netting agreement” under the CFTC Margin Rule.
Genesis Gets BitLicense Approval Genesis Global Trading has received approval from the New York Department of Financial Services (DFS) for a BitLicense. The license enables Genesis to facilitate the trading of several digital currencies, including bitcoin, with its institutional trading partners. Genesis is the first New York-based trading firm to receive the license, having prior to now operated under a "safe harbour" provision with DFS that enabled digital currency trading. "Regardless of the fact that cryptocurrencies trade worldwide, New York is still a major financial centre and so to have a firm here approved under this regime is a milestone moment for all of us,” Michael Moro, CEO of Genesis, tells Profit & Loss.
Judge Issues $2.2m Fine for FX Fraud Scheme On Tuesday, a US judge issued a $2.2 million fine against Alcibiades Cifuentes and Jennifer Cifuentes for running a fraudulent FX trading scam. Judge Esther Salas of the US District Court in New Jersey has entered an order of default judgment and permanent injunction against the Cifuentes’, both of West New York, New Jersey, and their corporate entity, Cifuentes Fund Management. The order, entered on April 20, 2018, finds that from at least April 2013 through March 2015, the defendants devised a sham commodity pool trading in off-exchange FX contracts.
Goldman Fined $109.5m for FX Misconduct Goldman Sachs has been fined $54.75 million by the US Federal Reserve (Fed) and New York Department of Financial Services (NYDFS) for “unsafe and unsound” practices in its FX trading business. This fine is part of a consent order that the bank has agreed to that will also see it submit to NYDFS written plans for enhanced internal controls and compliance risk management. The fine announced today stems from an investigation by NYDFS determining that from 2008 to early 2013, Goldman Sachs FX traders participated in multi-party electronic chat rooms, where traders, sometimes using code names to discreetly share confidential customer information, discussed potentially coordinating trading activity and other efforts that could improperly affect currency prices or disadvantage customers. 
Research Paper Takes Aim at “Unrealistic” Non-Cleared Margin Requirements The International Swaps and Derivatives Association (ISDA) has published a new academic paper that analyses the regulatory initial margin framework for the non-cleared derivatives market and argues that the 10-day liquidity horizon applied under the framework is “not realistic”. The paper, written by Rama Cont, chair of mathematical finance at Imperial College London, examines the rationale for the 10-day liquidity horizon applied under the initial margin rules for non-cleared trades, and assesses whether it is appropriate. The 10-day period is double the five days set for cleared trades.
CFTC Brings Charges Against Alleged FX Prop Shop Fraudster The US Commodity Futures Trading Commission (CFTC) has filed a civil enforcement action against three firms and an individual alleging they misappropriated FX traders’ funds as part of a fraudulent scheme to establish a proprietary FX trading business. In the action, the CFTC says that beginning in at least January 2017 and continuing through at least March 2018, Michael Salerno and his companies, Black Diamond Forex, BDF Trading LP and Advanta FX, fraudulently solicited individuals to become FX traders by making false statements on online websites such as LinkedIn and Indeed.com and their own websites, in violation of the Commodity Exchange Act.
FCA Outlines Plans for Wholesale Financial Markets The UK’s Financial Conduct Authority has outlined its plans for whole financial markets in its 2018-19 Business Plan, which was published this week. The FCA notes that wholesale financial markets are “complex” and have undergone large-scale and complex regulatory change, including the Markets in Financial Instruments Directive (MiFID II) and the Market Abuse Regulation (MAR). It adds that technology and innovation are affecting markets’ business models and their users have different levels of sophistication. It highlights insider trading, market manipulation and other forms of market abuse as activities of interest.