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Regulation

ISDA Publishes Benchmark Supplement The International Swaps and Derivatives Association has published the ISDA Benchmarks Supplement, which it says gives firms the ability to improve the contractual robustness of derivatives that reference interest rate, FX, equity and commodities benchmarks. The Supplement has been developed in response to the European Union Benchmarks Regulation, which regulates the use of a wide variety of benchmarks across different asset classes. The BMR requires contracts between supervised entities and their clients to set out the actions they would take if a referenced benchmark is materially changed, ceases to be provided or is prohibited from use.
BoA Latest to Settle with CFTC Over ISDAFIX Bank of America (BoA) has become the latest firm to settle with the Commodity Futures Trading Commission (CFTC) over the attempted manipulation of the ISDAFIX benchmark, agreeing to pay a $30 million civil monetary penalty. The CFTC Order finds that, beginning in January 2007 and continuing through December 2012, BoA made false reports and attempted to manipulate the US dollar International Swaps and Derivatives Association Fix (USD ISDAFIX) in order to benefit its derivatives positions, including positions involving cash-settled options on interest rate swaps and interest rate swap futures. James McDonald, CFTC Director of Enforcement, comments: “This marks the ninth CFTC enforcement action involving manipulative conduct in connection with the USD ISDAFIX benchmark. As this case shows, the Commission will continue to work vigilantly to ensure the integrity of critical financial benchmarks and hold all wrongdoers accountable, no matter how widespread the misconduct.”
New York Attorney General Highlights Crypto Platform Concerns A new report by the New York State Office of the Attorney General (OAG) claims that certain cryptoasset trading platforms suffer from potential conflicts of interest, have yet to implement serious efforts to impede abusive trading activity and provide customer fund protections that are either limited or illusory. The OAG’s Virtual Markets Integrity Initiative was launched in April 2018 as a fact-finding inquiry into the policies and practices of virtual asset trading platforms. The OAG sent letters and questionnaires to thirteen major trading platforms, with the questions reflecting areas of special concern for everyday retail customers, such as site outages, fees, and the effects of automated or "bot" trading.
NEX Group Subsidiary Agrees $50m Settlement Over ISDAFIX Manipulation Intercapital Capital Markets (Intercapital), a NEX Group subsidiary formerly known as ICAP Capital Markets (ICAP), has agreed a $50 million settlement with the US Commodity Futures Trading Commission (CFTC) in relation to allegations that some of its brokers aided and abetted attempts by several of its bank clients to manipulate the ISDAFIX benchmark. A CFTC order issued today finds that over more than five years, beginning in at least January 2007 and continuing through December 2012, ICAP’s swaps brokers were regularly enlisted by traders at bank clients to assist in attempting to manipulate the US dollar International Swaps and Derivatives Association Fix (USD ISDAFIX) for the benefit of their bank clients’ derivatives positions, including positions involving cash-settled options on interest rate swaps.
NEX Regulatory Reporting Launches Australian Solution NEX Regulatory Reporting has launched a new solution for derivatives transaction and position reporting under the Australian Securities and Investments Commission’s (ASIC) OTC derivatives trade reporting requirements.The ASIC solution expands the firm’s global reporting coverage and provides Australian firms and international companies trading in Australia, with a full end-to-end transaction reporting solution to both licensed trade repositories. ASIC introduced OTC derivatives trade reporting in 2013 to improve risk management and enhance transparency in the OTC derivatives market - it was phased-in between 2013-2015.
Second Johnson Amicus Brief Highlights “Intrinsic” Pre-Hedging Role A second Amicus Brief filed in the Mark Johnson appeal stresses the risks associated with providing FX services to clients around the Fix and argues that pre-hedging is intrinsic to handling orders at the mechanism. The Amicus from Professor Torben Andersen, the Nathan S. and Mary P. Sharp Professor of Finance at the Kellogg School of Management at Northwestern University says that without the ability to pre-hedge, dealers would have no economic incentive to trade as principals with customers at the Fix. “When dealers trade as principals at the Fix, they typically pre-hedge their trades by executing a number of smaller transactions before the Fix time,” the Amicus states.
Thomson Reuters Lanches RTS 27 Now Thomson Reuters has launched RTS 27 Now, something the firm says is a targeted reporting solution that leverages its Velocity Analytics platform to help banks that have newly registered as Systematic Internalisers under MiFID II complete their first regulatory report. Under the MiFID II Systematic Internaliser (SI) regime, banks had to register with their national competent authorities as SIs by the end of August based on whether their trading activity exceeded levels set across different instruments by ESMA on August 1.
Why Does the SEC Keep Rejecting Bitcoin ETFs? Last week the Securities and Exchange Commission (SEC) declined to approve rule amendments proposed by NYSE Arca and Cboe BZX Exchange to authorise the listing and trading of shares of nine exchange-traded funds (ETFs). This decision comes after the SEC also rejected the Winklevloss ETF in July that would have traded physical bitcoin, whereas the ones rejected last week planned to seek exposure to some or all of the bitcoin futures contracts traded on the Chicago Mercantile Exchange (CME), Cboe Futures Exchange (CFE) and/or any other US exchange that subsequently trades such derivatives contracts.
CabbageTech Uprooted by CFTC The US Commodity Futures Trading Commission (CFTC) has successfully brought an action against a fraudster in relation to cryptocurrencies. Following a four day bench trial, a New York federal court entered final judgment ordering Patrick McDonnell and his company, CabbageTech, Corp (also known as Coin Drop Markets or CDM), to pay over $1.1 million in civil monetary penalties and restitution in connection with a lawsuit brought by the CFTC alleging fraud in connection with virtual currencies, including Bitcoin and Litecoin.
CFTC Welcomes Formation of Crypto Association CFTC Commissioner Brian Quintenz has welcomed the formation of an industry trade association for cryptocurrency traders. The Virtual Commodity Association (VCA) has formed a working group and will hold its inaugural meeting in September. It says the meeting will consider guidelines for membership as well as for best practices and rules-based marketplaces that will promote fairness, transparency, risk management, and liquidity. It will further discuss best practice guidelines that will address member conflicts of interest, client communications, client disclosures, and record keeping; as well as the staffing needs of the association, including an executive director and compositon of the board of directors.