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Regulation

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.
Systematic Internaliser Register Launched The SmartStream Reference Data Utility (RDU) in collaboration with a group of Approved Publication Arrangements (APAs), including Bloomberg, Deutsche Boerse, NEX Regulatory Reporting, TradEcho, Tradeweb and Trax have launched a detailed Systematic Internaliser (SI) Registry. The service enables SIs to register the financial instruments for which they are providing SI services in a centralised database through their APA, and fills what the firms call an important gap in the MiFID II/MiFIR regulatory framework allowing trading counterparties to identify who is responsible for reporting a trade.
Associations Urge EU Regulation Change The International Swaps and Derivatives Association (ISDA), the European Banking Federation (EBF), International Capital Market Association (ICMA) and the International Securities Lending Association (ISLA) have published a whitepaper on the benefits of post-trade risk reduction services as a crucial risk management tool. The bodies say that risk reduction services like compression and counterparty rebalancing play an increasingly important role in reducing risks in derivatives markets. These benefits are recognised in the European Union under MIFID II/MIFIR, which exempt post-trade risk reduction administrative transactions from the trading obligation, however, currently no exemption from the clearing obligation in the EU for these transactions.