Cryptocurrency Platform Provider Seeks No-Action Relief from CFTC: Two Observations

On October 18th, a cryptocurrency platform provider (Poloniex, Inc.) issued a press release announcing that it filed a request for no-action relief with the Commodity Futures Trading Commission (the “CFTC”) seeking request with respect to the CFTC’s laws as they relate to margin and lending transactions.  To our knowledge, this is first time that a cryptocurrency platform provider has publicized the submission of such a request and, for that reason alone, the development is noteworthy.  A detailed review of the request or underlying law is beyond the scope of this posting.  Rather, in this posting we focus on what we consider to be two practical and fundamental observations regarding the potential scope of any hypothetical relief granted in response to such request.   Continue Reading

ETF Corner: SEC Requests Comment on listing of Bitcoin ETF

On October 12, 2016 the Securities and Exchange Commission (“SEC”) issued an order instituting proceedings to determine whether or not to approve or disapprove a proposed rule change filed by Bats BZX Exchange, Inc. (“Exchange”) that would permit Winklevoss Bitcoin Shares (“Shares”) issued by the Winklevoss Bitcoin Trust (“Trust”) to be listed and traded on the Exchange.  The SEC is instituting proceedings “in the view of the legal and policy issues raised by the proposed rule change” and stated that such proceedings “does not indicate that the Commission [SEC] has reached any conclusions with respect to any of the issues involved.”  As further noted below the SEC is encouraging “interested persons to provide comments on the proposed rule change.” Continue Reading

Attention Energy Traders: CFTC Focuses on Verification of Position Limit Exemptions for Hedging and Risk Management Transactions

Compliance and trading professionals of firms that trade energy derivatives over NYMEX and COMEX should be aware of a recent development related to hedging, risk management, and arbitrage/spread position exemptions from position limits under Rule 559 (Position Limits and Exemptions). Continue Reading

Mutual Fund Corner: Proposed IRS Guidance on RIC Commodity Exposure

The Internal Revenue Service (IRS) recently issued a notice of proposed rulemaking which, if adopted, could affect the analysis for determining whether or not an investment produces qualifying income for purposes of the income test under Subchapter M of the Internal Revenue Code.  The proposed guidance starts by setting forth the standards for the income test and asset diversification test which both include “securities” (e.g. gains from the sale of securities is qualifying income under the income test).  Continue Reading

Chairman Massad Indicates Expansion to Clearing Requirement is a Priority for 2016

At an open meeting of the U.S. Commodity Futures Trading Commission (CFTC) last Thursday, September 8, Chairman Massad indicated that adopting a final rule to expand the scope of interest rate swaps (IRS) required to be cleared under Section 2(h) of the Commodity Exchange Act (the Clearing Requirement) is a priority for the end of 2016.  The CFTC published a proposed rule to amend CFTC Regulation 50.4(a) on June 9, 2016 (the Proposal).  As proposed, the expanded Clearing Requirement generally consists of adding new currencies to the various classes of IRS and extending the termination date for Overnight Index IRS already subject to the Clearing Requirement.  The proposed additions to the Clearing Requirement are: Continue Reading

Expanded MMF Eligibility Criteria for FRBNY Repo Progam

Effective September 2, 2016, the Federal Reserve Bank of New York (FRBNY) revised the reverse repurchase transaction (RRP) counterparty eligibility criteria with respect to money market funds (MMFs).  The revisions expand the set of potential RRP counterparties.  The FRBNY expects the number of RRP counterparties to be 150 as a result of the revisions. Continue Reading

CFTC Limits Investment of Client Funds to Government Money Market Funds

Two recent letters from the CFTC staff hold that, beginning October 14, 2016, its regulations will prohibit investment of client funds by futures commission merchants (“FCMs”) and derivatives clearing organizations (“DCOs”) in prime money market funds (“Prime MMFs”). Although the staff’s positions are clearly articulated, I found their relationship to Regulation 1.25 questionable. Continue Reading

Last Month in Repo – July 2016

July 2016 was a busy month for repo-related news, particularly related to repo clearing. The following is a summary of some of the more significant repo related items that occurred over the past couple of weeks.  This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest. Continue Reading

Federal Reserve Board Governor Tarullo Suggests “Outright Prohibition” as Possibility for “Shadow Banking” Regulation

In a speech delivered on July 12, 2016 to the Center for American Progress and Americans for Financial Reform Conference, Governor Daniel K. Tarullo discussed potential new approaches for the regulation of shadow banking (which he in part describes as “runnable funding”).  Specifically, in asking what form such regulation may take, Governor Tarullo indicated that a “non-exhaustive” list of potential forms includes: “outright prohibition, minimum margining requirements and practices, capital requirements, and taxation.”  Continue Reading