On October 2, 2023, the Commodity Futures Trading Commission (CFTC) published a notice of proposed rulemaking (NPRM), which includes a proposal to amend portions of 17 C.F.R. § 4.7. Under Regulation 4.7, commodity pool operators (CPOs) and commodity trading advisors (CTAs) are exempt from certain disclosure, reporting, and recordkeeping requirements, so long as the “prospective and actual pool participants and/or advisory services are restricted to individuals and entities considered ‘Qualified Eligible Persons’” (QEPs).

Continue Reading CFTC Proposes Amendments to Regulation 4.7 Exemption

The U.S. Securities and Exchange Commission (SEC) approved FINRA’s proposed amendments (Amendments) to Rule 4210 on July 27, 2023.

In summary, the Amendments amend Rule 4210 in the following respects:

  • Eliminate the 2% maintenance margin for nonexempt accounts.
  • Permit dealers to take a capital charge in lieu collecting margin from accounts for net mark-to-market losses provided that the dealer’s net capital deductions for all accounts combined cannot exceed $25 million.
  • Make certain clarifying and conforming changes to Rule 4210.
Continue Reading Rule 4210 Amendments Approved With May ’24 Effective Date

On June 1, 2023, The Commodity Futures Trading Commission (CFTC) published an advanced notice of proposed rulemaking (ANPRM) seeking public comment on potential amendments to the Risk Management Program (RMP) requirements in CFTC Regulations 23.600 and 1.11 (collectively, “RMP Regulations”), which are applicable to swap dealers (SDs) and futures commission merchants (FCMs).

Continue Reading CFTC Seeks Comment on the Risk Management Program Requirements for Swap Dealers and Futures Commission Merchants With a Focus on Digital Assets

In September 2019, repurchase agreement (repo) rates spiked, rising as high as 10% intraday. The spike was significant as rates were more than 300 basis points above the federal funds target range–thirty times larger than the preceding week. The United States Department of Treasury’s Office of Financial Research (OFR) conducted a study on the spike, which analyzed a combination of intraday timing data and transaction-level data from September 2019. The OFR published a Working Paper in April 2023 identifying three key findings from its study: (1) a confluence of factors contributed to the dramatic spike in repo rates; (2) the repo markets’ segmentation and lack of price transparency exacerbated the spike; and (3) the Federal Reserve’s daily repo operations alleviated the spike. We summarize each of these findings below.

1. Factors that Caused the Dramatic Spike in Repo Rates

The OFR’s study found that a confluence of factors–large Treasury issuances, corporate tax deadlines, and an overall lower level of reserves–caused the 2019 spike in repo rates. While each factor alone would not have been sufficient to cause the spike, the combination of factors occurring at the same time led to the unusual spike in rates.

The OFR found that the disruption of the repo market began on September 16, 2019, when the Treasury settlement coincided with corporate tax deadlines. In the week leading up to the spike in repo rates, the Treasury Department issued $78 billion of government debt that was due to settle on September 16. As a result, the supply of cash available in the financial system declined while the demand for repo increased in order to finance the purchases of Treasury securities. The same day the Treasury settlements were due, corporate tax payments for the third quarter of 2019 were due, which caused a decrease in the money market fund total assets by about $35 billion from the week prior. Together, these events resulted in a large transfer of reserves from the financial market to the government and triggered a liquidity squeeze in repo markets.  

In addition to the Treasury settlement and corporate tax deadlines, by mid-September 2019, aggregate bank reserves had declined to a multiyear low of less than $1.4 trillion, while net Treasury positions held by primary dealers had reached an all-time high. The OFR’s study cites the reserve constraints on banks and bank-affiliated dealers as a possible contributing factor in the repo spike because rates in the repo market are highly dependent on the supply of Treasuries and reserves. The confluence of these factors caused an increased demand for repo and decreased liquidity in the repo market, ultimately temporarily driving repo rates higher.

2. Market Segmentation and Lack of Price Transparency Exacerbated the Spike

The OFR’s study suggests the U.S. repo market segmentation and lack of price transparency among market segments exacerbated the spike. In support of this finding, the OFR points to the dispersion of repo rates across different segments in the repo market. For example, on September 16, when cash was scarce in the market, rates began to rise in the Delivery-to-Payment (DVP) interdealer brokered market segment while the rates in the tri-party market segment remained relatively flat throughout the day. The dispersion of rates across segments suggests some market participants knew cash supplies were scarce while others were either unaware or not able to lend in response to increased tightness. When cash became less scarce following the Federal Reserve’s intervention, rates in the DVP market segment substantially decreased.

3. Federal Reserve

The Federal Reserve responded to the September 2019 spike in repo rates with an announcement that it would introduce cash into the market through a repo facility. The OFR’s study suggests the announcement alleviated the spike as repo rates declined substantially in the DVP market segment. Additionally, the liquidity provided by the Federal Reserve eased constraints on dealers, allowing them to move an additional $10 billion into the repo market.


The OFR’s identification of factors that contributed to the 2019 spike in repo rates aids in understanding the sources of volatility in repo markets. The finding that the lack of price transparency contributed to price spikes could be used by regulators to impose transaction reporting in certain areas of the repo market, such as their recent proposal to require price transparency in the bilateral repo market.

The author wishes to acknowledge the contributions of summer associate Stephanie Flynn.

The United States Department of Treasury’s Office of Financial Research (OFR) conducted a pilot survey to determine why primary dealers prefer trading in the noncentrally cleared bilateral repurchase agreement (NCCBR) market segment of the United States repurchase agreement (repo) market. Primary dealers serve as the trading counterparties for the Federal Reserve’s open market operations. The OFR Brief suggests primary dealers prefer to trade in NCCBR over other repo market segments because it provides them with much greater flexibility.

Continue Reading Netted Packages Drive Large Trading Volumes in Noncentrally-Cleared, Bilateral Repos

On June 5, 2023, the Commodity Futures Trading Commission (CFTC) issued an order authorizing CBOE Clear Digital, LLC (“CBOE Clear”), a registered derivatives clearing organization (DCO), to clear margined digital asset futures contracts.  Concurrent with the June 5th order, CFTC Commissioner Christy Goldsmith Romero issued a supporting statement in respect of the order. This blog post provides an overview of the terms and conditions of the CFTC’s June 5th order, particularly in light of certain of Commissioner Goldsmith Romero’s comments, following a brief outline of the administrative history related to CBOE Clear’s digital asset product line-up.

Continue Reading CFTC Permits CBOE Clear Digital, LLC to Clear Digital Asset Futures on a Margined Basis

A recent settlement order serves as a reminder of how investment strategies using derivatives can produce unanticipated results. In this case, the results led to undisclosed returns of capital and a $6.5 million civil penalty. The case illustrates the importance of instituting regular communications among portfolio managers, risk and compliance officers, attorneys and accountants, so that the results of an investment strategy are fully anticipated.

Continue Reading The Dangers of Derivatives

In response to recent client questions regarding the various considerations and options for holding short-term funds, we have prepared a reference chart comparing certain key characteristics of demand deposits with government securities, money market funds, and other short-term cash management instruments. Please note that this information is not provided as investment advice. 

Please contact your Perkins Coie lawyer or email PCBankingTaskForce@perkinscoie.com with questions or for assistance.

View the reference guide.

On February 28, 2023, the National Futures Association (NFA) submitted the proposed adoption of NFA Compliance Rule 2-51 to the Commodity Futures Trading Commission (CFTC). The new compliance rule will apply to NFA members, including commodity pool operators (CPOs) and commodity trading advisors (CTAs), engaged in activities involving digital asset commodities. For purposes of the new compliance rule, the term digital asset commodity means Bitcoin and ether.

Upon adoption, the new compliance rule will:

1) Impose anti-fraud, just and equitable principles of trade, and supervision requirements on NFA Members and Associates that engage in digital asset commodity activities, including spot or cash market activities; and

2) Require NFA Members, including CPOs and CTAs, to make disclosures required by NFA’s Interpretive Notice 9073, Disclosure Requirements for NFA Members Engaged in Virtual Currency Activities.

In the Explanation of the Proposed Rule, NFA indicated that the proposed compliance rule was intended to fill an existing gap in the oversight of digital asset markets by NFA. Specifically, NFA explained that:

Well over 100 NFA Member firms have reported to NFA that they engage in business activities related to digital assets, both in commodity interest and spot markets. However, with the exception of NFA’s Interpretive Notice 9073, which sets forth limited disclosure requirements, NFA does not have any rules that specifically address its Members’ digital asset activities in the spot markets.

Explanation of Proposed Rule, P. 3 of NFA Submission to CFTC Dated February 28, 2023

In its submission, NFA indicated that it plans to make this compliance rule effective as early as ten days after receipt of the submission by the CFTC unless the CFTC notifies NFA that the CFTC has determined to review the proposal for approval.

Good day. Good to know? DR2