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

Making Sense of the CFTC’s Enforcement Order and Settlement with Bitfinex

On June 2nd, the U.S. Commodity Futures Trading Commission (the “CFTC”) announced an enforcement order and settlement with BFXNA Inc. d/b/a Bitfinex, an online platform for exchanging and trading cryptocurrencies (the “Platform”).  This posting will summarize that order with the goal of helping our readers make sense of the current state of the law with respect to the CFTC’s regulation of bitcoin and other cryptocurrencies. Continue Reading

Tri-Party Repo Data: April 2016

The Federal Reserve Bank of New York (FRBNY) released their monthly statistics of the U.S. tri-party repo market for April 2016.

As of April 11, 2016, the total collateral in the U.S. tri-party repo market decreased by $81.97 billion to approximately $1.517 trillion.  The majority of the decrease was in U.S. Treasuries excluding Strips collateral value, which decreased by $66 billion to $656.32 billion.  U.S. Agency Mortgage-Backed Securities decreased by nearly $82 million to $419.54 billion.  Equities collateral reversed the previous-month’s increase, dropping $5 billion to a 12-month low of $113.5 billion. Continue Reading

Release 10666 and the Problem of Swaps

In an earlier post, I noted that Release No. IC-10666 was issued before interest rate swaps were invented. This may have been unfortunate, because swaps present unique challenges to Release 10666’s approach to asset segregation. I believe that difficulty with applying Release 10666 to swaps has contributed to inconsistency in the segregation requirements for different derivatives.

Swaps: The Revenge of Middle School Algebra Continue Reading

Should Asset Segregation Do Double Duty?

I’ve been discussing comments on the SEC’s proposed Rule 18f-4 in light of the SEC’s initial regulation of derivatives in Release No. IC-10666 (“Release 10666”). As explained in my first post, the objectives of the proposed rule include limiting the “speculative character” of funds that use derivatives and assuring they have sufficient assets to cover their obligations. Release 10666 used one means, asset segregation, to achieve both ends. Several comment letters appear to question whether this approach is still tenable. Continue Reading