We are still digesting the SEC’s reproposal for regulating how mutual funds, ETFs, closed-end funds and BDCs (“funds”) may use derivatives in compliance with Section 18 of the Investment Company Act of 1940 (proposed Rule 18f-4), but one surprising aspect is proposed Rule 15l-2 under the Securities Exchange Act of 1934. As explained more fully below, Rule 15l-2 would increase the … Continue Reading
This post is Part 2 of a series of posts that addresses the impact of recent regulatory developments on the use of limited recourse provisions in futures customer agreements entered into between a futures commission merchant (an “FCM”) and an investment manager on behalf of one or more of the manager’s clients. In this post, … Continue Reading
Historically, many investment managers have negotiated limited recourse provisions into derivatives trading agreements entered into by the managers on behalf of their clients with banks, broker-dealers, and futures commission merchants (FCMs). In short, these provisions state that only the assets in the specified account under the control of that particular manager can be used to … Continue Reading
On November 29, 2018, in remarks before the 2018 Financial Stability Conference in Washington, D.C., Chairman J. Christopher Giancarlo of the U.S. Commodity Futures Trading Commission (“CFTC”) supported the adoption of the Secured Overnight Financing Rate (“SOFR”) as the new benchmark for short-term unsecured interest rates. SOFR is currently produced by the Federal Reserve Bank … Continue Reading
It was a busy morning at the intersection of derivatives and virtual currencies. Here is an overview of what happened and some thoughts about what it means for the world of virtual currencies.… Continue Reading
Many buy-side market participants are in the process of grappling with issues related to the amendment of their derivatives trading documentation in order to account for new U.S. margin requirements that will apply to non-cleared swaps beginning on March 1, 2017 (the “Implementation Date”). But, in our experience, a large number of market participants have not … Continue Reading
On your list of things for which to be thankful, remember to add “the ability to electronically file a CFTC Form 40 / 40S”. Here is a very courteous reminder from the CFTC’s Division of Market Oversight that the new era of submitting electronic Form 40 is about to begin. In case some readers do not … Continue Reading
The SEC has finalized a rule requiring registered advisers to report certain information related to the use of derivatives and borrowings in separately managed accounts (“SMAs”). The release can be found here (the “Release”). This posts seeks to provide advisers with a quick snap shot of the information they will need to collect and disclose. … Continue Reading
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: … Continue Reading
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 … Continue Reading
[Click here for the obscure title reference.] Release No. IC-10666 (“Release 10666”), issued in 1979 under the direction of my partner Marty Lybecker, was the starting point for the SEC’s regulation of derivatives under Section 18 of the Investment Company Act. This release would provide the basis for proposed Rule 18f‑4’s regulation of “financial commitment transactions.” Many … Continue Reading
This post continues my consideration of some conceptual questions underlying the SEC’s proposed Rule 18f-4. The following comment on the proposal caught my attention: Congress is stating [in Section 1(b) of the Investment Company Act] that there is a problem when leverage unduly increases the “speculative character” (what we now call risk) of the investments. … Continue Reading
A CLE presentation gave me an excuse to read many of the comment letters regarding the SEC’s proposed Rule 18f-4, which would regulate the amount of “senior security transactions” in which an investment company could engage. I filed a personal comment letter responding to the SEC’s initial concept release in 2011. The proposed rule and … Continue Reading
Happy New Year! As a reminder, any person claiming certain relief from the requirement to register as a commodity pool operator (CPO) or commodity trading advisor (CTA) must submit an annual affirmation to the National Futures Association (“NFA”) by February 29, 2016. In particular, such affirmation must be filed by any person relying on the exemption … Continue Reading
On May 20th, the Securities and Exchange Commission (the “SEC”) proposed amendments to Form ADV, Part 1A and the related instructions and glossary (collectively, “Form ADV”). Jesse Kanach and Shawn Durrani of Perkins Coie’s Washington D.C. office have prepared the attached documents, which show what Form ADV would look like, if the SEC adopted all of these … Continue Reading
The SEC recently brought an enforcement action against a mutual fund’s investment adviser for a violation of Section 17 of the Investment Company Act of 1940 (the “1940 Act”). The enforcement order was notable, in that it involved cash collateral posted on total return and portfolio return swaps (“Swaps”). Here is an overview of the enforcement … Continue Reading
On Februrary 10th, the National Futures Association (“NFA”) announced that it was making two changes to its EasyFile system. Both changes relate to the information that is required to be filed by a commodity pool operator (CPO) in respect of annual pool financial statements. In particular, a CPO must now:… Continue Reading
ISDA recently published the results of a survey that it conducted to identify key issues and trends for the buy-side, derivatives end-user community. The results are fascinating and, we blelieve, accurately reflect the experiences of many market participants and professionals that are involved in the over-the-counter (OTC) derivatives markets. The following is a brief summary of … Continue Reading
TeraExchange, LLC (TeraExchange), a swap execution facility (“SEF”) registered with the Commodity Futures Trading Commission (“CFTC”), has announced it will begin trading a non-deliverable forward based upon the U.S. Dollar price of bitcoin (“Bitcoin Swap”). TeraExchange filed a self-certification application for the Bitcoin Swap with the CFTC on September 11, 2014 and issued a press … Continue Reading
