CFTC Open Meeting, December 5, 2011

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Gavel.png FINAL RULES: Registration of Foreign Boards of Trade
Investment of Customer Funds by Futures Commission Merchants and Derivatives Clearing Organizations
Dodd-Frank Timeline, Registration of Foreign Boards of Trade
Final Rule Issue Effective Date Compliance Date
December 23, 2011 February 21, 2012 August 20, 2012
Dodd-Frank Timeline, Investment of Customer Funds
Final Rule Issue Effective Date Compliance Deadline
December 19, 2011 February 17, 2012 June 18, 2012
Timeline, Made Available to Trade Provisions
Final Rule Issue First MAT Determination First Compliance Date
June 4, 2013 January 16, 2014 February 15, 2014

The Commodity Futures Trading Commission (CFTC) approved the following Dodd-Frank related rulemakings at an open meeting on December 5, 2011:

Archived webcast:

Meeting Summary and Links to Related Documents[edit]

  • The final rule on the investment of customer funds (Regulation 1.25) passed 5-0.
  • The proposed rulemaking on making a swap "available for trade" passed 4-1, with Commissioner Sommers voting against the proposal (see commissioner statements below).
  • The final rule on Foreign Boards of Trade passed 5-0.


Chairman Gary Gensler; whose statements include:

  • Support for the Investment of Customer Funds rule. Regarding the rule's prohibitions on foreign sovereign debt and internal repurchase agreements, Gensler said, "I believe there is an inherent conflict of interest between parts of a firm doing these transactions.
  • Regarding the Foreign Boards of Trade rule, Gensler said "This registration system replaces the Commodity Futures Trading Commission’s current practice of staff issuing no-action letters to FBOTs to permit them to provide such direct access for futures contracts. Importantly, the registration system will bring consistency, standardization and transparency – both for applicants and the public – to the process."
  • "I support the proposed rule to implement a process for designated contract markets (DCMs) and swap execution facilities (SEFs) to make a swap "available to trade"... This proposal will bring transparency to the process for making a swap available to trade on a DCM or SEF. It also will provide appropriate oversight of the process through Commodity Futures Trading Commission review."

Commissioner Jill Sommers, whose statements include:

  • I urged the Commission at our September meeting to define what it means to “make a swap available to trade.” The proposal before us today represents some progress in that direction. Unfortunately, I think we’ve taken a wrong turn...This approach is deeply flawed and I cannot support putting it out for comment, even recognizing that it is just a proposal. This proposal, if finalized, would allow a single DCM or SEF to bind the entire marketplace to a trade execution requirement through an ill-defined analysis that the Commission will be unable to reject unless it finds that the determination is inconsistent with the Act or Commission regulations."
  • "I support the ban on in-house transactions with this clarification. I also support the harmonization of Rule 30.7 with the investment limitations of Rule 1.25 and the concentration limits on various investments to promote portfolio diversification."
  • "Financial instruments that are safe today can quickly devolve into risky propositions. The Commission should make a concerted effort, through either a reporting regime or regular surveys, to collect information on the investment of customer funds on at least a yearly basis. We should also think about ways to regularly review and update the list of permitted investments under Rule 1.25."

Commissioner Bart Chilton, whose statements include:

  • "Protecting consumer funds is a national economic priority and I am hopeful that we will agree today to take at least one action to address some of the challenges...We have the authority, the knowhow and desire to do that, and provided we have the resources from Congress, it will be done."
  • "We can and should ban internal repurchasing transfer agreements. This use of customer funds between affiliates within the same broker dealer company is laden with risk and has the potential to facilitate nefarious activities."
  • "I hope Congress will consider allowing for the establishment of an insurance fund to make up any shortfalls to customers should a firm become insolvent or go into bankruptcy. This exists in the securities world with Securities Investor Protection Corporation. It exists in the banking world with the Federal Deposit Insurance Corporation. It is time it exists in the futures world. This "belt and suspenders" approach would provide an added level of customer protection in the event that further resources are needed to make customers whole. Simply put, if a broker dealer goes insolvent or into bankruptcy and the customer funds have vanished, this insurance would provide a needed backstop. If the regulatory and enforcement belt breaks, customers don't lose their pants."

Commissioner Scott O'Malia, whose statements include:

  • "While the Commission has outlined two critical rules around trading, clearing, and margining, a more comprehensive and definitive schedule must be produced. Not only will it help U.S. markets, but a desire for such a schedule was a common refrain from fellow regulators in Asia, who are attempting to coordinate their respective rules with U.S. and European reform efforts...Our current process is creating pools of legal and regulatory uncertainty that through interconnection, are rapidly forming seas of ambiguity detrimental to market structure and confidence."
  • Regarding a Congressional grant of $55 million for technology upgrades, O'Malia said, "It is essential that the Commission discontinue the practice of overseeing a 21st century market with 20th century tools."
  • O'Malia made requests for roundtable meetings on client clearing documentation and mandatory clearing.
  • O'Malia supports the Foreign Boards of Trade rule, but he voiced a concern about the reliance on "international principles and standards that are currently, but may not be in the future, comparable to our own regulatory regime."
  • He supports the Investment of Customer Funds rule, but would like to see a proposed rulemaking in the near future on enhancing the transparency of customer funds. However, O'Malia expressed reservations regarding the prohibition of using sovereign debt as collateral, citing the global interconnectedness of markets, but he is pleased that the commission included a provision to allow petitions for exemption.
  • Though O'Malia supports the Swap "Made available for trade" rulemaking, he is concerned that "this proposal is permitting those that have the greatest financial incentives to force all trading onto a platform to determine which swaps must be executed on such platform. This is like asking the fox to guard the chicken coop."

Commissioner Mark Wetjen, whose statements include:

  • "Although we cannot be sure the present rule will address the specific issues that are ultimately raised by the MF Global case, it is an important step towards re-emphasizing the Commission’s commitment to ensuring that customer money is invested in a manner that “preserves principal” and “maintains liquidity.” I believe this rule is necessary to restore confidence that this is the case."
  • "Customers have a right to know how FCMs and DCOs are investing segregated funds, and that they are doing so prudently. I hope the Commission can take this matter up in the near future."



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