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Butte business owners given tips on how to invest in Montana

MARCH 22, 2018


By: John Emeigh


A roundtable discussion was held in Butte Wednesday designed to help up-and-coming entrepreneurs get their businesses going.

Montana Securities Commissioner Matt Rosendale held the Invest in Montana forum at Metal’s Bar and Grill with a panel of experts to give local business owners advise on how to successfully raise money and find investors to turn their ideas into a reality.

“We believe that the entrepreneurs and the business people will be able to generate new organizations, new businesses, expand their existing organizations. That creates jobs, that creates a tax base for the state,” Rosendale said.

Read more at KXLF




Commissioner Behnam Statement on the CFTC Budget Cut

March 22, 2018


Commodity Futures Trading Commission (CFTC) Commissioner Rostin Behnam issued the following statement on the congressional budget proposal that reflects a decrease in the CFTC’s funding level:

“The recently released congressional budget proposal unimaginably cuts the Commodity Futures Trading Commission’s (CFTC’s) funding level, leaving our nation’s critically important derivatives market and the general public increasingly vulnerable to systemic (and other) risk, and susceptible to fraud and manipulation.  Derivatives markets played a significant role in the 2008 financial crisis, and the Congress responded with Wall Street reform that requires the CFTC to oversee the approximately $600 trillion dollar previously unregulated over-the-counter swaps markets.  While the CFTC has continuously met and exceeded the challenges of bringing these markets under our jurisdiction, its efforts have never been matched with requisite resources.

“Growing cyber threats, domestically and internationally, examinations of our clearinghouses at home and abroad, and the rapid growth of the FinTech industry present new, challenging issues that the CFTC will not have the resources to address in a timely and adequate manner.  Simply put, the CFTC cannot responsibly innovate and meet the needs of rapidly evolving markets and market participants absent additional funding.

“I will continue to support Chairman Giancarlo’s budget request – and more – as this agency and its dedicated staff continue to do the best job they can to keep these global markets safe, transparent, and free from fraud and manipulation.”


Press Release

Broker Charged With Repeatedly Putting Customer Assets At Risk


Washington D.C., March 19, 2018 —


The Securities and Exchange Commission today announced that Electronic Transaction Clearing (ETC), a registered broker-dealer headquartered in Los Angeles, has agreed to settle charges that it illegally placed more than $25 million of customers’ securities at risk in order to fund its own operations.

Among other things, the SEC found that ETC violated the Customer Protection Rule, which is intended to safeguard customers’ cash and securities so that they can be promptly returned if a broker-dealer fails.  It requires broker-dealers to maintain physical possession or control of customers’ fully paid and excess margin securities.

According to the SEC’s order, ETC put customer securities at risk numerous times in 2015.  ETC improperly transferred almost $8 million of fully paid securities belonging to cash customers to an account at another clearing firm to meet margin requirements on borrowed funds, and the firm used more than $17 million of securities of two customers to borrow funds without consent.  The order also finds that ETC improperly commingled customers’ securities and allowed a customer’s excess margin securities to be loaned out by the other clearing firm.

“The SEC has brought several recent cases charging violations of the Customer Protection Rule, which establishes critical protections to ensure that investors’ securities are kept safe by broker-dealers,” said Michele W. Layne, Director of the SEC’s Los Angeles Regional Office.  “As this case shows, no broker-dealer is allowed to use its customers’ securities to fund its own operations.”

The SEC’s order charged ETC with violating the Securities Exchange Act and Customer Protection Rule as well as other related rules.  Without admitting or denying the SEC’s findings, ETC agreed to entry of the order, to pay an $80,000 penalty, to cease and desist from committing or causing any similar violations in the future, and to be censured.  ETC cooperated with the SEC’s investigation and has taken remedial steps to prevent future violations.

The SEC’s investigation was conducted by Junling Ma and Sara Kalin of the Los Angeles Regional Office. The SEC examination that led to the investigation was conducted by Eric Cheng, Thomas Martinsen, and Tamara Heller.


Press Release

SEC Announces Its Largest-Ever Whistleblower Awards


Washington D.C., March 19, 2018 —


The Securities and Exchange Commission today announced its highest-ever Dodd-Frank whistleblower awards, with two whistleblowers sharing a nearly $50 million award and a third whistleblower receiving more than $33 million.  The previous high was a $30 million award in 2014.

“These awards demonstrate that whistleblowers can provide the SEC with incredibly significant information that enables us to pursue and remedy serious violations that might otherwise go unnoticed,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  “We hope that these awards encourage others with specific, high-quality information regarding securities laws violations to step forward and report it to the SEC.”

The SEC has awarded more than $262 million to 53 whistleblowers since issuing its first award in 2012.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.  No money has been taken or withheld from harmed investors to pay whistleblower awards.

Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action.

Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million. As with this case, whistleblowers can report jointly under the program and share an award.

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.

For more information about the whistleblower program and how to report a tip, visit www.sec.gov/whistleblower.



Corporate Governance: On the Front Lines of America’s Cyber War

Commissioner Robert J. Jackson, Jr.  [1]

New Orleans, Louisiana

March 15, 2018


Thank you so much, David, for that kind introduction. It’s great to be here at the Tulane Corporate Law Institute for what, I know, is one of the most highly-anticipated corporate-law conferences of the year. It also doesn’t hurt that it happens to be in New Orleans.[2]

Now, before I begin, let me just give the standard disclaimer: the views I express here are my own and do not reflect the views of the Commission, my fellow Commissioners, or the SEC’s Staff. And let me add my own standard caveat: I hope someday to persuade my colleagues of the utter, absolute, and obvious correctness of my views.

Although it already seems like a lifetime ago, I was only recently sworn in as an SEC Commissioner in January. It’s been a privilege to serve and an amazing experience so far—made all the more so by the incredibly talented and hardworking SEC Staff with whom I have the honor of working each day.

Since I was, in a previous life, a corporate lawyer at Wachtell Lipton, folks have asked me what it’s like to be an SEC Commissioner—so let me share a bit about the glamorous existence of a Commissioner. Each day, my staff and I spend hours combing through thick binders of rules, guidance and enforcement actions that we review, redline and spot check for potential issues. In between meetings, it’s not uncommon for us to spend time with other gripping page-turners—you know, like corporate proxy statements.  We’re always speculating what the guy down the hall, who spent 20 years being one of the world’s finest corporate lawyers, is thinking, and when he might send us more work. In short: being a Commissioner is a chance to relive the glamorous life I had as a first-year associate working for David Katz! Chairman Clayton tells me that there’s little chance of a closing dinner anytime soon. But at least these days I have a nicer office.[3]

Still, I don’t think I could possibly find more interesting, challenging, or fulfilling work. Nor a better group of colleagues to do it with. Nor a more important or pressing set of issues to deal with. It’s an incredibly important time for our Nation, our economy, and the Commission, and I’m honored to be a part of our efforts to keep pace with our ever-changing markets.

That’s why I wanted to focus today on what I think is the most pressing issue in corporate governance today: the rising cyber threat. As anyone who spends time in the boardroom knows, the digitization of our economy is revolutionizing the way business is conducted. From Wall Street’s financial institutions to mom-and-pop retail stores, almost every company—in every sector of the economy—is on some level a technology company. And advances in computer processing, cloud computing, and smart devices are making it faster, cheaper, and easier for firms to leverage data to improve nearly every aspect of their business every day.

I am, by nature, optimistic about the technological transformation currently underway across corporate America. But I’m also realistic about the challenges we face. Hardly a day goes by that we don’t hear about another threat, hack, attack, or major cyber event. The sources of all these bad acts are evolving—from rogue programmers to organized crime rings to state-sponsored actors. That’s why I was so struck to read the Director of the Defense Intelligence Agency’s recent statement before the Senate’s Armed Services Committee. Director Ashley told Congress that our “top adversaries are developing and using cyberspace to . . . compromise[e] our national defense.”[4] He’s right: our companies, and our country, are under attack.

In 2016 alone, there were over 1,000 data breaches—a record high—costing American companies more than $100 billion, according to data gathered by the Identity Theft Resource Center.[5] With that much money, you could buy every single team in the National Football League—and still have $20 billion left over to build a stadium.[6] Last year, 20 million Social Security numbers were exposed in connection with cyber breaches.[7] That’s the equivalent of having every person here in Louisiana have their Social Security number stolen—four times. And as your clients know well, the financial cost from the fallout once there is a breach—shareholder lawsuits, regulatory penalties, and reputational issues—will only continue to add up.

No issue in recent years has rocketed to the top of the corporate agenda faster. In 1975, 17% of S&P 500 firms’ market value was tied to intangible assets; in 2015, that number was 87%.[8] One recent study showed that nearly two-thirds of executives identified cyber threats as a top-five risk to their company’s future.[9] That shows how quickly this has become a board-level issue. When I was in practice over a decade ago, these issues weren’t even on the radar screen of many corporate directors. Today there is no doubt for top corporate counsel: if you’re not talking about cyber risk with your clients in the boardroom, you’re making a mistake.

Indeed, across America companies are desperately seeking direction as they grapple to identify and follow best practices for cyber risk management. As many of you know, we at the SEC weighed in on this issue just last month, providing Commission-level guidance related to the disclosure of cyber incidents.[10] Although I reluctantly joined the guidance, I believe that we regulators can and must do more on this issue. More on that in a minute.

Right now, our most sophisticated companies are already taking concrete action to protect their businesses from those who would use technology to cause harm. Many are investing heavily in new defenses, personnel and protocols to improve their cyber risk management posture. They are trying to innovate their way to safety. But while these companies should be lauded for their efforts, I would suggest that we need a much more comprehensive response.

Yes, new rules and regulations can help push companies toward cyber resiliency. Yes, improved technological defenses will help mitigate the cyber threat. But these are tactical responses to a strategic problem. We need to think bigger. The cyber threat is not primarily a regulatory issue any more than it is primarily a technological issue. Cybercrime is an enterprise-level risk that will require an interdisciplinary approach, significant investments of time and talent by senior leadership and board-level attention.

In short: the cyber threat is a corporate governance issue. The companies that handle it best will have relevant expertise in the boardroom and the C-suite, a strategy for engagement with investors and the public, and—most of all—sound advice from corporate counsel who can navigate uncertain times and uncertain law in a critical area for the company’s business.

My project today is to enlist all of you in preparing America’s companies to meet the cyber challenge. I want to describe three areas in which I believe sophisticated corporate counsel can, in partnership with my colleagues at the SEC, help lead the way in developing the practices that will determine whether we win or lose the struggle to protect American companies from cyber crime. Nothing is more important to the SEC’s core mission of protecting the investing public. And nothing is more important to the future of the American economy.

                                                          Law of Cybersecurity and Disclosure

Let’s start with the rules at the core of the SEC’s mission: the law of disclosure. The Commission’s latest guidance, which we issued last month, aims to promote “clearer and more robust disclosure” of cybersecurity breaches.[11] But that guidance, like the 2011 Staff-level instructions it reaffirms, relies heavily on the judgments of corporate counsel to make sure investors get the information they need. I worry that these judgments have, too often, erred on the side of nondisclosure, leaving investors in the dark—and putting companies at risk. I think we at the SEC have much more work to do in getting investors the information they need to understand cyber attacks. And we need your help to get there.

Since 2011, empirical study and hard experience suggest that we’re not seeing consistent, timely and complete disclosure on cyber attacks. One 2014 paper argued that the boardroom implementation of our Staff’s guidance “resulted in a series of disclosures that rarely provide differentiated or actionable information for investors.”[12] Another contended that our guidance in this area “fails to resolve the information asymmetry at which the disclosure laws are aimed.”[13]And our own Investor Advisory Committee recently observed that public-company disclosures regarding cybersecurity incidents have not meaningfully improved since 2011.[14]

What’s more, when a company’s cyber defenses are breached, that fact can find its way into the market even when the firm chooses not to inform investors by filing an 8-K. You see, SEC rules are hardly the only ones that require public companies to reveal data breaches. Our rules are based on materiality. Brighter lines are found in the state law arena. There, a patchwork of ever-changing state laws, along with state and local regulators, often require notification to consumers when residents’ personally identifiable information has been compromised.[15]

In my home State of New York, for example, when personal data has been wrongfully obtained, that fact must be reported to state regulators as well as to consumers both inside and outside New York.[16] In fact, all but two States have enacted their own breach-notification laws.[17] And when state or local laws lead to revelations that are not shared with investors, companies and their counsel face significant risk.[18]

I wanted to learn more about disclosure practices in this area, so I ran the numbers myself. My staff and I compiled evidence on data breaches in 2017 that were reported to state and local regulators, as well as to the press.[19] After removing minor breaches from our dataset, what we found surprised us: of 81 cybersecurity incidents at public companies in 2017, only two companies chose to file an 8-K disclosing the breach to their investors.[20] In other words, in 2017, companies that suffered data breaches chose not to file an 8-K more than 97% of the time.

That’s not to say, of course, that all of these events were material or required disclosure. But there is significant evidence that events like these matter to the market. One recent survey, for example, found that 20 of 25 academic studies found negative and significant stock-price reactions for firms that are victims of cyber attacks.[21] And in a compelling and important new paper, two Columbia Law School scholars have identified systematic evidence of arbitrage opportunities when traders learn of cyber breaches that have not yet been disclosed.[22]

I don’t need to tell all of you about the risks that a board faces when information on a cyber breach leaks before the news has been shared with investors. Besides public approbation and litigation—just days ago, Yahoo! agreed to pay $80 million[23] to settle a suit related to data breaches—the board and management are forced to spend time scrambling rather than pursuing a viable long-term strategy for cyber defense. In the meantime, a few sophisticated and speedy traders may benefit from informed trading, while average American investors suffer. None of this reflects a productive investment of precious resources—and it’s not nearly good enough to meet the rising cyber threat we face.

I’ve called upon my colleagues at the SEC to give careful consideration to new 8-K requirements governing cyber events.[24] I understand, of course, that we must strike a careful balance in this rapidly changing area.[25] But I believe America’s companies and corporate bar can do better. And I believe that any rules we make are only as good as the work of the lawyers in the boardroom, where the rubber meets the road.

I hope each of you will urge upon the boards you counsel the pressing need for transparency in this area—and will share, with clients and with us at the SEC, the best practices you are developing to ensure that investors get the information they need when our companies are attacked. Those practices will, I hope, soon inform the next steps my colleagues and I will take in this critical area.

                                                   Cybersecurity and Insider Trading

Now let’s turn to an especially troubling implication of some of the most high-profile and recent cybersecurity incidents: insider trading. There’s no doubt that investors’ confidence is shaken whenever they learn that a company’s cyber defenses have been hacked. But when it’s revealed that the insiders entrusted to protect investors used those events as an opportunity to profit personally, investors rightly question the basic trust that forms the core of our markets.

As many of you may know, at the time of the Equifax breach it was reported that certain insiders sold shares even after the firm’s Chief Executive Officer discovered the issue but before the breach was revealed to the investing public.[26] While I cannot comment on any SEC investigations or ongoing litigation, I can say that it is especially alarming when reports of a breach are accompanied by reports of insider trading.  It is deeply troubling that insiders may have been able to profit in this way, regardless whether those specific insiders knew about the breach before engaging in such trading.[27]

There are two important questions raised by these events that I hope you’ll help us grapple with. First, are we doing enough in corporate boardrooms to ensure that, when any member of the senior management team learns material nonpublic information, all members of the team avoid trading? As our Chairman, Jay Clayton, has explained, procedures like those are an “important part of good corporate hygiene.”[28] They also have the key benefit of encouraging senior management to share critical information early and often with their colleagues.

While I know that some of you are already advising your clients to adopt policies to address these situations, I worry whether those policies have made their way across the wide spectrum of companies and industries that make up our markets. Before I joined the Commission, I wrote a study with two much-more-talented colleagues that identified a surprising amount of trading by corporate insiders during the four-day period between the time when material nonpublic information was discovered and when it was revealed to the public.[29] Although I’m hopeful that Congress, or the Commission, will soon act to address this kind of trading, we can and should learn a great deal from the best practices all of you are developing in this area. I urge you to help us make sure that senior management knows that it makes little sense to trade when material nonpublic information has yet to be revealed to investors.[30]

But there’s a second, and even more important, question raised by these developments: Does the law we have today adequately address situations where traders take advantage of nonpublic knowledge that a company has been hacked?

As others have observed, it is far from clear whether or how current law would apply to cases where the trader is not herself a corporate insider.[31] That raises the very real concern that hackers will not only continue to attack American companies—but that they might be able to profit by trading before the investing public discovers what they have done. That’s a concern that, I know, is shared by your clients. One recent survey of corporate executives found that financially motivated hackers are the actor that concerns them the most in this area.[32]

In the midst of the war we are fighting on the cyber front, we cannot allow our securities markets to be a source of profit for hackers who use technology to harm the companies that are crucial to the growth of our economy. I hope all of you will help us ensure that best practices—and the laws governing insider trading—keep pace with this ever-changing threat.

                                                          Cybersecurity and Internal Controls

Although I had reservations about our recent guidance in this area, one important part of the Commission’s statement has, in my view, been overlooked. The guidance specifically urged companies that “[c]ybersecurity risk management policies and procedures are key elements of enterprise-wide risk management,” and noted our expectation that firms will have “sufficient disclosure controls and procedures in place to ensure that relevant information about cybersecurity risks and incidents is . . . reported . . . up the corporate ladder.”[33]

Building that kind of system is a significant challenge for most public companies. The reason, of course, is that the experts who best understand the cyber threats a company faces are rarely among the company’s lawyers. Instead, they are technologists trained to grapple with the latest innovations in the dark art of hacking—and how to protect against them. As one expert in this area recently observed, “lawyers and computer programmers are like foreign cultures.”[34]

So we need ambassadors. Counsel like all of you are critical to helping companies build the internal reporting structure that will help boards and management better anticipate, assess, and, where necessary, disclose the next significant cyber attack. You’ll need to help your clients assess their organization, learn where the critical knowledge is, and make sure there’s a clear and clean path from there to the C-suite—and, eventually, to investors. You might even have to sit in front of a computer and open a program other than Microsoft Word.

Many of you might be thinking that reaching across the divide between lawyers and technologists is a bridge too far, even for the world’s finest corporate counsel.[35] But I’m here to remind you that you have done this before. For if there is anything as Byzantine, complex, intimidating, and critical to the health of a business as technology, it is, of course, accounting. Fifteen years after the passage of Sarbanes-Oxley, the companies you counsel have a comprehensive set of controls that bring that specialized knowledge to the attention of management and, where necessary, the experts in the boardroom.

Many of you helped to build those systems by learning more than you ever wanted to know about the dismal science[36] of accounting—where the key sources of information leading to financial reporting were located in an organization and how to make sure management could rely upon them. Here, too, we will need your expertise in understanding how to make sure that information from technologists on the front lines of this war reaches senior management—and, where necessary, the board and investors.

This may well be the area that will demand the most attention from all of you over the coming months. One recent survey noted that 70% of executives at the S&P 500 named their IT department as a primary owner for cyber risk management—compared to just 37% who identified the C-suite or the board.[37] The same survey noted that, especially at large and growing companies, responsibility for these issues is often scattered throughout the organization, creating the risk that key information might not make its way to the decisionmakers who need it most.[38]

I am hopeful that this part of our guidance will lead companies and their counsel to ask themselves whether their existing internal controls are up to the daunting task we face. And I know that all of us at the Commission will be on the lookout for the best practices you’ll come up with to prepare your clients for this challenge.

*          *          *          *

The cybersecurity threat now gripping corporate America poses new challenges for companies, the SEC, and the investors we serve. But whether those challenges relate to when and how to share information with investors, how to ensure that insiders trade on a level playing field, or how to design organizations so that its senior leaders have the information they need to do the right thing, they are all fundamentally questions of corporate governance.

We regulators can and should do more to protect American investors from the looming cyber threat. We at the SEC should consider disclosure requirements that would give all of you clearer marching orders on when and how to share critical information with investors. And Congress or the Commission should also move quickly to make sure that, when one member of senior management learns material nonpublic information, no member of the team is trading in the company’s stock. We may also need to ask ourselves, more fundamentally, whether the insider-trading law we have is adequate to meet these new challenges.

Whatever we do, however, we will need sophisticated corporate counsel to help us make sure that our rules have the intended effect—in the boardroom, in the marketplace, and in the race to protect our companies and our country from the hackers who would do us harm. I hope you’ll all join me and my colleagues on the Commission in pushing yourselves and your clients to develop the kinds of cutting-edge best practices we’ll need to meet this challenge. And I hope you’ll keep this issue at the top of the corporate governance agenda—where it belongs.

Thank you once again for the opportunity to be here with you at Tulane today. I very much look forward to our continued conversations over the coming days.


[1] Commissioner, United States Securities and Exchange Commission. I am deeply grateful to my colleagues Matthew Cain, Caroline Crenshaw, Marc Francis, Satyam Khanna, and Prashant Yeramalli, whose insights and comments have, as always, deepened my thinking on these matters a great deal. Responsibility for any errors or omissions is, sadly, mine alone.

[2] My understanding is that you can get a pretty good meal, and maybe even a drink or two, in this town. That’s what I hear, at least. Given my age and appearance, my Staff are taking bets as to whether I’d get carded if I tried to buy a drink on Bourbon Street. Honestly, I’m afraid they might be right.

[3]  During my first year at Wachtell, I shared an office with an incredibly hardworking and brilliant young corporate lawyer named Sabastian Niles. It appears he was eventually rewarded for putting up with me. Compare Wachtell, Lipton, Rosen & Katz, Attorneys (“Sabastian V. Niles is a Partner at Wachtell, Lipton, Rosen & Katz where he focuses on rapid response shareholder activism and preparedness . . . .”).

[4] Lt. Gen. Robert Ashley, Director, Defense Intelligence Agency, Statement for the Record: Worldwide Threat Assessment, before U.S. Sen. Comm. on Armed Servs. (March 6, 2018).

[5] See Identity Theft Resource Center, Annual Data Breach Year-End Review (2017).

[6] See Mike Ozanian, The Most Valuable Teams in the NFL, Forbes (Sept. 15, 2015).

[7] Identity Theft Resource Center, Annual Data Breach Year-End Review, supra note 4.

[8]  Ocean Tomo LLC, Intangible Asset Market Value Study (2017).

[9] Marsh, By the Numbers: Global Cyber Risk Perception Survey 3 (Feb. 2018).

[10] See Securities and Exchange Commission, Commission Statement and Guidance on Public Company Cybersecurity Disclosures, Nos. 33-10459, 34-82746 (Feb. 26, 2018).

[11] Securities and Exchange Commission, SEC Adopts Statement and Interpretive Guidance on Public Company Cybersecurity Disclosures (Feb. 21, 2018) (quoting Chairman Clayton).

[12]  PWC & IRRC Institute, What Investors Need to Know About Cybersecurity 5 (2014).

[13] Matthew F. Ferraro, “Groundbreaking” or Broken? An Analysis of SEC Cybersecurity Guidance, its Effectiveness, and Implications, 77 Albany L. Rev. 297 (2014); id. (expressing the concern that cyber disclosures are “of such similarity across industries . . . that they indicate little useful information is coming to the market.”).

[14] Securities and Exchange Commission Investor Advisory Committee, Discussion Draft Regarding Cybersecurity and Risk Disclosure (Oct. 26, 2017).

[15] For a list of those state laws—and a demonstration of how varied and complex they are—see National Conference of State Legislatures, Security Breach Notification Laws (Feb. 6, 2018).

[16] See N.Y. Gen. Bus. Law § 899-AA (2016); see also N.Y. State Tech. Law 208 (2016).

[17] See National Conference of State Legislatures, supra note 14.

[18] See, e.g., Securities and Exchange Commission, Regulation Fair Disclosure, 17 C.F.R. § 243.100 (2016); see also Panel Discussion: The SEC’s Regulation FD, 6 Fordham J. Corp. & Fin. Law 273, 278 (2001) (remarks of Professor Harvey J.L. Goldschmid) (explaining the key policy rationale for regulating in this area).

[19] These data are publicly available from the Identity Theft Resource Center (ITRC). The ITRC Breach Report, from which we drew this information, is a “compilation of data breaches confirmed by various media sources and/or notification lists from state government agencies. . . . Breaches on this list typically have exposed information that could potentially lead to identity theft, including Social Security numbers, financial account information, medical information, and even email addresses and passwords. ITRC follows U.S. Federal guidelines about what combination of personal information comprise a unique individual, and the exposure of which will constitute a data breach.” Identity Theft Resource Center, Data Breaches (last visited March 14, 2018), available at https://www.idtheftcenter.org/Data-Breaches/data-breaches.

[20]  We are hopeful that academic and government researchers will find these data—and the market’s potential response to breaches of this kind—worthy of further study. To that end, we have prepared a data appendix, as well as a separate dataset, for researchers’ use in considering these questions, and we welcome comments, questions, and further work in this area.

[21] Georgios Spanos & Lefteris Angelis, The Impact of Information Security Events to the Stock Market: A Systematic Literature Review, 58 Computers & Security (2016).

[22] See Joshua Mitts & Eric Talley, Informed Trading and Cybersecurity Breaches, 8 Harv. Bus. L. Rev. __ (forthcoming 2018).

[23] See, e.g., Phil Muncaster, Yahoo Agrees $80M Securities Class Action Settlement, Info Security (March 9, 2018).

[24] The SEC has not performed a careful reexamination of its 8-K rules since 2004—when cyber threats were hardly on the horizon for most companies and corporate counsel. See Securities and Exchange Commission, Final Rule: Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date (Aug. 23, 2004).

[25] For example, in the midst of a cybersecurity breach, the board and management may want to be sure they fully understand the scope and scale of the attack before disclosing the news to the public—and want to make sure that any disclosure does not provide a roadmap for future attackers.

[26] See, e.g., Liz Moyer, Equifax’s then-CEO waited three weeks to inform board of massive data breach, testimony says, CNBC.com (Oct. 2, 2017), available at https://www.cnbc.com/2017/10/02/equifaxs-then-ceo-waited-three-weeks-to-inform-board-of-massive-data-breach-testimony-says.html.

[27]  Yesterday, the Commission charged a former Chief Information Officer of an Equifax business unit with insider trading in advance of the company’s September 2017 announcement of its massive data breach. See Securities and Exchange Commission, Former Equifax Executive Charged with Insider Trading (March 14, 2018).

[28] See, e.g., Andrew Ramonas & Rob Tricchinelli, Clayton Mulls SEC Insider Trading Amid Equifax Fears, Bloomberg Law (Sept. 26, 2017) (quoting the Chairman’s testimony before the Senate Banking Committee).

[29] See Alma Cohen, Robert J. Jackson, Jr., & Joshua Mitts, The 8-K Trading Gap (August 1, 2016), available at https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2657877.

[30] Sophisticated observers wonder how our current law applies to these cases, illustrating the inadequacy of current rules for dealing with cases like this—and our failure to make the rules of the road clear to corporate insiders. See Matt Levine, Money Stuff, Bloomberg View (March 15, 2018) (“[I]f you work at a public company, and it suffers a massive data breach, and you don’t find out about it before it is public, and you sell your stock because you just have a vague bad feeling about things, is that illegal insider trading? . . . [T]here are some nuances to the question, but the basic answer is no, probably not.”).

[31] See Mitts & Talley, supra note 19 (arguing that, although the “efficiency implications of cybersecurity trading are distinct—and generally more concerning—than those posed by garden-variety information trading within securities markets,” “both securities fraud and computer fraud in their current form appear poorly adapted to address such concerns, and both would require nontrivial re-imagining to meet the challenge”); see also Matt Levine, Is Cyber-Insider Trading Illegal?, Bloomberg View (Feb. 2, 2018) (discussing the study and inquiring, more generally, whether trading of this kind is prohibited by current law).

[32] See Marsh, supra note 8, at 7 & fig. 4.

[33] Securities and Exchange Commission, supra note 8, at 26-27.

[34] Jason Krause, Does Learning to Code Make You a Better Lawyer? ABA Journal (Sept. 2016), available at http://www.abajournal.com/magazine/article/lawyer_learning_code_zvenyach_ohm.

[35] See Twentieth Century Fox, Office Space (1999) (providing the canonical example of justifying one’s employment with the claim: “I have people skills.”).

[36] That’s actually economics, I know. Or is it? See Derek Thompson, Why Economics is Really Called ‘the Dismal Science,” The Atlantic (Dec. 17, 2013) (questioning the standard tale that Thomas Carlyle coined this term in response to Malthus’s famous claim that population growth would always strain natural resources).

[37] Marsh, supra note 8, at 8.

[38] See id. at 8 & fig. 5.


Remarks at SIFMA AML

Susan Schroeder

Executive Vice President, Enforcement

New York, NY


FEBRUARY 12, 2018

Good morning. It’s great to have this opportunity to be with you today.

My colleague in Member Regulation, Sales Practice, Mike Rufino, will be talking about FINRA’s regulatory and examination priorities during the next session, so I won’t steal Mike’s thunder and tell you everything that he is going to say. Rather, I want to take a step back and take this opportunity to talk about something that has been the main focus of my waking hours since I took over my role as head of FINRA’s new consolidated Enforcement group last year—and that is how FINRA Enforcement can be most effective.

As many of you may know, when Robert Cook joined FINRA in the summer of 2016, he embarked on a listening tour, traveling the country and sitting down with investors, firms and other stakeholders. To ensure that FINRA is the best informed, most effective SRO it can be, last year we announced our FINRA360 project to evaluate key aspects of our operations and to identify opportunities to further our mission more effectively.

As a result of the listening tour and FINRA360, and in consultation with FINRA’s Board of Governors, we decided to merge together FINRA’s two previously distinct enforcement teams—one that handled disciplinary actions found through Market Regulation’s surveillance and examination programs, known as Market Regulation Legal, and the other that handled cases referred from other regulatory oversight divisions, known as Enforcement. This was driven in part by what we were hearing: that there was a perceived inconsistency in approach at times between the two enforcement teams. That perception is troubling. If firms don’t know what to expect from their regulator, they don’t know how to shape their behavior in order to comply with the rules.

As we integrate these two Enforcement teams, we are focused on how to ensure that the combined team will approach cases in a similar manner and reach foreseeable conclusions. To do that, we decided to get right down to basics and define what an effective Enforcement action looks like – to identify clearly our common goals.

This isn’t a change in direction, by any means; rather, it is a clarification of our existing philosophy as we bring two groups together. We wanted to be sure we are asking the same questions, and considering the same factors in the same way on the cases we handle every day. In this way, we reconfirmed the straightforward framework that the unified Enforcement team uses when we make decisions and exercise our judgement.

We want any compliance professional to be able to look at any FINRA enforcement action and say to themselves, “Ah, yes, this case makes sense. This enforcement action and sanction are what I would expect based on the facts and circumstances of this action. I can use this case to convey to the business the importance of compliance.” To accomplish that, we need to be transparent about Enforcement actions, including identifying the factors we weigh and discuss internally, and the objectives we seek to meet when we bring a case.

Today, I want to provide more insight into the principles that guide our enforcement decisions.

Enforcement Actions

Now, when I said this exercise was an exercise in getting back to basics, I meant it. The first question we ask ourselves about every potential case is this: is an enforcement action appropriate?

Enforcement actions are not an end to themselves; they are a means to an end. Our overarching goal in bringing an enforcement action is to effect change. We do not bring an enforcement action for the sake of bringing an enforcement action. We bring an enforcement action to fix something that is broken or to prevent future misconduct, either by the same respondent or by another individual or firm.

Enforcement is not the only way that FINRA seeks to effect change and facilitate firms’ compliance. Our examination program is a different means to the same end; FINRA often identifies rule violations and addresses them within the examination process, without referral to Enforcement. And we have begun publishing examination findings, as Mike will surely discuss. Similarly, FINRA sends member firms report cards, and, through our Rapid Remediation program, we alert firms to potential systems issues in real time so that firms can correct the problem and potentially avoid a formal investigation.

Enforcement action, while a powerful tool in FINRA’s toolbox, is not the right tool in all cases. In fact, we must be thoughtful and intentional in order to use our finite Enforcement resources in the matters where they are most needed. To determine if an enforcement action is the right tool to use in a given circumstance, we ask ourselves: Is there demonstrated financial harm resulting from the misconduct? Has there been a significant impact to market integrity? Did the misconduct create significant risk?

When misconduct results in financial harm, we will expect the member firm or the individual who caused that harm to remediate and make the customers whole. Similarly, if misconduct actually disrupts the operations of the market, we’ll want to ensure the issue is fixed and that we, and the industry, have taken steps to prevent something harmful from recurring. In light of such significant consequences in those types of cases, we consider whether an Enforcement action is needed to further our regulatory objectives.

But the third area—when misconduct doesn’t create quantifiable harm but creates risk, whether for a customer, member firm or the industry at large—this is where most of our cases land. Often, when we ask ourselves if the best way to address a rule violation is through formal Enforcement action, what we are really asking is whether the misconduct created significant risk, such that the misconduct requires an enforcement response in order to prevent and deter future harm.

We think about risk in many ways. First, risk may be evidenced by a high likelihood of harm. For example, a firm that employs a number of brokers with sales practice disciplinary histories, but fails to implement a reasonable system to supervise those higher risk brokers, has demonstrated supervisory failure that results in a high probability of harm.

Second, risk may be evidenced by the potential for widespread harm. When the probability of significant harm is smaller, it can still be significant if the impact would be broad. Our cases regarding violations of the customer protection rule, such as firms’ capital reserves and custody obligations, fall into this area at times. Take, for example, a firm that fails to segregate its customers’ securities properly. Depending on the firm, the likelihood that a large, well-capitalized firm might fail overnight and be unable to return to its customers their securities might be low. But if it did happen, the impact of such a failure on millions of customers would be so broad and deep that the risk is serious, even if it is not highly likely.

Third, and this goes without saying, we consider the heightened risk posed by intentional or reckless misconduct. Consider two scenarios: Firm A seeks guidance from counsel about what the firm is obligated to do in order to comply with a rule. The firm misunderstands the rule, relies on incorrect guidance in good faith, and subsequently violates the rule. Firm B doesn’t understand the same rule, but doesn’t seek any guidance, doesn’t take steps to comply and subsequently violates the rule. Both firms technically violated the same rule, but Firm A, acting in good faith, poses far less risk than Firm B, whose intentional or at least reckless noncompliance demonstrates a fundamental disregard for regulatory obligations that could be – and in fact likely is – widespread and pervasive.

Another significant and similar risk we consider is the risk characterized by recidivism. This is a central tenet of our Sanctions Guidelines. Repeated misconduct after disciplinary action indicates reckless or even intentional disregard for regulatory obligations. The notion of recidivism is an important component of our approach to high-risk brokers and high-risk firms. Repeated misconduct is not only a compelling reason for an enforcement response; it also requires progressively escalating sanctions.

A broad pattern of disregarding regulatory requirements is another red flag. Consider a firm that violates a number of different rules across the organization, perhaps demonstrating different types of violations year after year. There are some firms—I’m sure none of them are in this room—that pay little heed to preventing or detecting misconduct, preferring to pay regulatory fines as a cost of doing business rather than strengthening their systems or controls. Therefore, pervasive and persistent rule violations must be viewed in context. A firm that violates a specific rule in isolation may pose different risk than a firm that violates that same rule, plus many others, year after year. The latter firm’s widespread violations indicate a fundamental lack of supervision, if not disregard for customer protections, that may pose a significant risk even when, by luck or happenstance, no significant harm has yet resulted. It may be appropriate to bring an enforcement action for a failure to implement reasonable supervision even when there has not yet been quantifiable damage.

Supervision, of course, is performed by individuals, and an individual supervisor’s failure to carry out her responsibilities is a marker of risk that we take seriously. Because the industry depends so much on individual supervisors as the first line of defense, a failure to reasonably supervise by an individual who has clear supervisory responsibilities can—and often does—create significant risk. Instances of individual failures to supervise are, therefore, often circumstances where enforcement action may be an appropriate response to incentivize that individual supervisor to approach her responsibilities with more care, and to demonstrate for other individual supervisors the importance of the role they play. Note that this is not a declaration of war on CCOs: we focus on actual supervisory roles, and don’t reactively blame compliance for the failure of the actual supervisors.

When is Enforcement action an appropriate regulatory response? When we identify misconduct that caused financial harm, significantly affected market integrity, or created significant risk for customers, member firms or the market as a whole. It isn’t rocket science. We have long considered these factors when determining whether to bring a case. But it is helpful to discuss this, because it helps us to define what it is we’re trying to accomplish through Enforcement action and it helps you to understand our expectations.

At the root of every Enforcement action there is conduct that needs to change. We want the system to be fixed, the churning to stop, the disclosures to be made. Enforcement actions are remedial in nature – we want to restore to harmed individuals what they have lost, and literally remedy the problem by fixing what’s broken. Enforcement actions should also have a preventive or deterrent effect. Enforcement actions create an overall incentive structure so that non-compliance has more difficult and expensive consequences than compliance. Otherwise, firms might choose not to expend sufficient resources on compliance.

Therefore, a behavior that causes harm or creates risk should be remedied and prevented through Enforcement action. Now, once we have a clear understanding of the behavior that requires change, the next question is this: What does a fair and effective sanction look like? In other words, how should we fashion a sanction that is best suited to effect the change in question?


Our first rule about sanctions is simple: we seek first to obtain restitution for harmed investors. We want to make sure wronged investors are made whole. That’s the most important outcome, and it’s reflected in the Financial Guiding Principles that FINRA recently published. Restitution for harmed customers is our highest priority, although there are many cases in which it is not practical because there has been no calculable financial harm.

Beyond that, what else does a fair and effective sanction accomplish? We believe a fair and effective sanction is one that is tailored to most effectively address the root of the problem.

These are the two things at top of mind when we are thinking through the right sanction in a case. First, we are thinking through the whole list of options available to us in the sanction guidelines, which have long been in place and are widely known: fines, restitution, disgorgement, expulsions, bars, plenary and principal suspensions, undertakings (such as the undertaking to hire an independent consultant), rescission, requirements to requalify, business restrictions, supervision requirements, pre-approval requirements.

We carefully consider all of these options, and we consider what other regulators find effective and whether we should adopt additional approaches. We want to choose the tool that most precisely effects the needed change. For example, in some cases the most effective sanction might be requiring a member firm to hire an independent consultant to review the firm’s systems and recommend enhancements that the firm is required to implement. In other cases—for example, where a firm has demonstrated through repeated actions that it knows what it’s doing is wrong and it doesn’t intend to fix it—an independent consultant’s advice is not likely to improve the firm’s conduct. In that case, we look to other forms of incentives or disincentives. Are increasing fines the best way to make the firm’s conduct so cost-prohibitive that it will finally choose to change? Are suspensions and bars against the firm’s supervisors the best way to change the firm’s approach to supervision? Should the firm be restricted from conducting certain types of business that it has repeatedly failed to supervise appropriately?

As we consider the sanctions that can address the root cause of the problem most effectively, we also keep in mind that a sanction should be proportionate to the harm or risk of harm posed. It should be remedial, and an effective deterrent, but it should not be excessive to the point of being vindictive.

Determining where this line falls is a challenge that we face every day. It’s the second thing at top of mind when looking at sanctions. FINRA members range from two-person firms working out of a home office to enormous, multi-national firms with vast resources. Determining a sanction for a specific respondent in light of that firm or broker’s facts and circumstances is one of the hardest parts of our job. There is no simple algorithm or formula we can use.

Of course, our Sanction Guidelines provide a wealth of guidance, including recommended ranges and the aggravating and mitigating factors we consider when determining the appropriate sanction in a case. But those considerations are judgement based, and we have long and spirited discussions with each other, within Enforcement and across departments, when we discuss sanctions. Again and again, discussions about sanctions go back to the fundamental question: what are we trying to accomplish in this Enforcement action? How do we most effectively use sanctions as a tool to help us accomplish our goals in this case?

We don’t want to just address the side effects of misconduct. We want to remediate any systemic deficiencies contributing to the misconduct. It’s not about just asking what went wrong here, but also asking why. If there was a trade reporting violation, why was there a trade reporting violation? What happened? What was broken? And was it fixed?

Fixing problems—if you haven’t noticed—is an issue we care about deeply. And it is a way that respondents can help themselves and help us effectively resolve matters. In 2008, we issued FINRA’s Guidance Regarding Credit for Extraordinary Cooperation, which discussed the value of self-reporting, extraordinary cooperation, restitution and remediation. We are currently working to update that guidance and anticipate some refreshed guidance this year. We believe strongly in credit for extraordinary cooperation, and restitution and remediation are very important factors for us, particularly in light of Rule 4530’s requirement of self-reporting under some circumstances.

In the past several years, FINRA has granted credit for extraordinary cooperation—with an emphasis on a respondent’s efforts on restitution and remediation—in a number of matters. We gave substantial credit, for example, to two firms last year that each had different but significant supervisory issues. Each of the firms spent significant time and resources analyzing the effects of its supervisory failure on customers, establishing a restitution plan early in the process and sharing its methodology with us. Each firm ultimately paid restitution, and they were assessed substantially reduced fines in recognition of their extraordinary cooperation.

In addition to credit for cooperation, we also believe a fair sanction reflects consideration of any discipline for the same misconduct already imposed by the member firm or another regulator. In a world of limited regulatory resources, every Enforcement action that FINRA brings should have unique value. Now, that doesn’t always mean that we won’t bring an action at the same time as another regulator. In the AML space, in particular, different regulators have different rules and we may need each other in order to bring a global case that addresses the totality of the misconduct. But if a FINRA case would not add unique value—for example, if another regulator sanctions a respondent for the same misconduct we would address, imposing what we consider to be an adequate and fitting sanction—we question whether it is necessary for us to bring a case. In addition, we are mindful of not only other regulatory actions, but also discipline imposed by member firms. For example, if an individual has already been suspended from her member firm for three months, we will consider that when weighing a regulatory suspension and factor it in as appropriate.

So, in sum, how do we think about sanctions? Fundamentally, we seek first to obtain restitution for harmed customers. Following that, we look for sanctions that are tailored to address the root cause most effectively; are proportionate; encourage remediation of endemic problems; and reflect credit for cooperation and discipline by other regulators or member firms. These principles all reflect that a fair and effective sanction is one that creates an incentive to comply. After all, compliance is our ultimate goal, and individuals and firms that do the right thing and make the effort should have a clear and meaningful advantage over those that do not.


Okay, if that is what we expect of the industry, I’ll now turn to what we expect of ourselves. What does the Enforcement group as a whole need to do, to ensure we are fair and effective?

For us, success means thoughtful, balanced and timely investigations. What matters most for us at the end of the year isn’t how many cases we brought, but the confidence that our investigations were well done, we identified the right issues and achieved the right outcomes. We are positioned uniquely as an SRO to leverage the industry knowledge that exists all across FINRA, and our investigations should reflect that.

Moreover, a successful investigation reflects rigorous legal analysis. I worry that past settlement documents have not always clearly identified the legal framework supporting our conclusions. We hold ourselves to the highest standards when it comes to legal reasoning, but that is only useful to you if we are transparent about our analysis. We want anyone to be able to look at a given case and immediately understand the basis for the charge. Without that transparency, we run the risk of creating confusion in the industry. We understand member firms will look at our actions to assess their own conduct.

This is particularly important in the AML space, where we often get questions, particularly about individual respondents and why they were charged. I’ll tell you candidly, we have learned from those questions how we can do better. It’s a goal for us to be as transparent as possible about the legal framework, including the legal basis for supervisory liability. We need to be clear to the industry about exactly what conduct violates the rule and why, so that you understand how to pattern your behavior. This is a challenge, because settlement documents, unlike legal opinions, are negotiated documents and we need to be fair when negotiating with respondents. But we appreciate the value of explaining clearly the basis for certain charges, especially charges against individuals in their roles as supervisors.

That need for transparency goes to sanctions too. We want to be clear and specifically identify the aggravating and mitigating factors we considered when reaching a sanction determination. And again, there are pragmatic challenges in that. When we settle a case, the language is negotiated and respondents don’t like to talk about aggravating factors in detail. We need to walk the line and make sure we characterize these aspects of the case in a way that respondents can agree is fair, but still communicates with the industry why a sanction is larger or smaller.

Transparency is particularly important in Enforcement. In order for the industry to be able to follow a rule, FINRA’s expectations have to be clear and rule violations have to be foreseeable. We want to avoid any perception of “rulemaking by enforcement.” That is why as we continue to integrate two enforcement teams, we are also thinking about our internal processes when we bring a case. In particular, we are considering how to identify any novel issues early, and ensure that we flag and discuss these issues with the rest of FINRA to develop the most effective regulatory response on behalf of the organization. Enforcement actions are one type of tool that FINRA can use to effect compliance. Other departments have other tools, and we want to make sure that we consult and collaborate early and often with our FINRA colleagues to consider issues holistically, and to think about the range of actions we might take, from an enforcement action to a Regulatory Notice or even a new rule.

A prime example of this type of collaboration is a recent case we brought concerning a product that was widely known to be complex. The product was misunderstood across the respondent firm, and as a result, we saw unsuitable transactions and a failure to supervise sales of the product. There were harmed customers that needed to be made whole, so we brought an enforcement action and ordered restitution. But we were also concerned that other firms could be selling this product without the necessary understanding of its attributes, so we knew we needed to go back to our toolbox and go beyond just enforcement action. So FINRA issued a Regulatory Notice describing what firms needed to know about these products—an example of a regulatory response that used additional tools beyond Enforcement to achieve our regulatory goals.

The question of an appropriate regulatory response brings me back to the beginning, and I appreciate the opportunity to provide a window into our thinking and approaches to enforcement with you today. While I may have come close to waxing somewhat philosophically on the topic of Enforcement and its existential purpose, I believe the additional transparency is necessary and beneficial. As I said, these are very important questions to me and to the entire Enforcement team as we build our integrated department with a focus on resolving cases with consistent, foreseeable outcomes designed to effect change—to incentivize compliance, to fix things that are broken, to make harmed customers whole and to prevent future harm from recurring.

Thank you for your time and attention.

Press Release

SEC Proposes Transaction Fee Pilot for NMS Stocks



Washington D.C., March 14, 2018 —

The Securities and Exchange Commission today voted to propose new Rule 610T of Regulation NMS to conduct a Transaction Fee Pilot in NMS stocks.

The proposed pilot would subject stock exchange transaction fee pricing, including “maker-taker” fee-and-rebate pricing models, to new temporary pricing restrictions across three test groups, and require the exchanges to prepare and publicly post data.

“The proposed pilot is designed to generate data that will provide the Commission, market participants, and the public with information to facilitate an informed, data-driven discussion about transaction fees and rebates and their impact on order routing behavior, execution quality, and market quality in general,” said SEC Chairman Jay Clayton.  “I applaud the staff for their work in this important area and their enthusiasm for moving this issue forward.”

The proposed pilot includes a test group that would prohibit rebates and linked pricing, as well as test groups that would impose caps of $0.0015 and $0.0005 for removing or providing displayed liquidity.  The pilot would apply to all NMS stocks of any market capitalization and would include all equities exchanges, including “taker-maker” exchanges.  The pilot would last for up to two years with an automatic sunset at one year unless the Commission extends the pilot.  In preparing its proposal, the Commission considered a recommendation from the Equity Market Structure Advisory Committee to conduct an access fee pilot, as well as the views of those submitting comment letters on that recommendation.

The public comment period will remain open for 60 days following publication of the proposing release in the Federal Register.

                                                                               Fact Sheet

                                                                      Transaction Fee Pilot


The Commission proposed new Rule 610T of Regulation NMS to establish a Transaction Fee Pilot in NMS stocks.  The Pilot will generate data to facilitate analysis of the effects that transaction-based fees and rebates, and changes to those fees and rebates, may have on order routing behavior, execution quality, and market quality more generally.  Data from the Pilot will be used to inform the Commission, as well as market participants and the public, about the effects of transaction-based fees and rebates and facilitate a data-driven evaluation concerning the need for any potential regulatory action in this area, including possible changes to Rule 610(c) of Regulation NMS.


The key terms of the proposed Pilot are summarized below.


Duration 2 year Pilot with an automatic sunset at 1 year unless, no later than thirty days prior to that time, the Commission publishes a notice that the Pilot shall continue for up to another year; plus a 6 month pre- and 6 month post-Pilot period
Applicable Trading Centers Equities exchanges (maker-taker & taker-maker)
Eligible Securities NMS stocks with a share price ≥ $2 per share that do not close below $1 per share during the proposed Pilot and that have an unlimited duration or a duration beyond the end of the post-Pilot Period

Pilot Design

Test Group 1 $0.0015 fee cap for removing & providing displayed liquidity (no cap on rebates)
Test Group 2 $0.0005 fee cap for removing & providing displayed liquidity (no cap on rebates)
Test Group 3 Rebates and Linked Pricing Prohibited for removing & providing displayed & undisplayed liquidity
(Rule 610(c)’s cap continues to apply to fees for removing displayed liquidity)
Control Group Rule 610(c)’s cap continues to apply to fees for removing displayed liquidity

The Pilot also will require the national securities exchanges to prepare and post on their websites public and downloadable data including:  (1) aggregated and anonymized order routing data, updated monthly and (2) an XML dataset of standardized information on their transaction fees and rebates.  Primary listing exchanges also will be required to post information on changes to the list of Pilot securities.

What’s next?

The Commission will seek public comment on the proposed Pilot for 60 days following publication of its proposal in the Federal Register.


RELEASE: pr7705-18

March 15, 2018

CFTC Commissioner Rostin Behnam Seeks Nominations for Market Risk Advisory Committee Membership and Public Comment on Committee Priorities


Washington, DC – Commodity Futures Trading Commission (CFTC) Commissioner Rostin Behnam, sponsor of the CFTC’s Market Risk Advisory Committee (MRAC), is seeking nominations for membership and public input on MRAC’s priorities through a formal request for submissions in the Federal Register. The deadline for submissions is March 29, 2018.

“As the structure of the derivatives markets evolves, the MRAC is uniquely poised to assist the CFTC in identifying potential market risks that would have a systemic impact on our markets and financial system.  Thus, the membership of the MRAC must reflect a wide range of perspectives and interests.  As we reconstitute the Committee and develop its agenda, I look forward to hearing from all interested stakeholders, including regulators, to better inform the MRAC’s roadmap ahead,” said Commissioner Behnam.

In the Federal Register Notice published today, Commissioner Behnam invites members of the public to: nominate individuals (including self-nominations) for membership on the MRAC; and propose potential topics for the MRAC to prioritize in making recommendations to the CFTC on how to improve market structure and mitigate risk.

The MRAC’s mandate is to:

  • Conduct public meetings and submit reports and recommendations to the CFTC on matters of public concern to clearinghouses, exchanges, swap execution facilities, swap data repositories, intermediaries, market makers, service providers, end-users and the CFTC regarding systemic issues that impact the stability of the derivatives markets and other financial markets; and
  • Assist the CFTC in identifying and understanding the impact and implications of the evolving market structure of the derivatives markets and other financial markets.

Please see the Federal Register Notice for instructions on the submission of nominations and topics.

Last Updated: March 15, 2018



Federal Register, Volume 83 Issue 51 (Thursday, March 15, 2018)

[Federal Register Volume 83, Number 51 (Thursday, March 15, 2018)]


[Pages 11507-11508]


From the Federal Register Online via the Government Publishing Office [www.gpo.gov]

[FR Doc No: 2018-05271]




Market Risk Advisory Committee

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice; request for nominations and topic submissions.


SUMMARY: The Commodity Futures Trading Commission (CFTC or Commission)

is requesting nominations for membership on the Market Risk Advisory

Committee (MRAC or Committee) and also inviting the submission of

potential topics for discussion at future Committee meetings. The MRAC

is a discretionary advisory committee established by the Commission in

accordance with the Federal Advisory Committee Act.

DATES: The deadline for the submission of nominations and topics is

March 29, 2018.

ADDRESSES: Nominations and topics for discussion at future MRAC

meetings should be emailed to MRAC_Submissions@cftc.gov or sent by hand

delivery or courier to Alicia L. Lewis, MRAC Designated Federal Officer

and Special Counsel to Commissioner Rostin Behnam, Commodity Futures

Trading Commission, Three Lafayette Centre, 1155 21st Street NW,

Washington, DC 20581. Please use the title “Market Risk Advisory

Committee” for any nominations or topics you submit.


Federal Officer and Special Counsel to Commissioner Rostin Behnam at

(202) 418-5862 or email: alewis@cftc.gov.

SUPPLEMENTARY INFORMATION: The MRAC was established to conduct public

meetings and submit reports and recommendations to the Commission on

matters of public concern to clearinghouses, exchanges, swap execution

facilities, swap data repositories, intermediaries, market makers,

service providers, end-users (e.g., consumers) and the Commission

regarding (1) systemic issues that threaten the stability of the

derivatives markets and other related financial markets, and (2) the

impact and implications of the evolving market structure of the

derivatives markets and other related financial markets. The duties of

the MRAC are solely advisory and include advising the Commission with

respect to the effects that developments in the structure of the

derivatives markets have on the systemic issues that impact the

stability of the derivatives markets and other financial markets. The

MRAC also makes recommendations to the Commission on how to improve

market structure and mitigate risk to support the Commission’s mission

of ensuring the integrity of the derivatives markets and monitoring and

managing systemic risk. Determinations of actions to be taken and

policy to be expressed with respect to the reports or recommendations

of the MRAC are made solely by the Commission.

MRAC members generally serve as representatives and provide advice

reflecting the views of organizations and entities that constitute the

structure of the derivatives and financial markets. The MRAC may also

include regular government employees when doing so furthers purposes of

the MRAC. Historically, the MRAC has had approximately 30 members with

the following types of entities with interests in the derivatives

markets and systemic risk being represented: (i) Exchanges, (ii)

clearinghouses, (iii) swap execution facilities, (iv) swap data

repositories, (v) intermediaries, (vi) market makers, (vii) service

providers, (viii) end-users, (ix) academia, (x) public interest groups,

and (xi) regulators. The MRAC has held approximately 2-4 meetings per

year. MRAC members serve at the pleasure of the Commission. In

addition, MRAC members do not receive compensation or honoraria for

their services, and they are not reimbursed for travel and per diem


[[Page 11508]]

The Commission seeks members who represent organizations or groups

with an interest in the MRAC’s mission and function and reflect a wide

range of perspectives and interests related to the derivatives markets

and other financial markets. To advise the Commission effectively, MRAC

members must have a high-level of expertise and experience in the

derivatives and financial markets and the Commission’s regulation of

such markets, including from a historical perspective. To the extent

practicable, the Commission will strive to select members reflecting

wide ethnic, racial, gender, and age representation. MRAC members

should be open to participating in a public forum.

The Commission invites the submission of nominations for MRAC

membership. Each nomination submission should include relevant

information about the proposed member, such as the individual’s name,

title, and organizational affiliation as well as information that

supports the individual’s qualifications to serve on the MRAC. The

submission should also include suggestions for topics for discussion at

future MRAC meetings as well as the name and email or mailing address

of the person nominating the proposed member.

Submission of a nomination is not a guarantee of selection as a

member of the MRAC. As noted in the MRAC’s Membership Balance Plan, the

CFTC identifies members for the MRAC based on Commissioners’ and

Commission staff professional knowledge of the derivatives and other

financial markets, consultation with knowledgeable persons outside the

CFTC, and requests to be represented received from organizations. The

office of the Commissioner primarily responsible for the MRAC plays a

primary, but not exclusive, role in this process and makes

recommendations regarding membership to the Commission. The Commission,

by vote, authorizes members to serve on the MRAC.

In addition, the Commission invites submissions from the public

regarding the topics on which MRAC should focus. In other words, topics


(a) Reflect matters of public concern to clearinghouses, exchanges,

swap execution facilities, swap data repositories, intermediaries,

market makers, service providers, end-users and the Commission

regarding systemic issues that impact the stability of the derivatives

markets and other related financial markets; and/or

(b) Are important to otherwise assist the Commission in identifying

and understanding the impact and implications of the evolving market

structure of the derivatives markets and other related financial


Each topic submission should include the commenter’s name and email

or mailing address.

Authority: 5 U.S.C. App. II.

Dated: March 12, 2018.

Christopher J. Kirkpatrick,

Secretary of the Commission.

[FR Doc. 2018-05271 Filed 3-14-18; 8:45 am]


Last Updated: March 15, 2018


News Release

For Release: 

Wednesday, March 14, 2018

Contact(s): Ray Pellecchia (212) 858-4387, Mike Rote (202) 728-6912

Report from FINRA Board of Governors Meeting – March 2018


WASHINGTON — FINRA’s Board of Governors held its first meeting of 2018 on March 7-8 in New York, where it approved two new rule proposals and FINRA’s 2018 corporate goals, as well as reviewed the progress of the ongoing FINRA360 organizational improvement initiative introduced nearly one year ago.

The FINRA Board, which meets five times annually, also met with Brett Redfearn, Director of the Securities and Exchange Commission’s Division of Trading and Markets, to discuss perspectives on the oversight of broker-dealers and securities markets.

FINRA 2018 Corporate Goals

The Board approved FINRA’s 2018 corporate goals, which fall into the following categories:

Enhancing Investor Protection Through Coordinated, Risk-Based Oversight of Member Firms and Registered Representatives

  • Enhancing Market Integrity Through Effective Surveillance Programs
  • Remediating and Preventing Misconduct Through Timely, Predictable Enforcement
  • Enhancing Transparency for Investors and Other Market Participants
  • Providing Fair and Efficient Dispute Resolution Forums
  • Promoting Operational Excellence and Effective Relationships With FINRA Stakeholders
  • Fostering an Attractive, Diverse and Inclusive Workplace

“We continue to make great strides, but there is much more work to do, and this year’s goals reflect an ambitious agenda,” said FINRA CEO Robert W. Cook. “As always, enhancing investor protection and market integrity remain central priorities for FINRA in 2018. We will also focus on maintaining a strong enforcement program, continuing to take action through FINRA360, providing fair and efficient dispute resolution programs, and continuing to foster FINRA’s employee engagement and diversity and inclusion initiatives.”


The Board approved two rule proposals to be published by FINRA for comment or filed with the SEC:

Retrospective rule review: membership application rules – The Board approved publication of a Regulatory Notice soliciting comment on proposed amendments to the membership application rules following a retrospective review of the rules. The amendments would restructure and streamline the rules, strengthen investor protections with respect to changes of control, and codify current practices to reduce the application review period, among other changes.

Payments to arbitrators for deciding contested requests to issue subpoenas and orders – The Board approved filing with the SEC amendments that would provide uniform payments to arbitrators for deciding contested subpoenas and orders for production and appearance.


FINRA is dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.


Press Release

Theranos, CEO Holmes, and Former President Balwani Charged With Massive Fraud

Holmes Stripped of Control of Company for Defrauding Investors


Washington D.C., March 14, 2018 —


The Securities and Exchange Commission today charged Silicon Valley-based private company Theranos Inc., its founder and CEO Elizabeth Holmes, and its former President Ramesh “Sunny” Balwani with raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance.  Theranos and Holmes have agreed to resolve the charges against them.  Importantly, in addition to a penalty, Holmes has agreed to give up majority voting control over the company, as well as to a reduction of her equity which, combined with shares she previously returned, materially reduces her equity stake.

The complaints allege that Theranos, Holmes, and Balwani made numerous false and misleading statements in investor presentations, product demonstrations, and media articles by which they deceived investors into believing that its key product – a portable blood analyzer – could conduct comprehensive blood tests from finger drops of blood, revolutionizing the blood testing industry.  In truth, according to the SEC’s complaint, Theranos’ proprietary analyzer could complete only a small number of tests, and the company conducted the vast majority of patient tests on modified and industry-standard commercial analyzers manufactured by others.

The complaints further charge that Theranos, Holmes, and Balwani claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than $100 million in revenue in 2014.  In truth, Theranos’ technology was never deployed by the U.S. Department of Defense and generated a little more than $100,000 in revenue from operations in 2014.

“Investors are entitled to nothing less than complete truth and candor from companies and their executives,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.  “The charges against Theranos, Holmes, and Balwani make clear that there is no exemption from the anti-fraud provisions of the federal securities laws simply because a company is non-public, development-stage, or the subject of exuberant media attention.”

“As a result of Holmes’ alleged fraudulent conduct, she is being stripped of control of the company she founded, is returning millions of shares to Theranos, and is barred from serving as an officer or director of a public company for 10 years,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.  “This package of remedies exemplifies our efforts to impose tailored and meaningful sanctions that directly address the unlawful behavior charged and best remedies the harm done to shareholders.”

“The Theranos story is an important lesson for Silicon Valley,” said Jina Choi, Director of the SEC’s San Francisco Regional Office.  “Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.”

Theranos and Holmes have agreed to settle the fraud charges levied against them.  Holmes agreed to pay a $500,000 penalty, be barred from serving as an officer or director of a public company for 10 years, return the remaining 18.9 million shares that she obtained during the fraud, and relinquish her voting control of Theranos by converting her super-majority Theranos Class B Common shares to Class A Common shares.  Due to the company’s liquidation preference, if Theranos is acquired or is otherwise liquidated, Holmes would not profit from her ownership until – assuming redemption of certain warrants – over $750 million is returned to defrauded investors and other preferred shareholders.  The settlements with Theranos and Holmes are subject to court approval.  Theranos and Holmes neither admitted nor denied the allegations in the SEC’s complaint.  The SEC will litigate its claims against Balwani in federal district court in the Northern District of California.

The SEC’s investigation was conducted by Jessica Chan, Rahul Kolhatkar, and Michael Foley and supervised by Monique Winkler and Erin Schneider in the San Francisco Regional Office.  The SEC’s litigation will be led by Jason Habermeyer and Marc Katz of the San Francisco office.



Press Release

SEC Proposes Targeted Changes to Public Liquidity Risk Management Disclosure


Washington D.C., March 14, 2018 —


The Securities and Exchange Commission today proposed amendments to public liquidity-related disclosure requirements for certain open-end investment management companies.  Under the proposal, funds would discuss in their annual report the operation and effectiveness of their liquidity risk management program, replacing a pending requirement that funds publicly provide the aggregate liquidity classification profile of their portfolios on Form N-PORT on a quarterly basis.

The Commission adopted the open-end fund liquidity rule in October 2016 in an effort to promote effective liquidity risk management programs in the fund industry.  Management of liquidity risk is important to funds’ ability to meet their statutory obligation — and their investors’ expectations — regarding redeemability of their shares.  Since adoption, staff has engaged in extensive outreach to identify potential issues associated with the effective implementation of the rule.

This outreach resulted in a series of actions taken by the Commission.  In addition to today’s proposal, the Commission previously adopted a rule that extends by six months the compliance date for the classification and classification-related elements of Rule 22e-4 and related reporting requirements.  In conjunction with this extension, the staff issued new guidance intended to assist funds in complying with the liquidity rule’s classification requirements.  Together with today’s proposal, these actions are aimed at providing investors with accessible and useful information about liquidity risk management of the funds they hold while providing sufficient time for funds to implement the requirement to classify their holdings in an efficient and effective manner.

“Today’s proposed rule is another step toward completing the implementation of the 2016 final rule in a manner that protects investors while minimizing unnecessary costs on funds,” said Chairman Jay Clayton.  “I look forward to ongoing engagement with investors, funds, and other market participants as we continue enhancing our ability to be effective overseers of the U.S. mutual fund industry.”



Remarks of Commissioner Rostin Behnam before the Commodity Futures Trading Commission’s International Regulators Meeting, Boca Raton, Florida

March 13, 2018



Thank you for the kind introduction. It is a pleasure to be with you today. Before I begin, just a quick housekeeping note that the views contained in this speech are my own and do not represent the views of the Commission. Before I dive into the main topic of my remarks this afternoon, I want to spend some time sharing some key points from my first six months at the CFTC, and my vision for the next six months and beyond.

I delivered my first public remarks as a Commissioner in November at Georgetown University. I announced that during my first year as a Commissioner, I would spend as much time as possible on a listening tour, visiting market participants and stakeholders in order to get a better sense of what’s working and what’s not working. Given the broad swath of CFTC stakeholders, this listening tour has taken me to New York (several times), New Jersey, California, Iowa, Illinois, and Kansas. And I look forward to many more visits in the next six months so that I can fully digest and analyze the full spectrum of issues, concerns, and comments.

At the same speech delivered at Georgetown, I asserted that the CFTC is at an inflection point. Nearly ten years to the day since Bear Stearns collapsed, and nearly eight years since the passage of Dodd-Frank, the CFTC has largely completed its congressionally mandated, post-crisis financial reforms. Ahead of many of its domestic and international counterparts, I suggested in the speech that the CFTC must continue to move forward, swiftly finalizing any incomplete rules, and only consider narrow, surgical tweaks to existing rules as a measure to correct unintended consequences.

Given the sometimes aggressive rhetoric in Washington these days to roll-back regulations, I argued that the CFTC must continue to demonstrate its leadership by not rolling back or watering down any key financial reforms. With that in mind, I will continue to extend my desire and willingness to work with Chairman Giancarlo as he considers Project Kiss and Swaps Reform 2.0 in the weeks and months ahead. I will also continue to focus on what I believe are cornerstones of good regulatory behavior: accountability and transparency. Working with all stakeholders, both domestically and internationally, I am confident that the CFTC can be a forward thinking 21st century regulator that maintains strong, robust rules of the road for market participants, while protecting the public from fraud and manipulation.

Turning to the next few months, I will be squarely focused on the Market Risk Advisory Committee (MRAC). As sponsor of this advisory committee, I am currently laying the groundwork for renewing the committee’s charter, reconstituting its membership, and setting an agenda for 2018. Having already met once this year, regarding a very hot topic: bitcoin, I believe the MRAC, as it is more commonly known, is ripe for many more important, cutting edge discussions. I believe it’s time for the CFTC to follow the lead of our fellow regulators in the prudential space and focus on operational risk—the risk that remains after determining financing and systemic risk, and includes risks resulting from breakdowns in internal procedures, personnel, and systems. It includes fintech risks such as service disruptions, data compromise, and cybersecurity. It also includes risks from outsourcing and use of third-party products and vendors. And, it includes fraud and other personnel misconduct. Of course, the MRAC will continue to focus on central counterparties (CCPs), expanding its focus from default risks to cover related credit and liquidity risks. There are certainly many important issues to discuss within this space considering above all else, that the CFTC and its markets deal in risk; and I look forward to input from all interested stakeholders, including regulators, to better inform the MRAC’s roadmap ahead.

Deference is the Cornerstone of the CFTC’s Cross-Border Supervision

Deference: The CFTC’s Cross-Border Approach

The CFTC has a long history of regulatory deference to overseas regulators in the futures and swaps markets. What do we mean by deference? Deference is an essential regulatory tool that not only alleviates practical budgetary constraints; but, also respects the strength of deserving foreign counterparts, and encourages the fundamentals of working together towards a cohesive cross-border regulatory framework that supports strong, robust, and transparent regulations. If a home country authority implements a comprehensive regulatory and supervisory framework that is comparable to our regulations and laws, then that home country authority should maintain primary oversight over its domestic entities to which other foreign regulators should defer. A solid, outcomes-based comparability assessment of the consistency of the home regulator’s relevant regulations and supervisory programs is the foundation of such deference.1 An example of this approach is the Part 30 exemption regime for foreign futures which the CFTC established in 1987.2 This program permits non-U.S. intermediaries to trade directly with U.S. persons that wish to transact in foreign futures on the basis of compliance with the regulations of their home jurisdictions. Part 30 was a pioneering program that used comparability determinations in order to facilitate cross border harmonization. Today firms all over the world, including Asia, the U.K., and the European Union (EU) have access to U.S. customers without having to register with the CFTC through the use of this program.

Another example of our approach is the 2016 CFTC and European Commission equivalence determination. On February 10, 2016, the CFTC and the European Commission issued a joint statement agreeing to support a common approach to regulation and supervision of cross-border CCPs.3 This agreement was not an afterthought. It took three years of extensive negotiations to put in place. Shortly thereafter, as part of our agreement, on March 15, 2016, the European Commission announced it would treat U.S.-registered clearinghouses as equivalent for purposes of recognition under the European Market Infrastructure Regulation (EMIR).4 Currently, there are five U.S.-registered derivatives clearing organizations (DCOs) that have received recognition under EMIR.5 Immediately after the European Commission’s decision, on March 16, 2016, the Commission reciprocated and approved a substituted compliance framework for EU-based clearinghouses registered with the CFTC.6 Under the framework, EU-based CCPs may comply with certain CFTC requirements for financial resources, risk management, settlement procedures, and default rules and procedures by complying with corresponding requirements under EMIR.7 Four European-based DCOs currently enjoy the benefit of the CFTC’s substituted compliance determination.8

European Commission Proposal to Amend EMIR

Our 2016 agreement is a successful testament to the cross-border regulation of CCPs. Our global markets are more efficient because of this agreement; there are less regulatory and supervisory burdens for our clearinghouses and less market fragmentation. However, last year, in the wake of Brexit, the European Commission proposed legislation to amend EMIR which would create a new European Framework to regulate and supervise CCPs.9 The proposal would expand the regulatory and supervisory authority of the European Securities and Markets Authority (ESMA) over both EU and third-country CCPs, alter the framework for the recognition of third-country CCPs, and provide the European Central Bank (ECB) and other EU central banks with direct oversight authority over both EU and third-country CCPs. It would, in effect, make EU authorities primary supervisors of third-country CCPs.

The proposal sets forth a new two-tier system for classifying and regulating third-country CCPs that operate in the EU. Under this proposal, all currently recognized CCPs will need to be reassessed as either “Tier 1” or “Tier 2” CCPs by ESMA. Tier 1 CCPs would be considered “non-systemically important,” and would continue to be able to operate under any existing recognition determination. Tier 2 CCPs would be considered “systemically important,” and would be subject to additional EU regulatory and supervisory requirements. Third-country CCPs in Tier 2 would be allowed to meet the additional EU requirements by following their home country rules to the degree that their home country regime is determined to be consistent with EMIR. If the home country rules of the third-country CCP are not consistent, then the CCP would be required to adopt and implement the EU requirements. Tier 2 CCPs would also be subject to the oversight of the ECB, which may require Tier 2 CCPs to adhere to additional requirements with respect to liquidity, segregation, and collateral.

The potential results are that the two U.S. CCPs that have been designated as systemically important by the U.S. Financial Stability Oversight Council (FSOC), CME and ICE Clear Credit, could be deemed Tier 2 CCPs and would be subject to additional regulatory and supervisory burdens beyond the equivalence conditions in the CFTC and European Commission equivalence determination. Moreover, if a Tier 2 CCP is deemed to be substantially systemically important to the EU by ESMA, such that even full compliance with EU requirements would not sufficiently reduce risks, ESMA may deny recognition and ask the European Commission to impose a location requirement for either the whole CCP or certain clearing services (i.e., only IRS products). LCH.Clearnet Ltd., which is based in London and regulated by the Bank of England and the CFTC, could be forced to relocate some or all of its euro-denominated clearing contracts to the EU under the proposal.

Our European colleagues suggest that the European Commission’s proposed legislation is a mirror copy of the CFTC regime.10 That is simply not the case. The proposed legislation contemplates a regime in the EU that would differ fundamentally in application and in substance from that of the CFTC. For instance, consider the cross-border application of the CFTC’s requirements to third-country CCPs and the cross-border application of EMIR to such CCPs. For third-country CCPs, the CFTC requirements apply to the U.S. side of the business only. In contrast, EMIR would apply to a third-country CCP’s entire business.

With respect to the designation of “systemically important,” I note that such a designation in the U.S. by the FSOC has been limited to U.S.-domiciled CCPs. Under the proposal, ESMA could designate a third-country CCP as systemically important; thereby, increasing the third-country CCP’s regulatory and supervisory burdens. The proposal also authorizes ESMA to conduct onsite inspections of a third-country CCP and provides ESMA with the discretion to invite the relevant third-country regulator of the CCP to participate. In contrast, while the CFTC reserves the right to examine CFTC-registered CCPs based outside of the United States, to date, the CFTC has not conducted onsite examinations of a non-U.S. based DCO on the continental EU. Moreover, the CFTC would not conduct an inspection or examination without the participation of the third-country regulator. For example, when the CFTC recently examined LCH.Clearnet Ltd., we did so in conjunction with the Bank of England, its primary regulator.

Concerns over how the European Commission’s Legislative Proposal would impact U.S. Clearinghouses

The European Commission’s proposed legislation would be detrimental to recognized U.S. CCPs. The proposal would likely subject recognized U.S. CCPs to overlapping regulation and duplicative supervision without due deference to existing CFTC regulation and supervision of those U.S. CCPs— due deference that was agreed upon in the 2016 CFTC and European Commission equivalence agreement. Moreover, this proposal would apply EMIR to all aspects of a third-country CCP’s business. This would be quite problematic for U.S. CCPs as there are aspects of EMIR that are inconsistent with the CFTC’s regulatory framework. For instance, under the CFTC’s regulatory framework for swaps, customer collateral provided for swaps is required to be segregated from a futures commission merchant’s own property pursuant to the legally segregated and operationally commingled segregation model (known as “LSOC”). This is in contrast to EMIR which requires that individual segregation be offered to clients for swaps. Recognized U.S. CCPs would not be able to offer individual segregation to their U.S. clients because individual segregation is inconsistent with the U.S. Bankruptcy Code. Consequently, this nuanced difference in regulation has direct and detrimental effects, among other things, on a recognized U.S. CCP’s ability to comply with U.S. law.

Moreover, I have serious concerns that a Tier 2 designation could result in the reopening and reconsideration of the 2016 CFTC and European Commission equivalence agreement and create uncertainty regarding the ability of EU market participants to continue to access third-country CCPs. As I previously mentioned, this agreement was the result of three years of negotiations. In the two years since the equivalence agreement, there have been no material changes to the CFTC’s regulatory or supervisory regime, and our recognized U.S. CCPs have not materially increased their EU-based activities. Therefore, reopening the agreement is unnecessary and can lead to a significant disruption of U.S. CCPs doing business in the EU and financial markets more generally.

Further, the proposal sets no limits on the ECB’s supervision of third-country CCPs. Under the CFTC’s regulatory and supervisory framework, the role of the Federal Reserve Board, the U.S. central bank, is limited to consultation with the CFTC regarding examinations and material rule filings of systemically-important U.S. CCPs. The Federal Reserve Board does not set policy or impose any additional requirements on CCPs. Moreover, the Federal Reserve Board has no role in the oversight of non-U.S. based CCPs registered with the CFTC. Therefore, this proposal is highly disconcerting.

If the proposed legislation becomes law, it is likely that the costs to clear through recognized U.S. CCPs will increase for all market participants. Such increases have the potential to de-incentivize central clearing and could lead to downstream effects such as fractured liquidity and increased systemic risk, which would affect the stability of the financial markets.

I echo Chairman Giancarlo’s sentiment that any change to our existing 2016 agreement is unacceptable.11 My position is that U.S. CCPs must continue to be primarily regulated by U.S. regulators. CFTC regulation and supervision of its CCPs is strong, transparent, and exhaustive. As a result, there is no reasonable basis for the EU to have concurrent oversight over U.S. CCPs.

Looking Forward: What is the Fix?

The European Commission should abide by its commitment to the 2016 equivalence agreement, and provide the CFTC assurances in the legislation that recognized U.S. CCPs will be treated in accordance with the 2016 equivalence determination. This position is fully supported by key members of the U.S. Congress12 and by the U.S. Administration.


I have heard repeatedly that a sovereign nation has the right to amend its rules and the right to renegotiate agreements. I agree, however, our CCPs will not be collateral damage in the ongoing Brexit battle between the U.K. and the EU. No matter what happens in that battle, U.S. markets will be open for business, will continue to thrive, and will provide the efficiencies of resiliency that market participants deserve.

Thank you for the opportunity to speak to you today.

1 See also IOSCO Task Force on Cross-Border Regulation, Final Report (Sep. 2015) (advocating for an outcomes-based approach).

2 17 CFR Part 30.

3 The U.S. Commodity Futures Trading Commission and the European Commission: Common Approach for Transatlantic CCPs (Feb. 10, 2016), available athttp://www.cftc.gov/PressRoom/PressReleases/cftc_euapproach021016.

4 Commission Implementing Decision No. 2016/377 of 15 March 2016, 2016 O.J. (L70), 32 (EU); see also European Commission adopts equivalence decision for CCPs in USA (Mar. 15, 2016), available athttp://europa.eu/rapid/press-release_IP-16-807_en.htm.

5 CME Inc., ICE Clear Credit LLC, ICE Clear U.S. Inc., Minneapolis Grain Exchange Inc., and Nodal Clear LLC have received recognition under EMIR which permits them to provide clearing services for European market participants.

6 Comparability Determination for the European Union; Dually-Registered Derivatives Clearing Organizations and Central Counterparties, 81 Fed. Reg. 15260, Mar. 22, 2016; see also CFTC Approves Substituted Compliance Framework in Follow-up to the Recent Equivalence Agreement between the US and the EU (Mar. 16, 2016), available athttp://www.cftc.gov/PressRoom/PressReleases/pr7342-16.

7 Under the CFTC’s substituted compliance framework for dually-registered DCOs and EU CCPs, the CFTC issued no action relief from certain CFTC requirements that are “not comparable” with EMIR requirements and thus, are not applied to EU-based DCOs in order to facilitate cross-border regulatory coordination with the EU. The relief covers CFTC requirements related to: the agency clearing model, LSOC (Part 22), gross margining for initial margin, collection of initial margin at a level that is greater 100% of the DCO’s initial margin requirement, prohibition against setting a minimum capital requirement of more than $50 million, straight-through-processing of swaps, clearing members maintenance of written risk management policies and procedures, submission of quarterly financial reports to CFTC, and the submission of annual audited year-end financial statements in accordance with U.S. GAAP. See CFTC Letter No. 16-26 (Mar. 16, 2016).

8 These DCOs are Eurex Clearing AG, ICE Clear Europe Ltd., LCH.Clearnet Ltd., and LCH.Clearnet SA.

9 Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority) and amending Regulation (EU) No 648/2012 as regards the procedures and authorities involved for the authorization of CCPs and requirements for the recognition of third-country CCPs, COM (2017) 331 final (June 13, 2017); see also Commission proposes more robust supervision of central counterparties (CCPs) (June 13, 2017), available at http://europa.eu/rapid/press-release_IP-17-1568_en.htm.

10 EU policy makers have also made such statements to the press. See Neil Roland and John Rega, CFTC’s Giancarlo to voice concerns about EU bill in Europe visit, MLex, Feb. 16, 2018; Jim Brunsden and Philip Stafford, What is London’s Euro Clearing Market and Why is Brussels Worried?, Fin. Times, June 13, 2017.

11 Testimony of Chairman J. Christopher Giancarlo before the U.S. Senate Comm. on Agric., Nutrition, and Forestry, Feb. 15, 2018, available athttp://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo38.

12 Letter from Senators Pat Roberts and Debbie Stabenow, Chairman and Ranking Member, Comm. on Agric., Nutrition and Forestry, U.S. Senate (Jan. 8, 2018), available at https://www.agriculture.senate.gov/imo/media/doc/01-08-18%20CFTC%20EUROPEAN%20CLEARING%20LETTER.pdf.

Last Updated: March 14, 2018



Keynote Address of Chairman J. Christopher Giancarlo before FIA Annual Meeting, Boca Raton, Florida

March 14, 2018


Thank you. Good morning. Thank you, Walt. It is great to be here at FIA’s 43rdInternational Futures Industry Conference. It is certainly the one annual event that brings together all participants in the global derivatives markets.

So I am delighted to have this opportunity to speak to all of you about our work at the CFTC. Thank you for your attendance.

There is a comment attributed to Isaac Newton. He said that, if he saw farther than others, it was because he stood on the shoulders of giants.

Today, I can’t help but think of one of the giants of the derivatives industry: Leo Melamed. We all see farther because of Leo. Many of you know Leo. Some of his colleagues and friends are here today. We have all, directly or indirectly, been influenced by him.

Leo is the Chairman Emeritus of the CME Group and one of the central figures in American commerce and trade. He has just announced his retirement. In the world of derivatives, he has been a leader who shaped and guided our thinking. In electronic commerce, he actually took us into a new world. He is often called the “father of financial futures.”

Leo Melamed’s vision, brilliance, and accomplishment have spread out from Chicago to include the entire world, a world that began for him with harsh clarity through escaping with his family from Nazi-invaded Poland. Then, the stuff of legend: crossing wartime Siberia by railroad and then by boat to Japan, crossing the Pacific by ship only months before Pearl Harbor. He and his family eventually found safety in America. From there, he stumbled into the world of finance by mistake, yet by pluck and hard work, he thrived and conceived great innovations in trade and commerce. He founded and chaired the NFA from 1982 through 1989, and provided direction and guidance of the Chicago Merc as it grew into one of the great institutions of American finance.

Leo has been a grand figure striding the world’s financial landscape. A consummate professional, a creative visionary. And, what I admire most: a fearless believer in the promise of tomorrow.

Leo dared to define his own future, not have it defined for him. When he started out in Chicago seventy years ago, he found markets that were small, commodity based, and domestic. He leaves markets that are enormous, diversified and international.

And, we are here today – standing on Leo’s shoulders – participating in global derivatives markets that are legacy of a man who was not afraid to envision a brighter and more prosperous future. I dedicate my remarks today to Leo Melamed.

A year ago, I addressed you from this stage. I explained my vision for the CFTC, which is to help foster economic growth, right size the CFTC’s regulatory footprint and enhance our markets. This is a vision much in line with Leo’s legacy.

So, let me review what we’ve done since then and what’s ahead.

Fostering economic growth:

At the CFTC, we have taken several steps to align our work with efforts towards revival of the American economy.

Project Kiss: On February 24, 2017, President Trump issued an Executive Order on “Enforcing the Regulatory Reform Agenda.” Although the CFTC, as an independent agency, is not strictly bound by the Executive Order, I believe that the time has come to re-examine the implementation of our regulations. We established a process to work with the public to identify areas where regulations could be simpler, more coherent, and more understandable. We developed an initiative called “Project KISS,” gathering input both within the agency and from the public. Now, Project KISS is not about changing policy. It’s designed to simplify and make our rules and regulations less complex, less costly, less burdensome.

Complex rules are great for the big players in our markets, who can afford the lawyers necessary to interpret them. But simpler rules make our markets more accessible to small and medium-size firms, which, as we know, are the engines of economic growth and job creation.

A month ago, my Chief of Staff, Mike Gill, outlined the current Project KISS program. Look for a series of “Kissable” rule improvements over the course of the year to come.

Market Intelligence: The great Wayne Gretzky once explained that the secret to his success was that he skated to where the puck was going, not to where it had been. In the CFTC’s work overseeing the world’s most dynamic markets, we must also anticipate the development and direction of markets and “skate” to where they are going.

That is why we have created a new market intelligence branch. Its function is to understand, analyze and communicate current and emerging derivatives market dynamics, developments and trends – such as the impact of new technologies and trading methodologies. We also created a Chief Market Intelligence Officer, who engages with industry participants, other regulators, and the new Market Intelligence branch. Together, they are a key part of the CFTC’s goal of being a 21st Century regulator.

LabCFTC: We also developed another initiative to keep pace with technological innovation: LabCFTC. It is the focal point of our effort to engage with innovators, facilitate market-enhancing technology and fair competition and manage the interface between technological innovation, regulatory modernization and existing rules and regulations.

In less than a year of operation, LabCFTC has met with over 150 FinTech innovators, from startups to large institutions and from lower Manhattan, to Chicago to Silicon Valley. It has observed demonstrations of many new technologies with the potential to improve our markets and enable the Commission to carry out its mission more effectively and efficiently.

Going forward, LabCFTC seeks ways to collaborate with external organizations, including domestic and international regulators, focused on sharing information and best practices in FinTech innovation. A recent example is the collaboration agreement that UK Financial Conduct Authority CEO Andrew Bailey and I signed last month in London to share information on FinTech innovation.

Right-sizing the CFTC’s regulatory footprint

Back To Basics: We are committed to right-sizing the CFTC’s regulatory footprint following years of expansive Dodd-Frank rule writing. This means resumption of normalized operations and practices, including greater care and precision in rule drafting, more thorough econometric analysis, less contracted time frames for public comment and a reduced docket of new rules and regulations to be absorbed by market participants.

Internally, we are rebuilding agency morale and esprit d’corps. We remain optimistic of appropriate agency funding after three years of flat budgets. We also recently achieved a two-year collective bargaining agreement with our union. We have filled key positions with capable leaders, including the General Counsel, Director of Enforcement and heads of the Division of Market Oversight (DMO), Division of Swap Dealer & Intermediary Oversight (DSIO), and Division of Clearing and Risk (DCR). Today, we are an agency that takes seriously our mission of quality and effective public service.

Cooperation works both ways. We have enhanced our relationships with other federal agencies, including the SEC, Federal Reserve, and FDIC, and with state agencies. We have new, operational metrics: partnership, harmonization, information sharing, sound budgeting, good customer service, pro-active and forward-looking thinking, technological proficiency and problem-solving.

Enhancing US derivatives markets

Enforcement: A year ago, I stood at this podium and issued a warning to those who may seek to cheat or manipulate America’s derivatives markets. I said, “There will be no pause, no let up and no reduction in our duty to enforce the law and punish wrongdoing in our derivatives markets. The American people are counting on us.”

In the year that has passed, the CFTC Division of Enforcement has made good on my warning. As the Wall Street Journal recently reported, the Division of Enforcement has filed almost as many fraud and manipulation cases in the past five months as it has in any prior fiscal year.

In January alone, the CFTC worked with the Department of Justice and FBI in bringing criminal charges against six individuals and several large market participants involved in commodities fraud and spoofing schemes. That action was the largest futures market criminal enforcement action in American history.

I am committed to punishing bad actors in the marketplace. That commitment is not only that of a regulator, but as a former marketplace operator, who knows that market integrity is essential to fostering robust trading and responsible risk taking.

A visible example of that commitment has been in the area of virtual currencies. Over the past several months, the CFTC filed a series of civil enforcement actions against perpetrators of fraud, market manipulation and disruptive trading involving virtual currency. One case involved a possible Ponzi scheme that fraudulently solicited algorithmic trading in virtual currency, made false reports and misappropriated funds. Another concerned potential commodity fraud and misappropriation. A third charged the defendants with fraud in connection with purchases and trading of Bitcoin and Litecoin. You get the picture.

Customer Education: Market growth and surveillance are also assisted, even stimulated, through consumer education.  The CFTC’s Office of Consumer Education and Outreach engages with a range of audiences such as retail investors, industry professionals, seniors, and vulnerable populations who may be targeted by unscrupulous individuals with the intent to defraud them of their savings. We plan to expand this engagement in the year to come.

Okay. Those are some of the things we have been doing. Let me now tell you what is ahead:

Dealer De Minimis: This year we will complete rules on de minimis levels for swap dealer registration. Staff of the CFTC’s Division of Swap Dealer and Intermediary Oversight have now presented my fellow Commissioners and me with current swap dealing data and analysis and are now addressing follow up questions. I am hopeful that the data will enable the Commission to reach a consensus on an appropriate de minimis level. I know my fellow Commissioners share my determination to complete the rule this year.

Supplemental Leverage Ratio: We remain focused on working with other US financial sector regulators to address elements of the Supplemental Leverage Ratio that inhibit greater central clearing of derivatives, a key mandate of the Dodd-Frank Act. The October 2017 Department of Treasury report on capital markets1 thoughtfully addressed these concerns. Specifically, the current SLR definition of total exposure is not reflective of a clearing member’s true exposure to swaps. We will work hard with other financial and prudential regulators to form a consensus around appropriate adjustments to the SLR.

SEF Rules: I have written and spoken about the fragmentation of global swaps markets caused by the CFTC’s flawed implementation of the swaps execution mandate under Dodd-Frank.2 I have asked DMO staff to reconsider the current swaps trading rules to fully accord with Congressional intent, better align to inherent market dynamics, fully allow US swap intermediaries to fairly compete in world markets and begin to reverse the tide of global market fragmentation. I intend to put before the Commission a rule proposal for notice and comment in the next few months.

Position Limits: I am committed to moving forward with a final position limits rule.  It is an enormously important undertaking that will impact America’s farmers, ranchers, and manufacturers and their ability to hedge legitimate production costs. There are hundreds of comment letters on the topic and there are opinions on all sides of the issue, including by American agriculture producers.  Based on public comments, it is clear that the Commission has not yet gotten it right.

DMO staff have begun work on revisions to the proposal that are responsive to the public comments. I have told them to ensure that American farmers, ranchers and producers can continue to use long standing hedging practices in our markets. I look forward to sitting down with the Division in the near future to discuss their progress.

Any final position limits rulemaking should be done properly by a full Commission of five commissioners. It will ensure that any final position limits rule is indeed final and stands the test of time and changes in future administrations.

Regulation AT: Regulation AT was an initiative of my predecessor, Chairman Massad. My position was and continues to be that, while there were some good things in the proposal, there were other things that were unacceptable and perhaps unconstitutional, including that proprietary source code used in trading algorithms be accessible at any time to the CFTC and the Justice Department without a subpoena.

At heart, Reg AT is a registration scheme that would put hundreds if not thousands of automated traders under CFTC oversight, a role for which our agency has inadequate resources. While I share genuine concerns about the inevitability of some future market disruption exacerbated by automated trading algorithms, there is nothing in Reg AT’s proposed imposition of burdensome fees and registration requirements on scores of trading firms that will prevent such an event.

When I voted against the current proposal, I said that the relatively blunt act of registering automated traders does not begin to address the complex public policy considerations that arise from the digital revolution in modern markets. We should and must do better.

I am open to considering whether there are elements in Reg AT that could serve as the basis for a new and truly effective rule. I believe my fellow Commissioners have some good ideas. Our new Market Intelligence Branch and Office of Chief Economist will provide critical market analysis of the role of algorithmic trading. In February, the UK FCA and the Prudential Regulatory Authority published papers outlining their respective regulatory governance and compliance expectations in respect of algorithmic trading. There is a growing body of data and analysis for us to draw upon. Yet, the goal must be an effective rule, not just any rule.

Cross Border

I began earlier by describing the global nature of today’s markets. Regulators must work cooperatively across borders to promote growth and innovation while supporting the financial stability of global markets.

And true to our word, we at the CFTC have spent considerable time and resources to forge strong relations and seek cross border coordination with regulators all over the world. I personally have sought to meet with as many of my foreign regulatory counterparts as possible. I have been an active participant in international bodies like the FSB and IOSCO. At the same time, CFTC staff are leading international working groups and task forces to build consensus and common ground with foreign authorities on a wide range of topics including international data standards, cybersecurity, crypto-assets and FinTech, information-sharing and derivatives reforms.

Illustrative of these efforts are two significant equivalence milestones we reached with the European Commission in the past six months: comparability and equivalence of margin for uncleared swaps and an equivalence and exemption framework for swaps trading platforms. These tangible successes represent the CFTC’s willingness to work in good faith with the EU to avoid disruption to the trans-Atlantic market and my belief that regulatory and supervisory deference must be the basis for CFTC-EU engagement.

I fully expect that the CFTC’s relationship with the European Union will grow stronger in time. I believe that our cooperation on key regulatory issues is vital to spurring economic growth in both of our jurisdictions. Especially in the face of uncertainty over the United Kingdom’s future relationship with the rest of the European Union, embracing deference and cooperation between Europe and the United States is the only sensible path forward. I call on my friends in Europe to join me in this effort.


So, this is our agenda going forward both domestically and internationally. I look forward to reporting on our progress to you again next year.

I want to close with a reference to a film I saw recently: The Darkest Hour. It is the story about Winston Churchill and the lead up to his great 1940 speech expressing defiance and determination in the face of defeat.

What a remarkable individual. His vision, determination, and courage made him equal to the moment, defiance in the face of threatening danger. He would neither flag nor fail. Never give in or give up.

I call on us to do the same.

Our country and, particularly, our capital markets, have always attracted the fearless, the intrepid, the dauntless. That is because the very purpose of our markets is to defy fear, to hedge exposure, mitigate loss and control risk.

Let us endeavor to fearlessly build our markets, just like Leo Melamed, who came to this country, explored every advantage, and gave back more than he took.

Let us do the same. I turn to each and every one of you here: be fearless, be creative, be smart, be bold – with confidence, build the markets of tomorrow.

Thank you.



Statement of CFTC Commissioner Brian Quintenz on a Proposal by Cameron and Tyler Winklevoss for a Virtual Commodity SRO

March 13, 2018


I congratulate Cameron and Tyler Winklevoss on their energetic leadership and thoughtful approach in outlining a virtual commodity self-regulatory organization (SRO) concept.

Ultimately, a virtual commodity SRO that has the most independence from its membership, the most diversity of views, and the strongest ability to discover, reveal, and punish wrongdoing will add the most integrity to these markets. I encourage Gemini (or any other market participant, advocacy group, platform, or firm) to be aggressive in promoting these qualities within any SRO construct.

Last Updated: March 13, 2018



Statement by Secretary Mnuchin on the President’s Decision Regarding Broadcom’s Takeover Attempt of Qualcomm

MARCH 12, 2018


Washington – As chair of the Committee on Foreign Investment in the United States (CFIUS), U.S. Treasury Secretary Steven T. Mnuchin today issued the following statement about the President’s decision regarding Broadcom Limited’s (Broadcom) attempted hostile takeover of Qualcomm Incorporated (Qualcomm):

“Consistent with the Administration’s commitment to take all actions necessary to protect the national security of the United States, the President issued an order that prohibits the takeover of Qualcomm by Broadcom and orders certain other steps to effectuate such prohibition.

“The President took this action pursuant to section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment and National Security Act of 2007 (Section 721). Section 721 authorizes the President to suspend or prohibit certain acquisitions of U.S. businesses by foreign persons where he finds that there is credible evidence that the foreign interest exercising control might take action that threatens to impair national security, and where provisions of law other than Section 721 and the International Emergency Economic Powers Act do not provide adequate and appropriate authority to protect national security in the matter under review.

“This decision is based on the facts and national security sensitivities related to this particular transaction only and is not intended to make any other statement about Broadcom or its employees, including its thousands of hard working and highly skilled U.S. employees. The CFIUS process focuses exclusively on identifying and addressing national security concerns. This focused mandate reinforces our commitment to welcoming foreign investment, while at the same time reinforcing our commitment to protecting national security.”

A copy of the President’s order may be found here.

CFIUS is chaired by the Secretary of the Treasury and includes as members the Secretaries of State, Defense, Commerce, Energy, and Homeland Security, the Attorney General, the Director of the White House Office of Science and Technology Policy, and the U.S. Trade Representative. The Director of National Intelligence and the Secretary of Labor participate as non-voting, ex-officio members. CFIUS involves other agencies of the Executive Branch in its deliberations on a case-by-case basis.



News Release

For Release: 

Friday, February 16, 2018


Angelita Plemmer Williams (202) 728-8988
Ray Pellecchia (212) 858-4387

FINRA Warns Investors of ‘Regulator’ Imposter Scams

Con Artists Posing as FINRA CEO ‘Guarantee’ Fraudulent Investments

WASHINGTON — The Financial Industry Regulatory Authority (FINRA) today issued an Investor Alert warning investors to beware of financial scams in which con artists are posing as regulators to make fraudulent investment pitches.

Recently, financial fraudsters used FINRA’s name and logo in correspondence – including a fake signature from FINRA President and Chief Executive Officer Robert W. Cook – to create the false impression that FINRA provided guarantees related to an investment opportunity that was, in fact, an advance-fee scam. The Investor Alert contains an infographic of an actual fraudulent letter that highlights tactics used by scammers to build credibility.

“Financial fraudsters go to great lengths to appear legitimate, making it difficult for investors to recognize their ruses,” said Gerri Walsh, FINRA’s Senior Vice President for Investor Education. “That’s why we are telling investors flat out that FINRA does not guarantee investments, and our officers play no role in facilitating investment opportunities. We want people to know that and to understand how they can verify who the real FINRA is.”

A common advance-fee scam involves enticing investors into sending money to cover administrative or regulatory charges associated with a buyback of shares of stock that are currently virtually worthless or underperforming. Once investors send the money, they never see it again, nor any of the money promised from the stock buyback. Sometimes, the con artist will ask for additional money or simply disappear.

Recently, FINRA received a call from an investor targeted in such a scheme. The con artist mailed the investor an official-looking letter, purportedly from FINRA’s CEO, touting a guarantee. The letter contained numerous telltale signs of fraud, including the use of quasi-legal language throughout the document, repeated use of “guarantee,” and the incorrect name of FINRA and incorrect FINRA leadership titles.

In a separate fraud, e-mail pitches that purported to originate from FINRA’s CEO portrayed FINRA as a “recognized financial manager of the IMF,” notifying potential victims that “approval has been granted for the release and payment of your outstanding inheritance fund.”

The scheme further required the victim to fly to another country – outside of the jurisdiction of any U.S. regulator or law enforcement officer – to claim the “inheritance.” In these imposter emails, the victim is asked to provide personal information, including a copy of their passport, which is a common tactic used in phishing scams.

In order to avoid losing money in advance-fee, phishing or other types of scams, FINRA advises investors to hang up on the caller or delete the e-mails.

“If you’re unsure whether an investment solicitation is legitimate, do your own independent search for the official number for the government agency, office or employee and call to confirm its authenticity,” Walsh added. “Cons lie, and they will lie about their affiliations to convince you to send them money or to collect your personal information.”

If you are suspicious about an offer or if you think the claims might be exaggerated or misleading, contact us. FINRA offers a Scam Meter tool to help investors assess whether an opportunity is too good to be true. FINRA also has a Risk Meter, which determines if an investor shares characteristics and behavior traits that have been shown to make some individuals particularly vulnerable to investment fraud.

Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA’s BrokerCheck or by calling (800) 289-9999. Investors can also call FINRA’s Securities Helpline for Seniors at (844) 57-HELPS for assistance with concerns or questions about their brokerage accounts and investments.


FINRA is dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.


Financial Data for FCMs


Futures commission merchants (FCMs) and retail foreign exchange dealers (RFEDs) must file monthly financial reports with the CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) within 17 business days after the end of the month. Selected financial information from these reports is published below. The most recent month-end information generally is added within 12 business days after FCMs and RFEDs file their reports, but occasionally may be added later. For example:  The 17th business day filing “due date” for February 28, 2015 financial reports was March 25, 2015.  The 12 business day target for posting these data was April 10, 2015.

Once posted, the CFTC does not revise this information to reflect any amended financial information subsequently received.

You can subscribe to email alerts that provide notice when the Financial Data for FCMs webpage is updated.

Description of Report Data Fields

January 31, 2018 PDF Excel


December 31, 2017 PDF Excel
November 30, 2017 PDF Excel
October 31, 2017 PDF Excel
September 30, 2017 PDF Excel
August 31, 2017 PDF Excel
July 31, 2017 PDF Excel
June 30, 2017 PDF Excel
May 31, 2017 PDF Excel
April 30, 2017 PDF Excel
March 31, 2017 PDF Excel
February 28, 2017 PDF Excel
January 31, 2017 PDF Excel

Historical FCM Reports

Download Adobe Reader or Microsoft Excel Reader.

Please contact DSIO with any questions about the posting of FCM financial data..


Commitments of Traders

Commitments of Traders (COT) Reports Descriptions


Introduction and Classification Methodology

The Commodity Futures Trading Commission (Commission or CFTC) publishes the Commitments of Traders (COT) reports to help the public understand market dynamics. Specifically, the COT reports provide a breakdown of each Tuesday’s open interest for futures and options on futures markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC.

The COT reports are based on position data supplied by reporting firms (FCMs, clearing members, foreign brokers and exchanges). While the position data is supplied by reporting firms, the actual trader category or classification is based on the predominant business purpose self-reported by traders on the CFTC Form 401 and is subject to review by CFTC staff for reasonableness.2 CFTC staff does not know specific reasons for traders’ positions and hence this information does not factor in determining trader classifications. In practice this means, for example, that the position data for a trader classified in the “producer/merchant/processor/user” category for a particular commodity will include all of its positions in that commodity, regardless of whether the position is for hedging or speculation. Note that traders are able to report business purpose by commodity and, therefore, can have different classifications in the COT reports for different commodities. For one of the reports, Traders in Financial Futures, traders are classified in the same category for all commodities.

Due to legal restraints (CEA Section 8 data and confidential business practices), the CFTC does not publish information on how individual traders are classified in the COT reports.

Generally, the data in the COT reports is from Tuesday and released Friday. The CFTC receives the data from the reporting firms on Wednesday morning and then corrects and verifies the data for release by Friday afternoon.

Types of Reports

There are four main reports:

  1. Legacy
  2. Supplemental
  3. Disaggregated
  4. Traders in Financial Futures

The Legacy reports are broken down by exchange. These reports have a futures only report and a combined futures and options report. Legacy reports break down the reportable open interest positions into two classifications: non-commercial and commercial traders.

The Supplemental report includes 13 select agricultural commodity contracts for combined futures and options positions. Supplemental reports break down the reportable open interest positions into three trader classifications: non-commercial, commercial, and index traders.

The Disaggregated reports are broken down by agriculture, petroleum and products, natural gas and products, electricity and metals and other physical contracts. These reports have a futures only report and a combined futures and options report. The Disaggregated reports break down the reportable open interest positions into four classifications:

  1. Producer/Merchant/Processor/User
  2. Swap Dealers
  3. Managed Money
  4. Other Reportables

Please see the “Disaggregated Explanatory Notes” for further information.

The Traders in Financial Futures (TFF) report includes financial contracts, such as currencies, US Treasury securities, Eurodollars, stocks, VIX and Bloomberg commodity index.3 These reports have a futures only report and a combined futures and options report. The TFF report breaks down the reportable open interest positions into four classifications:

  1. Dealer/Intermediary
  2. Asset Manager/Institutional
  3. Leveraged Funds
  4. Other Reportables

Please see the “Traders in Financial Futures Explanatory Notes” for further information.

Short and Long Format of Reports

The Legacy and Disaggregated reports are available in both a short and long format. The TFF report is only available in the long format. The Supplemental report is only available in the short format.

The short format shows reportable open interest and week-to-week open interest changes separately by reportable and non-reportable positions. For reportable positions, additional data is provided for commercial and non-commercial holdings, spreading (in certain categories only), changes from the previous report, percent of open interest by category, and numbers of traders.

The long report, in addition to the information in the short report, groups the data by crop year, where appropriate, and shows the concentration of positions held by the largest four and eight traders.

Release Schedule

Please see the official Release Schedule for a calendar of release dates.

History of Disaggregated COT data – October 20, 2009

CFTC will make available more than three years of history of disaggregated data included in the weekly Commitments of Traders (COT) reports.  History for the 22 commodity futures markets currently contained in the weekly disaggregated COT reports, first published on September 4, 2009, will be available starting Tuesday, October 20, 2009.

Machine-readable files will be located on the CFTC website, with data dating back to June 13, 2006.  One type is a zipped, comma-delimited text file Historical Compressed; while the other type is a zipped Excel file. Historical CompressedIn addition, the 3-year history will be available in a “viewable” file on the CFTC website, by commodity group, and, within group, by commodity.  Historical Viewables These viewable files will only be available in the “long format.”

Please note: CFTC does not maintain a history of large trader classifications.  Therefore, current classifications are used to classify the historical positions of each reportable trader (this approach is commonly referred to as “backcasting;” see the D-COT Explanatory Notes at, Disaggregated Explanatory Notes.)

Special Announcement

No announcements at this time.

Reports Dated March 6, 2018 – Current Disaggregated Reports:

Disaggregated Futures Only Disaggregated Futures-and-Options -Combined
Agriculture Long Format Short Format Long Format Short Format
Petroleum and Products Long Format Short Format Long Format Short Format
Natural Gas and Products Long Format Short Format Long Format Short Format
Electricity Long Format Short Format Long Format Short Format
Metals and Other Long Format Short Format Long Format Short Format

Disaggregated Futures-Only Commitments of Traders Comma Delimited

Disaggregated Futures and Options Commitments of Traders Comma Delimited

Disaggregated Explanatory Notes

Current Traders in Financial Futures Reports:

Traders in Financial Futures; Futures Only Traders in Financial Futures; Futures-and-Options -Combined
Financial Long Format Long Format

Traders in Financial Futures; Futures-Only Commitments of Traders Comma Delimited

Traders in Financial Futures; Futures and Options Commitments of Traders Comma Delimited

Traders in Financial Futures; Explanatory Notes

Current Legacy Reports:

Futures Only Futures-and-Options-Combined
Chicago Board of Trade Long Format Short Format Long Format Short Format
Chicago Mercantile Exchange Long Format Short Format Long Format Short Format
Chicago Board Options Exchange Long Format Short Format Long Format Short Format
Chicago Climate Futures Exchange Long Format Short Format Long Format Short Format
Kansas City Board of Trade Long Format Short Format Long Format Short Format
Minneapolis Grain Exchange Long Format Short Format Long Format Short Format
Commodity Exchange Incorporated Long Format Short Format Long Format Short Format
ICE Futures U.S. Long Format Short Format Long Format Short Format
ICE Futures Europe Long Format Short Format Long Format Short Format
ICE – Futures Energy Long Format Short Format Long Format Short Format
New York Mercantile Exchange Long Format Short Format Long Format Short Format
NYSE Liffe Long Format Short Format Long Format Short Format
New York Portfolio Clearing Long Format Short Format Long Format Short Format
NODAL Exchange Long Format Short Format Long Format Short Format
Dubai Mercantile Exchange Long Format Short Format Long Format Short Format
NASDAQ Futures Long Format Short Format Long Format Short Format
Supplemental Commodity Index CIT Report

Other Available Formats

These text-only files contain the most recent Futures-only and Futures-and-Options-Combined long form data in a comma delimited format for easy loading into a spreadsheet.

Futures-Only Commitments of Traders Comma Delimited

Options and Futures Commitments of Traders Comma Delimited

Supplement: Commodity Index Report Comma Delimited

Variable Names for Long COT Legacy Reports

Variable Names for Long Commodity Index Trader Supplemental Report

Variable Names for Disaggregated COT Reports

Variable Names for Traders in Financial Futures Reports

Supplemental Report

In a December 5, 2006 press release, the CFTC announced that, in addition to the existing weekly Commitments of Traders reports, a supplemental report would be published beginning January 5, 2007.

The Commission’s actions in response to its comprehensive review of the Commitments of Traders Reporting program are summarized in Comprehensive Review of the Commitments of Traders Reporting Program published December 5, 2006. An Executive Summary of the December 5, 2006 report is also available.

Send comments to marketreports@cftc.gov.

1 If a Form 40 is not available for a trader, that trader is classified as Non-Commercial in the Legacy Report and as Other Reportable for the DCOT and TFF reports

2 Commission staff reviews the reasonableness of a trader’s classification for many of the largest traders in the markets based upon Form 40 disclosures and other information available to the Commission. This may involve some exercise of judgement on the part of Commission staff.

3 As noted above, contracts are included that have 20 or more traders that hold positions equal to or above the reporting levels established by the CFTC.



RELEASE: pr7704-18

March 9, 2018

CFTC Approves the Transfer of Open Interest in Credit Default Swaps from CME to ICC


Washington, DC — At the request of Chicago Mercantile Exchange Inc. (CME) and ICE Clear Credit LLC (ICC), the Commodity Futures Trading Commission (CFTC) issued an order today approving the transfer of all open interest in credit default swaps (CDS) at CME to ICC.

On December 15, 2017, CME and ICC each submitted letters requesting that that CFTC permit the transfer of CDS open interest. CME and ICC plan to conduct the transfer on March 16, 2018 by closing out positions at CME and establishing corresponding positions at ICC.

See the Order under Related Links.

Last Updated: March 9, 2018


EVENT: Other Event Mar 14, 2018

CFTC Commissioner Quintenz to Provide Introductory Keynote at FIA Boca 2018


WHAT: Commissioner Brian Quintenz will provide an introductory keynote at the FIA Boca 2018 International Futures Industry 43rd Annual Conference.
WHEN: Wednesday, March 14, 2018
2:30 p.m.
WHERE: Boca Raton Resort and Club
501 East Camino Real
Boca Raton, FL 33432

Last Updated: March 9, 2018



Keynote Address by Commissioner Brian Quintenz before the DC Blockchain Summit

March 7, 2018



Good afternoon and thank you for that very kind introduction. As an alumnus, I’m always happy to be back at the McDonough School of Business. It’s great to be with you here at the DC Blockchain Summit. I want to congratulate Perianne and the Chamber of Digital Commerce on hosting such a fascinating event with such robust participation by the DLT and cryptocurrency community. What you have accomplished in advocacy and connectivity in such a short period is incredible.

Before I begin, let me quickly say that the views contained in this speech are my own and do not represent the views of the Commission.

I want to start with a story about my childhood. I have a fraternal twin brother. Growing up, we were pretty competitive – academically, socially, and athletically. One of the sports we both played was tennis. As some of you know, amateur tennis at the juniors, high school, and college level is kind of a unique sport in terms of its rule enforcement. The players themselves act as the referees. But if you think about the landscape of competitive tennis, as the seriousness of the sport and the consequences of winning increase, and the players become professionals, umpires ultimately are called in to officiate the game. The incentives become too skewed for a player to make the right call in a tight situation. I believe we are at that same point with regard to cryptocurrency exchanges where millions, if not billions, of dollars’ worth of products are transferred on a daily basis. Some level of independent officiating is now required.

Before we get in to that, however, let’s take a step back and talk about how we, the Commodity Futures Trading Commission (CFTC) – the traditional regulator of frozen concentrated orange juice and pork belly futures – got involved in cryptocurrencies.

Since Satoshi Nakamoto first published his groundbreaking paper on cryptography and a cryptocurrency called bitcoin almost decade ago,1 we have witnessed exponential growth in the technology underlying bitcoin – distributed ledger technology (DLT) – and its dizzying array of potential applications. We have also seen the proliferation of thousands of new cryptocurrencies2 – such as litecoin, ether, ripple, zcash, monero, to name a few – as well as tokens, such as utility tokens, like Filecoin, that can be used to rent cloud storage space.3 The transaction platform landscape is advancing rapidly as well. People can now purchase bitcoin from multiple locations in and around the District of Columbia, including a falafel shop in Adams Morgan, a beer and wine market in Columbia Heights, and a laundromat in Falls Church.4

Although it sometimes feels like it, the markets for these cryptocurrencies and digital assets did not develop overnight. And neither did the CFTC’s thinking around these products and markets.

The Beginning

Congress, through the Commodity Exchange Act (CEA), granted the CFTC exclusive jurisdiction over futures, options, and swaps on commodities.5 In turn, the CEA defines the term “commodity” very broadly to include, among other things, all goods and articles and “all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in.”6

In December 2014, then Chairman Timothy Massad first declared through Congressional testimony that the Commission viewed virtual currencies as commodities. The former Chairman explained that although the Commission did not have policies and procedures specific to virtual currencies like bitcoin, the Commission’s “authority extends to futures and swaps contracts in any commodity” and therefore “derivative contracts based on a virtual currency represent one area” within the Commission’s responsibility.7

Nine months later, in September 2015, this interpretation was formalized through a CFTC enforcement action. The CFTC filed and settled a complaint against a bitcoin trading platform called Derivabit, which was owned and operated by a company called Coinflip. The Derivabit trading platform offered to connect buyers and sellers of bitcoin options contracts. In the order, the Commission asserted jurisdiction over Derivabit’s activities by determining that “bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities.”8 Based upon this finding, the CFTC found that Derivabit had illegally offered commodity options without being registered as an exchange or swap execution facility with the Commission.9

The Coinflip case was the first time the CFTC asserted jurisdiction over contracts involving bitcoin by recognizing that bitcoin was a commodity. That jurisdiction, though, is limited when it comes to the actual trading of bitcoin itself.

It is important to recognize that, in the derivatives markets, the CFTC has both oversight and enforcement authority, while in the spot markets, or the platforms where commodities themselves are actually bought and sold, the CFTC has onlyenforcement authority.

In terms of oversight authority over derivatives trading, the CFTC’s role is broad and far reaching, including setting requirements for: registration of trading platforms or firms, trade execution, orderly trading, data reporting, and recordkeeping.

But in the spot markets for commodities, neither the CFTC nor any other federal agency has that same oversight authority. This means the agency cannot impose things like registration requirements on platforms or participants in the cash markets, surveillance and monitoring requirements on spot platforms, or otherwise require compliance with business conduct standards or other trading requirements. The CFTC only has enforcement authority to police fraud and manipulation in the actual trading of commodities. Pursuant to this enforcement jurisdiction, the CFTC can investigate potential fraud and manipulation in the underlying virtual currency spot markets.

One area where the Commission has taken enforcement action on spot exchanges involves “look-alike futures contracts” offered to retail customers. In the Dodd-Frank Act, Congress added a provision to the CEA known as the retail commodity provision, which states that if an entity offers a commodity for sale to a retail customer on a margined, leveraged, or financed basis – in other words, with borrowed funds – then the agreement is regulated as if it were a futures transaction.10 Regulated like futures, these contracts then become subject to CFTC requirements related to exchange trading and registration.11 However, there is an important exception to the Commission’s retail commodity jurisdiction for cases where the commodity is actually delivered to the buyer within 28 days.

Within a year of the Coinflip case, the CFTC filed and settled a case against a Hong Kong-based company called Bitfinex.12 Bitfinex held itself out as a spot exchange where retail customers could buy and sell bitcoin and other virtual currencies. However, the exchange permitted retail customers to purchase bitcoin on a leveraged, margined or financed basis, thereby transforming what might have been vanilla spot transactions into look-alike futures contracts within the Commission’s jurisdiction.

In the case of Bitfinex, the Commission found that Bitfinex failed to actually deliver the bitcoin to the buyers because Bitfinex held the bitcoin in its own private wallet and retained control of all the “private keys” that permitted access to the wallet.13 Accordingly, the Commission found that these financed retail commodity transactions did not meet the exception for actual delivery and should have been executed on a registered exchange like any other futures contract. In addition, the Commission determined that Bitfinex should have been registered as a futures commission merchant.

While I agree with the outcome of the Bitfinex case, it is an example of the Commission making policy through enforcement. Prior to Bitfinex, the CFTC had never before addressed what “actual delivery” means in the context of virtual currencies – although the agency had issued guidance in 2011 about what actual delivery means in the context of physical commodities, like wheat or oil. Therefore, before the Bitfinex case, there may have been some confusion about what constitutes actual delivery for cryptocurrencies. As a general matter, I think the optimal approach to the regulation of incipient, but growing, markets is for the regulator to provide the market with some guidance or even a bright line test that gives some indication of the agency’s interpretation of its regulations and how it might adjudicate certain situations. That is why, although I believe the Bitfinex case was settled correctly, I was pleased to see the Commission issue proposed guidance about the meaning of actual delivery in the context of virtual currency transactions.14

The proposed interpretation builds upon past Commission guidance and focuses on whether the customer can take possession and control of the commodity and use the commodity freely in commerce 28 days after purchase.15 I am looking forward to reviewing public comments and believe they will greatly benefit the development of a clear standard for when financed virtual currencies are considered actually delivered to retail customers.

A New Chapter

We entered a new chapter in cryptocurrencies this past December when both CME Group and Cboe listed futures contracts on bitcoin. Let me take a minute to address some concerns I have heard regarding cryptocurrency futures generally.

For those who may be concerned by the speed at which new cryptocurrency futures contracts may be listed, it is not the case that a token or cryptocurrency can be created today and have a futures contract tomorrow. One of the core principles in the CEA to which an exchange must adhere in listing futures contracts is to ensure the financial integrity of its transactions, including the clearance and settlement of the transactions with a clearinghouse. One measure of a futures contract’s financial integrity is the contract’s initial margin level. In order to gain comfort that a contract’s initial margin level is set commensurate with the volatility of the underlying asset, the Commission generally likes to see a historic time series of price data on that asset covering either a full economic cycle or including periods of significant stress. In terms of bitcoin futures, the Commission had five years’ worth of price data, with multiple periods of stress, with which to back test initial margin sufficiency. I would expect to see similar time periods of price data for any new cryptocurrency futures contract proposals.

From a risk perspective, it is important to note that the Commission is concerned with one or two day price volatility, not weekly or monthly volatility, and certainly not percentage moves across quarters or years. This is because variation margin payments are exchanged at the end of every trading day, which resets any positive or negative economic exposure back to zero. Losses, therefore, cannot accumulate over time. Both CME and Cboe set initial margin requirements for the bitcoin futures contracts that take into account their potential one-day volatility. CME’s initial margin is currently set at 47 percent of the notional value of the contract, while Cboe’s initial margin requirement is 44 percent. As a point of comparison, these margin requirements are roughly ten times more than the initial margin required for CME corn futures products.

The amount that a futures contract’s daily price change eats into the initial margin posted by traders is called margin erosion. Staff monitors contracts’ margin erosion on a daily basis to ensure the required initial margin levels remain adequate. Over the past two months, we have seen only one example of bitcoin’s price movements eroding the contract’s initial margin by up to 50%. In contrast, during that same time period, on eleven separate occasions, volatility in the WTI crude oil contract eroded initial margin levels by more than 50%, sometimes upwards of 70%. Similarly, during that time period, there were five instances of price movements in CME’s 10-year Treasury futures contract eroding initial margin by more than 50%. As a general matter, based on CFTC regulations, two to three initial margin breaches per year would be reasonable. Therefore, to date, the initial margin for bitcoin futures contracts has performed as required. While it is important to monitor and regularly re-evaluate the performance of the bitcoin futures contracts, I believe that the Commission and clearinghouses have the tools and expertise to make any necessary adjustments.

Looking Ahead

In the midst of this technological revolution, which promises to transform the building blocks not just of our financial markets, but of commerce in general, I am honored to sponsor the Commission’s Technology Advisory Committee (TAC). The TAC will serve as an immeasurable well of knowledge from which the Commission may draw. We had our first meeting of 2018 three weeks ago, where the TAC recommended that the Commission create four subcommittees to provide actionable advice regarding cryptocurrencies, DLT, cybersecurity, and the modern trading environment. That last subcommittee will explore the real risks of the modern trading environment so that a properly calibrated replacement to Regulation Automatized Trading (Reg AT) can be considered by the Commission. We are still in the process of forming these subcommittees and I look forward to their first meetings.

During the TAC meeting, I also expressed my willingness to explore how a new, private independent organization could perform an oversight function for U.S. cryptocurrency platforms. For example, we see this model working today through the National Futures Association (NFA) and the Financial Industry Regulatory Authority (FINRA). Currently, a patchwork of state and federal regulators have jurisdiction over the cryptocurrency industry. In my opinion, the area with the greatest need for enhanced regulatory certainty and oversight is the spot market. Today, state regulators and the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) regulate cryptocurrency platforms as money service businesses.16 While cryptocurrency exchanges can resemble traditional money transmission services, there are enough differences to warrant different regulatory treatment. As Congress works with federal and state regulators to determine the appropriate regulatory framework for cryptocurrencies, I believe an SRO-like entity could develop industry standards that could inform, or even serve as a blueprint for, future action.

Indeed, we are already seeing a movement toward self-regulation in the cryptocurrency sector. A cryptocurrency trade association called “CryptoUK” was recently established in the United Kingdom.17 The organization has established a code of conduct for its members which includes guidelines around due diligence checks, customer protections, and pricing transparency. Similarly, the heads of two cryptocurrency trade groups in Japan, together with the country’s 16 spot exchanges, have committed to establishing a new self-regulating body.18 In the United States, efforts toward standardization are also underway at the state level. Seven states have agreed to recognize each other’s money service business licenses19 and a model state virtual currency law has been published.20

I think an independent, self-regulating body for spot platforms in the United States could significantly contribute to these ongoing efforts to rationalize and formalize cryptocurrency regulation. Initially, this entity could establish best practices for spot platforms, including setting minimum standards of fitness for their employees. Eventually, it could enforce rules on its own membership, supervise them for compliance, and provide a forum for customers to seek redress against member platforms, just like FINRA and NFA do for the securities and derivatives markets today. An SRO-like, independent regulatory body could create uniform standards for these trading platforms, reduce the possibility of regulatory arbitrage, and avoid duplicative regulation.21

A private cryptocurrency oversight body has several advantages. First, as a private membership organization, it could begin providing oversight over spot platforms far more quickly than any federal regulatory regime, which could only be established following the promulgation of a new law, given the current lack of oversight jurisdiction. A case in point is the regulation of the off-exchange retail foreign exchange (“retail forex”) industry. The NFA began regulating this sector seven years before the CFTC.22

SRO-like entities also provide numerous efficiencies. They are funded by their members, not by the federal government. They can adopt and amend rules more quickly than a federal agency. The rules and best practices published by an SRO are informed by practical experience because the organization has input from industry participants. This is especially beneficial in the case of a rapidly evolving industry, like cryptocurrency, where products and trading conventions are constantly changing.

Additionally, past SROs have not limited their functions to enforcing fair trading practices. In the 1890s, the Butter and Cheese Exchange of New York (the predecessor to the New York Mercantile Exchange (NYMEX)) implemented groundbreaking methods of standardizing butter, cheese, and eggs. NYMEX graded and inspected butter before the U.S. Department of Agriculture.23 There is certainly a broad role for a private cryptocurrency oversight body to play in developing these markets.

I would also point out that there is a long history of SROs in the U.S. futures industry, dating back to the mid-nineteenth century, decades prior to the adoption of federal regulation.24 The Chicago Board of Trade (CBOT) began enforcing rules on its members in 1859.25 In 1897, when CBOT member Joe Leiter, the “Wheat King,” attempted to corner the December wheat market, the CBOT suspended Leiter from the exchange.26 In contrast, state anti-corner statutes were ineffective during this era, and, despite the introduction of 200 futures regulation bills in Congress between 1880 and 1920, no federal legislation was passed until 1921 – over twenty years after the CBOT suspended the Wheat King from the market.27

Moreover, Congress has repeatedly called for self-regulation in conjunction with federal oversight of financial markets. When the CFTC was first created in 1974, its authorizing statute

included provisions for a “registered futures association” or RFA to be supervised by the CFTC.28 The NFA became the first RFA in 1981 and still serves this function today. FINRA traces its history to the Maloney Act of 1938, which created the National Association of Securities Dealers to promote oversight of the over-the-counter securities market. The Municipal Services Rulemaking Board has served as the SRO for firms operating in the municipal securities markets since the Securities Acts Amendments of 1975.

Any SRO-like body should have policies and procedures to address potential conflicts of interest between itself and the industry it regulates. It should strive to have a fair representation of diverse views among its members and leadership. But, such entities need not develop standards for independence and fairness from scratch. The International Organization of Securities Commissioners (IOSCO) has developed internationally recognized Principles for Self-Regulation.29 According to this benchmark, an SRO should establish standards of corporate governance to effectively manage any conflicts of interest. IOSCO calls upon SROs to observe standards of fairness and confidentiality when exercising powers and responsibilities, and to avoid rules that may create anti-competitive situations or allow any market participant to unfairly gain advantage in the market.30 The SRO should also have the ability to enforce compliance by its members with its standards and should develop rules that promote investor protection and market integrity.31 Compliance with IOSCO’s robust set of protocols would lend credibility to any SRO-like body for cryptocurrency spot platforms.

Ultimately IOSCO’s framework calls for the SRO to be subject to the oversight of a government regulator, who can assume responsibility should the SRO exhibit conflicts of interest or prove unable to discharge its responsibilities.32 To-date, Congress has not authorized the creation of an SRO to serve in this capacity in the cryptocurrency markets. Notwithstanding this fact, I believe that while Congress considers what, if any, further federal action in this area is appropriate, an SRO-like entity could begin to develop ideas and standards that would strengthen the integrity of the spot markets. We regularly hear from cryptocurrency market participants that they desire a more credible, regulated marketplace. I believe that a private, cryptocurrency oversight body could help bridge the gap between the status quo and future government regulation.


While my tennis matches with my brother never rose to the level that necessitated an official referee (although that might have led to less brotherly squabbling), I think we’ve come to the point with cryptocurrencies where an independent body must step up, establish, and enforce the rules of play. It is my hope that cryptocurrency platforms in the United States will consider the many benefits, including enhanced credibility, that the establishment of an SRO-like organization may provide.  Moreover, in light of the global market for cryptocurrencies, and the efforts currently underway in the United Kingdom and Japan, there is no reason why a private, cryptocurrency oversight body could not achieve global significance.  I look forward to working together with you and other industry participants to find ways to strengthen the integrity of these growing markets.  Thank you.

1 Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System (Oct. 2008), https://bitcoin.org/bitcoin.pdf.

2 Cryptocurrency Market Capitalizations, CoinMarketCap, https://coinmarketcap.com/all/views/all/.

3 Josiah Wilmoth, Three Types of ICO Tokens, Strategic Coin, http://strategiccoin.com/3-types-ico-tokens/.

4 Bitcoin ATM Map, https://coinatmradar.com/bitcoin-atm-near-me/.

5 CEA Section 2(a)(1)(A).

6 CEA Section 1a(9).

7 The Commodity Futures Trading Commission: Effective Enforcement and the Future of Derivatives Regulation Before the S. Comm. on Agric., Nutrition, and Forestry, 111th Cong. 55 (2014) (statement of Timothy Massad, Chairman of the Commodity Futures Trading Commission).

8 In re Coinflip, Inc., CFTC Docket No. 15-29, at 3 (Sept. 17, 2015), http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfcoinfliprorder09172015.pdf.

9 Id. at 4. Most recently, Judge Weinstein of the U.S. District Court for the Eastern District of New York affirmed the Commission’s conclusion that virtual currencies were commodities subject to the Commission’s jurisdiction in a Preliminary Injunction Order.

10 CEA Section 2(c)(2)(D).

11 Id.

12 In re BFXNA Inc., CFTC Docket No. 16-19 (June 2, 2016), http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfbfxnaorder060216.pdf.

13 Id. at 3, 6.

14 Retail Commodity Transactions Involving Virtual Currency, 82 Fed. Reg. 60335 (Dec. 20, 2017), http://www.cftc.gov/idc/groups/public/@lrfederalregister/documents/file/2017-27421a.pdf.

15 82 Fed. Reg. at 60339.

16 See, e.g. FinCEN Guidance: Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies (Mar. 18, 2013), https://www.fincen.gov/resources/statutes-regulations/guidance/application-fincens-regulations-persons-administering; “Virtual Currency” licenses issued by the State of Washington Dept. of Financial Services and the “BitLicenses” issued by the New York State Dept. of Financial Services, https://dfi.wa.gov/bitcoin; http://www.dfs.ny.gov/legal/regulations/bitlicense_reg_framework.htm.

17 Hannah Murphy, UK Crypto Companies Link Up for Self-Regulation, Financial Times (Feb. 13, 2018),

18 Takahiko Wada, Japan’s Cryptocurrency Exchanges to Form New Self-Regulating Body, Reuters (Feb. 20, 2018), https://www.reuters.com/article/us-crypto-currencies-japan/japans-cryptocurrency-exchanges-to-form-new-self-regulating-body-sources-idUSKCN1G4156.

19 U.S. States Join Forces on Fintech Licenses, Reuters (Feb. 6, 2018), https://www.reuters.com/article/us-fintech-regulations/u-s-states-join-forces-on-fintech-licenses-idUSKBN1FQ2CK. The seven states are Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas and Washington.

20 National Conference of Commissioners on Uniform State Laws, Uniform Regulation of Virtual Currency Business Act (2017), http://www.uniformlaws.org/Act.aspx?title=Regulation%20of%20Virtual-Currency%20Businesses%20Act.

21 The SEC considered these themes in a 2005 assessment of SROs. SeeConcept Release Concerning Self-Regulation (Release No. 34-50700; File No. S7-40-04) (Mar. 8, 2005), https://www.sec.gov/rules/concept/34-50700.htm.

22 See discussion of NFA’s “Forex Dealer” membership category in Testimony of Daniel J. Roth, President and CEO, NFA, Before the Subcommittee of General Farm Commodities and Risk Management of the U.S. House of Representatives Committee on Agriculture (June 19, 2003), https://www.nfa.futures.org/news/newsTestimony.asp?ArticleID=1115.

The CFTC adopted rules for retail foreign exchange dealers in 2010. See Regulation of Off-Exchange Retail Foreign Exchange Transactions and Intermediaries, 75 Fed. Reg. 55410 (Sept. 10, 2010).

23 Jane Kagan Vitiello, Trading Through Time, The History of the NYMEX 1872-1997 36-46 (Milan, Italy: Amilcare Pizzi, S.p.A, 1997).

24 The first comprehensive federal regulation of the futures industry was the Futures Trading Act, enacted in 1921. The Futures Trading Act was replaced by the Grain Futures Act of 1922, which was then replaced by the Commodity Exchange Act in 1936.

25 Jerry W. Markham, The History of Commodity Futures Trading and its Regulation 4 (New York: Praeger Publishers, 1987); Jonathan Lurie, The Chicago Board of Trade, 1859-1905, The Dynamics of Self-Regulation 27-28 (Urbana, Ill.: Univ. of Illinois Press, 1979).

26 Markham, at 5-6.

27 Markham, at 6 and 10.

28 Title III of the Commodity Futures Trading Commission Act of 1974 (currently sec. 17 of the Commodity Exchange Act).

29 Objectives and Principles of Securities Regulation, International Organization of Securities Commissions 5 (May 2017), https://www.iosco.org/library/pubdocs/pdf/IOSCOPD561.pdf.

30 Methodology for Assessing Implementation of the IOSCO Objectives and Principles of Securities Regulation, International Organization of Securities Commissions 55-61 (May 2017), https://www.iosco.org/library/pubdocs/pdf/IOSCOPD562.pdf.

31 Id.

32 Id.

Last Updated: March 8, 2018


Press Release

NYSE to Pay $14 Million Penalty for Multiple Violations



Washington D.C., March 6, 2018 —

The Securities and Exchange Commission today announced that it charged the New York Stock Exchange and two affiliated exchanges with regulatory failures in connection with multiple episodes, including several disruptive market events.  The charges arose from five separate investigations and include the first-ever charged violation of Regulation SCI.  The Commission adopted Reg SCI to strengthen the technology infrastructure and integrity of the U.S. securities markets, and today charged two NYSE exchanges with violating Reg SCI’s business continuity and disaster recovery requirement.  In settlement, the exchanges agreed to pay a $14 million penalty.

According to the SEC’s order, the violations include erroneously implementing a market-wide regulatory halt, negligently misrepresenting stock prices as “automated” despite extensive system issues ahead of a total shutdown of two of the exchanges, and applying price collars during unusual market volatility on Aug. 24, 2015, without a rule in effect to permit them – a move that resulted in order imbalances being resolved more slowly.

“Exchanges play an important role in protecting investors,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement.  “For retail investors to have confidence in our markets, exchanges must provide accurate information and comply with legal requirements, including being equipped for unexpected market disruptions.”

The SEC’s order also finds, among other things, that the NYSE exchanges broke rules regarding business continuity and disaster recovery in violation of Regulation SCI and also violated Regulation NMS.  NYSE, NYSE Arca, and NYSE American neither admitted nor denied the findings in the SEC’s order, which includes more specific details about the charges.

“Two NYSE exchanges previously settled rule-filing violations in 2014, and now we’ve found further problems,” said Steven Peikin, Co-Director of the SEC’s Division of Enforcement.  “NYSE’s violation of the prior SEC order was a significant factor in assessing the civil penalties in this matter.”

The SEC’s investigations were conducted by the Market Abuse Unit and New York Regional Office, including Charu A. Chandrasekhar, Susan Cooke Anderson, Nicholas Chung, Alice Liu Jensen, Ainsley Kerr, Mandy Sturmfelz, Steven D. Buchholz, Michele T. Perillo, Diana K. Tani, Kristin M. Pauley, and Sheldon L. Pollock.  The cases were supervised by Robert A. Cohen and Sanjay Wadhwa.


RELEASE: pr7703-18

March 7, 2018

AgCon2018 Agenda Announced Today


Washington, DC — AgCon2018, the upcoming joint conference of the Commodity Futures Trading Commission (CFTC) and the Center for Risk Management Education and Research (CRMER) at Kansas State University (KSU), will explore a range of current questions and topics facing the agricultural futures markets.

The agenda for “Protecting America’s Agricultural Markets: An Agricultural Commodity Futures Conference,” on April 5 – 6, 2018, in Overland Park, Kansas, can be viewed at AgCon2018. It includes robust presentations and discussions from leading academic researchers, as well as distinguished voices from the private and governmental sectors.

Attendees will hear from Dr. John Floros, Dean of KSU’s College of Agriculture and Director of Research and Extension, CFTC Chairman J. Christopher Giancarlo and Commissioners Brian Quintenz and Rostin Behnam, sponsor of CFTC’s Agricultural Advisory Committee. Kansas U.S. Senators Pat Roberts (Chairman of the Senate Agricultural Committee) and Jerry Moran have been invited to speak at the event as well.

“I am looking forward to getting back to this region to listen and contribute to important discussions about current macro-economic trends and issues affecting American agricultural futures markets and the importance of these markets for managing risk and protecting participants from manipulation, fraud, and other unlawful activities,” said CFTC Chairman Giancarlo.

This is a first-of-its-kind conference that CFTC and CRMER at KSU will host jointly.

See complete agenda and registration information at AgCon2018.

Last Updated: March 7, 2018


RELEASE: pr7702-18

March 6, 2018

Federal Court in New York Enters Preliminary Injunction Order against Patrick K. McDonnell and His Company CabbageTech, Corp. d/b/a Coin Drop Markets in Connection with Fraudulent Virtual Currency Scheme


Washington – The Commodity Futures Trading Commission (CFTC) today announced that the Honorable Jack B. Weinstein of the U.S. District Court for the Eastern District of New York entered a Preliminary Injunction Order against Defendants Patrick K. McDonnell and CabbageTech, Corp. d/b/a Coin Drop Markets (CDM).  The Court’s decision stems from the CFTC’s January 18, 2018 Complaint charging Defendants with fraud and misappropriation in connection with purchases and trading of the virtual currencies Bitcoin and Litecoin (see CFTC Press Release & Complaint 7675-18).

Following a hearing on March 6, 2018, Judge Weinstein found that the CFTC had shown a reasonable likelihood that Defendants will continue to violate the Commodity Exchange Act (CEA). The Court’s Order prohibits the Defendants from engaging in fraud in violation the CEA, requires Defendants to preserve books and records, and requires Defendants to provide expedited discovery.

In its continuing litigation, the CFTC seeks, among other relief, a permanent injunction against future violations of federal commodities laws, restitution to defrauded customers, disgorgement of benefits from violations of the Commodity Exchange Act and CFTC Regulations, civil monetary penalties, and trading bans, as charged.

This case is brought in connection with the CFTC Division of Enforcement Virtual Currency Task Force.  The staff members responsible for this case are Christopher Giglio, Alejandra de Urioste, Gates S. Hurand, David Oakland, K. Brent Tomer, Lenel Hickson, Jr., and Manal M. Sultan.

* * * * * *

CFTC’s Fraud Advisories

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud. These include, for example, The Customer Advisory: Risks of Virtual Currency Trading, which describes the risks of trading virtual currencies and warns customers about a number of virtual currency exchange scams. Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.

Media Contact
Dennis Holden

Last Updated: March 6, 2018


USDA Files Action Against Greendom Corporation in Florida for Alleged PACA Violations

Date: Tuesday, March 6, 2018 – 3:00pm

Contact Info: Nadine Wilkins



Release No.: 030-18


WASHINGTON, Mar. 6, 2018 – The U.S. Department of Agriculture (USDA) has filed an administrative complaint under the Perishable Agricultural Commodities Act (PACA) against Greendom Corporation.

The company, operating from Florida, allegedly failed to make payment to seven produce sellers in the amount of $160,712 from October 2014 through June 2016.

Greendom Corporation will have an opportunity to request a hearing.  Should USDA find that the company committed repeated and flagrant violations, it would be barred from the produce industry for two years.  Furthermore, its principals could not be employed by or affiliated with any PACA licensee for one year and then only with the posting of a USDA-approved surety bond.

The PACA Division, which is part of USDA’s Agricultural Marketing Service, regulates fair trading practices of produce businesses that are operating subject to PACA including buyers, sellers, commission merchants, dealers and brokers within the fruit and vegetable industry.

In the past three years, USDA resolved approximately 3,400 PACA claims involving more than $58 million.  PACA staff also assisted more than 8,500 callers with issues valued at approximately $151 million.  These are just two examples of how USDA continues to support the fruit and vegetable industry.

For further information, contact Travis Hubbs, Chief, Investigative Enforcement Branch, at (202) 720-6873, or by email at PACAInvestigations@ams.usda.gov.

Get the latest Agricultural Marketing Service news at www.ams.usda.gov/news or follow us on Twitter @USDA_AMS. You can also read about us on the USDA blog.

USDA is an equal opportunity provider, employer, and lender


Treasury, IRS Issue Guidance On Carried Interest

MARCH 1, 2018


Washington –The U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued clarifying guidance today to taxpayers on how it will implement the carried interest provisions under the Tax Cuts and Jobs Act. The guidance informs taxpayers that regulations will be issued that will not allow them to avoid the three year holding period by using a pass through entity (“S” corporation).

“We worked expeditiously to take this first step to clarify that S corporations are subject to the three year holding period for carried interest,” said Treasury Secretary Steven T. Mnuchin. “Treasury and the IRS stand ready to implement the Tax Cuts and Jobs Act as Congress intended and provide the appropriate taxpayer guidance on how the law will be implemented.”

Treasury and the IRS also informed taxpayers through today’s guidance that the upcoming regulations will be effective beginning after December 31, 2017.


SEC Charges Unregistered Broker for Illegally Brokering Sales of EB-5 Securities


Washington D.C., March 5, 2018 —


The Securities and Exchange Commission today charged a New York-based company with illegally brokering dozens of investments by foreign nationals seeking U.S. residency.

Between April 2014 and March 2017, Edwin Shaw LLC solicited foreign nationals to invest in securities issued by a taxi and limousine company based in Queens, New York.  The investments were marketed to investors interested in applying for legal residency through the federal government’s EB-5 Immigrant Investor Program, which provides a path to legal residency for foreigners who invest directly in a U.S. business or private “regional centers” that promote economic development in specific areas and industries.

According to the SEC’s order, Edwin Shaw was not registered with the SEC as a broker or dealer when it engaged in the solicitations and otherwise effectuated these securities transactions, thereby violating Section 15(a) of the Securities Exchange Act of 1934.  For each successful investment, Edwin Shaw received a fee ranging from $5,000 to $50,000.  More than 30 foreigners invested in the program after solicitations by Edwin Shaw, which improperly used approximately $400,000 of the investor fees on its own expenses and personal expenses of Edwin Shaw’s principal.

“While raising money for an EB-5 project in the U.S., Edwin Shaw was not registered to legally operate as a securities broker,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “The registration requirements are crucial to investor protection and we will continue to vigorously enforce them.”

Without admitting or denying the allegations in the order, Edwin Shaw agreed to a cease-and-desist order and agreed to pay disgorgement of $400,000 plus prejudgment interest of $54,209.20 and a penalty of $90,535.

The SEC’s investigation was conducted by Phil Fortino and Thomas P. Smith Jr. and was supervised by Lara S. Mehraban.  The SEC appreciates the assistance of U.S. Citizenship and Immigration Services.


March 5, 2018

CFTC Charges Iowa Resident Lon Olen Friedrichsen with Solicitation Fraud in Violation of the Commodity Exchange Act

CFTC also Charges Friedrichsen with Acting as an Unregistered Commodity Trading Advisor


Washington DC — The Commodity Futures Trading Commission (CFTC) filed a civil enforcement action in the U.S. District Court for the Southern District of New York, charging Lon Olen Friedrichsen of Alton, Iowa, with fraud and failing to register with the CFTC as a Commodity Trading Advisor, as required. Friedrichsen, as alleged, also solicited clients under the names of Lon Kummer and Lon Richardson, but omitted that these were false names.

The CFTC’s Complaint alleges that from at least December 16, 2014 through May 24, 2017, Friedrichsen fraudulently solicited clients in New York, New York and throughout the United States by making false statements in violation of the Commodity Exchange Act (CEA). Specifically, the Complaint alleges that Friedrichsen solicited clients for his fraudulent scheme via Craigslist ads, telephone, and e-mail. In these solicitations, the CFTC alleges that Friedrichsen made numerous materially false and misleading statements concerning his trading successes, omitted material facts, guaranteed future trading profits, and prepared false trading statements.

Friedrichsen, as alleged, fraudulently induced clients to provide him with access to their personal commodity futures accounts held at Futures Commission Merchants. He then allegedly traded commodity futures in those accounts and advised clients to conceal his involvement in trading their accounts. Additionally, the CFTC alleges that Friedrichsen demanded 50% of any profits he generated and swiftly abandoned his clients after he lost money trading their accounts. According to the Complaint, Friedrichsen fraudulently solicited at least $396,735 from at least twelve clients, lost at least $160,382 of his clients’ money, and retained at least $45,369 in fees.

In its continuing litigation, the CFTC seeks restitution to defrauded customers, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction against further violations of the CEA, as charged.

CFTC Division of Enforcement staff members responsible for this action are Jason Mahoney, Dmitriy Vilenskiy, Lucy Hynes, George Malas, A. Daniel Ullman II, and Paul G. Hayeck.

* * * * *

CFTC’s Fraud Advisories

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud.

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Value of posted assets

Est. over 500+ Million in assets posted
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