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CFTC Staff Letters


CFTC staff issues written guidance concerning the Commodity Exchange Act and the Commission’s regulations, principally in the form of responses to requests for exemptive, no-action, and interpretative letters. Letters published prior to the current year are available in the CFTC Staff Letter Archive.

Persons requesting staff letters must follow the requirements set forth in CFTC Regulation 140.99.

CFTC Regulation 140.99 defines three types of staff letters–exemptive letters, no-action letters, and interpretative letters–that differ in terms of scope and effect. The public and practitioners are cautioned that it is the staff’s denomination of a letter as exemptive, no-action, or interpretative that is controlling and how a publication service or other party labels a CFTC staff letter has no legal effect.

Letter Types

A no-action letter is a written statement by the staff of a Division of the Commission or its Office of the General Counsel that such staff will not recommend that the Commission commence enforcement action for failure to comply with a specific provision of the Act or Commission regulations. It binds only the staff of the Division that issued it or the Office of the General Counsel with respect to the specific fact situation and persons addressed by the letter, and third parties may not rely upon it.

An exemptive letter is a written grant by the staff of a Division of the Commission or its Office of the General Counsel, pursuant to delegated authority, of exemption from a specific provision of the Commodity Exchange Act (the “Act”) or Commission regulations. It binds the Commission and its staff with respect to the specific fact situation and persons addressed by the letter; third parties may not rely upon it.

An interpretative letter is written advice or guidance by the staff of a Division of the Commission or its Office of the General Counsel. It binds only the staff of the Division that issued it or the Office of the General Counsel, and third-parties may rely upon it as the interpretation of that division staff.

Staff Advisories
A staff advisory is a public notice by a Division informing interested parties of existing legal obligations under the Act and Commission regulations, as well as, providing additional clarification on an issue that a Division deems appropriate to issue in order to further general understanding of the Act and Commission regulations.  Staff advisories may be issued in the form of a “frequently asked questions” document.

Other Written Communication
Letters that don’t fall into any of the preceding categories are considered “Other Written Communication.”  These letters can be found in the grouping of All Letters.

All Letters  //  No-Action Letters  //  Exemptive Letters  //  Interpretative Letters

Additional Information

Additional information on the applicability of definitions of exemptive, no-action, and interpretative letters is provided in CFTC Advisory 16-99.





August 10, 2018

CFTC Charges Futures Broker with Engaging in Fraudulent Trade Allocation Scheme

Washington, DC – The Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Christian Robert Mayer of Eden Prairie, Minnesota, for engaging in a fraudulent trading scheme involving unauthorized trades in cattle, crude oil and wheat futures contracts.  The CFTC Order requires Mayer to pay a $100,000 civil monetary penalty and imposes permanent trading and registration bans on him. The Order also requires Mayer to cease and desist from further violations of the Commodity Exchange Act, as charged.

James McDonald, Director of the CFTC’s Division of Enforcement, stated: “Introducing Brokers serve an important role in connecting customers to our futures markets.  But these customers are entitled to trust that the brokers will handle their trades honestly.  When the brokers do not—but instead defraud their own customers as respondent did here—the Commission will vigorously pursue that misconduct.”

The Order finds that, between October 29, 2014, and September 28, 2016, Mayer, a registered Associated Person of a Minneapolis Commodity Trading Advisor and Introducing Broker (the IB), engaged in a fraudulent trading scheme in which he conducted unauthorized futures trading in customers’ accounts, and then transferred the profitable unauthorized trades from those accounts to his personal trading account while leaving losing trades in the customers’ accounts.  Mayer then logged on to the online portal of the Futures Commission Merchant which carried all the accounts, accessed the transfer section of the portal, and fraudulently indicated that the reason for the trade transfer request was that he had placed the trade in the wrong account.

When the IB discovered these unauthorized trades and transfers, it promptly issued checks to the defrauded customers totaling $105,090 to reimburse them for Mayer’s fraudulent conduct.  These checks represented the amount of the losing trades that Mayer left in their trading accounts, plus the profitable trades that Mayer improperly transferred from the customers’ accounts to his personal trading account.  These amounts came from money paid by Mayer to the IB for purposes of reimbursing the defrauded customers.

CFTC Division of Enforcement staff members responsible for this case are Luke B. Marsh, George H. Malas, and Paul G. Hayeck.





August 8, 2018

CFTC Proposes Rules to Simplify Process for Foreign Clearing Organizations to Obtain DCO Registration Exemption

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today voted unanimously to approve a proposal to codify policies and procedures for clearing organizations located outside of the U.S. to obtain an exemption from registration as a derivatives clearing organization (DCO). The proposal will also reduce CFTC staff time and utilize fewer resources to grant exemptions.

The Commodity Exchange Act permits the CFTC to exempt a non-U.S. clearing organization from registration for the clearing of swaps if the CFTC determines that the clearing organization is subject to comparable, comprehensive supervision and regulation by its home country authorities. The proposed rules would codify the Commission’s existing policies and procedures for granting such exemptions. To date, the CFTC has exempted four non-U.S. clearing organizations from registration as a DCO: ASX Clear (Futures) Pty Limited; Japan Securities Clearing Corporation; Korea Exchange, Inc.; and OTC Clearing Hong Kong Limited.

This proposal is in keeping with the CFTC’s Project KISS, an agency-wide initiative to simplify agency rules, regulations and practices to make them less burdensome, less costly and transparent to all market participants. This transparency would allow non-U.S. clearing organizations to navigate the exemption process with greater ease and reduce staff time and resources required to issue an exemption from registration. A more open and transparent process for obtaining an exemption from registration also promotes the CFTC’s goal of operating with cross-border comity and encourages greater harmonization of the U.S. and global financial markets.

CFTC is seeking public comments on this proposal. The comment period ends 60 days after the proposal’s publication in the Federal Register. Comments may be submitted electronically through the CFTC’s Comment Online process.




Remarks of CFTC Chairman J. Christopher Giancarlo at the West Texas Legislative Summit 

Angelo State University, San Angelo, Texas

August 2, 2018


I want to thank House Agriculture Committee Chairman Mike Conaway for the opportunity to be with you today.  His leadership and strong support for agriculture and energy derivatives markets have been important…really vital … for our work.  I am especially grateful for his trust in my leadership and support for our agency’s budget request.  His moral fastness and powerful, positive thinking have been a major contribution to our country.

I also want to acknowledge two other voices of leadership:  Senator Charles Perry and Representative Drew Darby.  You are fortunate to have such fine, outstanding representation here in Texas and in Washington.  And, of course, I would be remiss not to recognize your fine governor (and my law school classmate), Greg Abbott, who has worked hard to see Texas be a national leader in job creation and economic growth.

I am so glad to be with you in West Texas.

You know, I love Western Swing and American Country music.  I play the banjo and guitar.  I grew up listening to Waylon Jennings and J.D. Southern.  Today, I am here in the melody of America.  It is thrilling to think about it.  Lubbock’s own Buddy Holly influenced most of the great rock and rollers.  And, Roy Orbison from Odessa influenced my state’s own Bruce Springsteen.  Of course, from right here in San Angelo, the legendary Ernest Tubbs and the fabulous Los Lonely Boys got their start.  Amazing!

It is a pleasure more than just musically.  As a football fan, I know I am in the heart of American football.  It’s a part of life, a way of looking at life.  My first football memories: Joe Namath throwing to the great wide receiver, Don Maynard, who played high school football in nearby Colorado City.  When I grew up in the 1960s, all the kids wanted to be Joe Namath.  But I wanted to be Don Maynard, with his long sideburns and Texas stride.  One hundred yards per game.  He never dropped a pass.

And, like football, academics are strong here.  Look around the room.  San Angelo University equals success.  I have been very impressed that the Princeton Reviewand other publications rank San Angelo University as one of the best academic institutions in America.  This helps explain why job growth is steady here and the transition from manufacturing to business and personal services has been workable.  Education is one of the reasons.

San Angelo graduates are great employees and the economy responds to their preparation, hard work, and innovation.  That is one reason why jobs and job growth are more prevalent here than in many other cities.  In fact, Governor Abbott made this point in his “State of the State Address in 2017,” when he noted that Midland, Texas had surpassed San Francisco in the percentage of jobs created by startups.  West Texas is an innovation model for the rest of the country.

The Shale Revolution

West Texas is also the scene of another episode of American greatness, the epicenter of a stunning accomplishment of American exceptionalism – and a recent one.

I am talking about the shale revolution – a combination of American technological innovation, North American geology, U.S. property law, the skilled and entrepreneurial American workforce and our dynamic capitalist economy.  That combination has led to one of the greatest economic success stories the world has ever seen.  And, it has happened just in the past few years.

The first ingredient is the innovative breakthrough of horizontal drilling and hydraulic fracturing, a spectacular accomplishment of American technology.

The second ingredient is the geological presence of porous shale rock holdings of enormous oil and gas hydrocarbons adjacent to large amounts of accessible water that can be forced into the rock at high pressure so as to form countless tiny cracks.  Sand mixed in with the water props these cracks open so oil and gas can flow out.

The third ingredient is privately-owned, rather than government-owned, mineral rights, a unique legal construct compared to the rest of the world.  This allowed for property owners to expedite development without government bureaucracy and protracted political opposition.

The fourth ingredient is the American energy industry’s highly skilled labor force and extensive midstream infrastructure network.  That ingredient combined with American entrepreneurialism and culture of new business formation permitted smaller independent energy producers to prosper alongside integrated oil majors.

The final ingredient is direct access to creative financing methodologies and Wall Street capital to underwrite the enormous cost of innovation and development.

Combining these five factors led to the dramatic rebirth in U.S. output of oil and natural gas.

Yet, even with this remarkable combination, there were two years when success or failure hung in the balance.  From 2014 to 2016, the Organization of the Petroleum Exporting Countries (OPEC) and Russia had tried to thwart American competition by bankrupting America’s emerging shale industry, by turning up their own production and driving down global prices to unprofitable levels.  They bet that a few years of prolonged low prices would drive the new U.S. producers out of business and allow them to benefit as U.S. output slowed.

According to one observer:

“It turned out to be a colossal miscalculation, which led to the spectacular triumph of American free-market capitalism over 40% of the world’s oil output.  The U.S. shale industry responded to the existential threat by innovating, cutting costs and becoming ruthlessly efficient.  It was the only way they were to survive. They drilled deeper, and longer.  They adopted multi-pad wells, which were vastly more productive.  They crunched enormous amounts of data to refine their techniques, and made substantial IT investments.  As a result, U.S. output dipped but didn’t collapse.”[1]

It worked.  By October 2016, OPEC threw in the towel.  American shale producers had not only survived, but had become more efficient, more productive, and more innovative than their overseas competitors.  American shale producers were the new global energy upstarts, on their way to be the world’s biggest oil producers by the end of 2019.[2]  In so doing, they have changed not just the structure of global energy markets, but geopolitical strategies as well.[3]

America’s newfound energy independence is the product of entrepreneurship and free enterprise.  Undoubtedly, there are new challenges on the horizon today, including a looming “supply crunch” resulting from a pick up in global growth.  Yet, the shale revolution remains a shining example of the ability of America’s dynamic capitalist economy to benefit a new generation of Americans.

And since we are having a national debate this year about the merits of socialism, let’s admit that the shale revolution could never have happened in a socialist economy, such as Venezuela.  Their oil output is collapsing at an accelerating pace, deepening an economic and humanitarian crisis. [4]  By contrast, in democracies like ours, innovation leads to prosperity, higher standards of living and, eventually, to greater equality.”[5]

There is one facet of this amazing success story that should also be highlighted.  That is the key role that financial hedges and commodity derivatives played in helping the industry and its financial backers withstand the cartel squeeze.  Without the ability to efficiently hedge depressed energy prices and variable costs of production, America’s shale producers may well have succumbed to OPEC’s concerted efforts and failed to secure our country’s growing energy independence.

The Role of the CFTC

America’s energy and commodity derivatives markets are overseen by a small, but important, independent Federal agency, the Commodity Futures Trading Commission (known as the CFTC).  It is an agency of which I have the honor to serve as Chairman.

The CFTC was established under the Commodity Exchange Act (CEA) as the legal authority over America’s derivatives markets.  The law has been amended several times since it was passed in 1936.  The CEA establishes the statutory framework under which the CFTC operates, both judicial and legislative.

The CFTC is composed of 5 Commissioners, chosen by the President and confirmed by the Senate.  No more than three of the five Commissioners can be of the same political party as the President.  The Commission is a creation of Congress, which has delegated power to us.

The CFTC has close to seven hundred career staff.  It regulates markets for derivatives trading, such as exchange-traded futures and options on wheat, corn, gold, silver, oil, natural gas and other commodities.  It also oversees some of the world’s largest financial markets in listed futures and over-the-counter swaps on rates of interest, credit default and foreign exchange.  The CFTC has been in the news lately because of its regulation of new futures contracts on Bitcoin.  You may have read about that.

21st Century Financial Markets

I’d like to speak to you this morning about other long-range technological and market developments that continue to hang in the balance of evolution.  Since this is a legislative summit, let’s together focus on the challenges we face.  In so many ways and in such a rapid pace, the future is devouring the past, forging a new agenda, and threatening to move ahead of regulators, financial institutions, and government.  That is why we need 21st century regulation for a 21st century world.

Technology is leading us into a world that is much different than the world we knew five or ten years ago.  So much today – from information to manufacturing to transportation to commerce to agriculture – is undergoing a digital transformation.  It, therefore, should be no surprise that our derivatives trading markets are going through the same digital revolution.

Technology has far-ranging implications for capital formation and risk transfer.  These technologies include machine learning and artificial intelligence, algorithm-based trading, data analytics, “smart” contracts valuing themselves and calculating payments in real-time and distributed ledger technologies, which over time may come to challenge traditional market infrastructure.

These technologies are having an equally transformative impact on U.S. derivatives markets.  One thing is certain: ignoring these changes in the market would be profoundly imprudent.  They will not go away.  Rather, the rate of change will accelerate.  Nor is ignorance a responsible regulatory strategy.  We cannot respond in a reactive way — chasing to catch up with technology.  We must be proactive with a regulatory and statutory framework that is ahead of the curve, gives clarity and coherence to this often-complex technology, and anticipates its evolution.  We must offer a rational response to the needs of the market.  The same technology can give us advantages in market regulation.

For more than a century, Americans have relied on U.S. derivatives markets to stabilize the cost of living.  As we have seen, derivatives help mitigate the volatility of energy prices and costs of production.

The Importance of Derivatives for Financial Stability

Derivatives are the reason why American consumers enjoy stable prices, not only in the supermarket, but in all manner of consumer finance, from auto loans to household purchases to gasoline to oil.  Derivatives markets influence the price and availability of heating in American homes, the energy used in factories, interest rates, investments, capital formation, and equipment costs.

More than 90% of Fortune 500 companies use derivatives to manage commercial or market risk in their worldwide business operations.  These markets allow the risks of variable production costs, such as the price of raw materials, energy, foreign currency, and interest rates, to be transferred from those who cannot afford them to those who can.

Even Americans not actively participating in commodity derivatives markets are affected by the prices generated by them.  Commodity derivatives markets provide a critical source of information about future energy prices.  In short, derivatives serve the needs of American society to help moderate price, supply and other commercial risks to free up capital for economic growth, job creation and prosperity.  While often derided in the tabloid press as “risky,” derivatives – when used properly – are tools for efficient risk transfer and mitigation.  It has been estimated that the use of commercial derivatives added 1.1% to the size of the U.S. economy between 2003 and 2012.  American derivatives markets are the world’s largest, most developed, and most influential.

Many of the world’s most important agricultural, mineral, and energy commodities are priced in U.S. dollars in the U.S. derivatives markets.  Dollar pricing of the world’s commodities provides a tremendous advantage to American producers in global commerce, an advantage well recognized by competing economies abroad.

American derivatives markets are the world’s best regulated.  The U.S. is the only major country in the Organization for Economic Co-operation and Development to have a regulatory agency specifically dedicated to derivatives market regulation: the CFTC.  The CFTC has overseen the U.S. exchange-traded derivatives markets for over 40 years.  The agency is recognized for its principles-based regulatory framework and econometrically-driven analysis.  The CFTC is recognized around the world for its depth of expertise and breadth of capability.

This combination of regulatory expertise and competency is one of the reasons why U.S. derivatives markets continue to serve the needs of participants around the globe to hedge price and supply risk safely and efficiently.

Foreign Competition

Now, let’s look to the future.  As you know, in the first quarter of this year, the Shanghai International Energy Exchange launched a Yuan-denominated crude oil contract allowing non-Chinese market participants to trade for the first time in Chinese commodity markets.  Early in the second quarter, China opened a Yuan-denominated iron ore contract to international traders.  There is also talk of China allowing international market participants to trade Chinese futures contracts in fuel oil, copper and even soybeans.

China is the world’s largest consumer of oil and fuel and a major global purchaser of iron ore for its world leading steel production.  The opening up of China’s domestic futures markets to international participation is part of a long-term strategy by the Chinese government to expand China’s influence over the pricing of key industrial commodities.

The development of Chinese commodity futures markets has competitive implications for the United States.  We cannot be complacent about the historical primacy of our derivatives markets.  Our best response for U.S. commodity market participants and, indeed, for global markets, is to ensure that derivatives markets in the United States are unrivaled in their openness, orderliness, and liquidity.  This requires, of course, that the regulation of U.S. markets continue to be of the highest quality.

We don’t want to give up our world leadership.  We must be worthy of the challenge.  The CFTC must undertake its regulatory mission in ways that support American derivatives markets in continuing to attract the world’s needs to efficiently and safely hedge variable commodity prices and financial benchmarks.  To achieve this, the CFTC must have suitable resources to continue to serve its mission tofoster open, transparent, competitive, and financially sound U.S. derivatives markets that remain the envy of the world.

Smart Regulation

It is essential that government regulators, whether in Washington or Austin, keep industry rules and regulations simple and straightforward.  That includes making sure that regulations actually solve problems – real problems, not invented ones.

Four years ago[6], I developed an analysis formula contained in a simple mnemonic: “SMART-REG.”

It stands for:

  • S            Solve for real problems, not anecdotes of bad behavior;
  • M          Measure success through a rigorous cost-benefit analysis;
  • A            Advance innovation and competition through flexible rules;
  • R            Represent the best approach among alternative courses of action;
  • T            Take into account evidence, rather than assumptions;
  • R            Realistically set compliance deadlines;
  • E            Encourage employment of American workers;
  • G           Grounded in law.

Since becoming Chairman under President Trump, I have emphasized greater care and precision in rule drafting, more thorough econometric analysis, and a reduced docket of new rules and regulations to be absorbed by market participants.  We have embraced the Trump Administration’s Reform Plan and have implemented in-depth organizational reviews to ensure that the agency is staffed to provide the most effective services to the American taxpayer.

We also sought to work within the Administration’s efforts to reduce the regulatory burdens of government.  We started something called “Project KISS.”  The name comes from something my High School track coach would often say, “Keep it Simple, Stupid!”

Project KISS is an agency-wide review of our agency’s rules, regulations, and practices to make them simpler, less burdensome, and less costly.  The purpose is to remove duplicative, unnecessary, or outdated regulations.  It includes an invitation for public comment and has produced a range of proposed actions that will lessen regulatory burdens.  I believe that the American taxpayer expects nothing less from their government.


I started by talking about the contributions West Texas makes to the world.  Let me circle back to that.  In West Texas, you turn minerals into money, commodities into currency.  Here is the determined, hard work, and innovations that have made America into the world’s largest energy supplier.

Here we can see the future and guide it.  As the world changes around us, we can direct its course.  We must be far-sighted to do that.  As the energy market evolves and takes us in mid-century, we must know where to take it.

The time has come to reduce regulatory barriers to economic growth.  The American people have elected President Trump to turn the tide of over-regulation.  Financial market regulators, like the CFTC, must pursue their missions to foster open, transparent, competitive and financially sound markets in ways that best foster American prosperity.

Through legislative summits like this, we can do that.  We can mold the consensus that keeps our economy strong and growing, propelling us into the future with stability and confidence.  And, we can maintain the regulatory response that maintains those markets.

Last January, we witnessed a new beginning for our country and a renewed promise for broad-based economic growth.  This is a time to redouble our efforts to rebuild American prosperity:

  • To reduce regulatory burdens and flawed rules;
  • To enhance the health and vitality of trading markets;
  • To foster innovation and greater market intelligence; and
  • To lift the prospects of everyone for greater health and harmony.

I intend to do my part to oversee vibrant and durable markets for investment and risk transfer in this new, digital 21st century.

I ask for your help, your prayers and your support for the task ahead.

Thank you.


[1] Simon Lack, America’s Path to Energy Independence: The Shale Revolution, Forbes, June 4, 2018, available at: https://www.forbes.com/sites/simonlack/2018/06/04/americas-path-to-energy-independence-the-shale-revolution/#4470ab367554.

[2] Osamu Tsukimori, U.S. to Overtake Russia as Top Oil Producer by 2019 at latest: IEA, Reuters, Feb. 26, 2018, available at: https://www.reuters.com/article/us-energy-iea/u-s-to-overtake-russia-as-worlds-biggest-oil-producer-by-2019-latest-iea-idUSKCN1GB0C6.

[3] Alan Riley, The Shale Revolution’s Shifting Geopolitics, The New York Times, Dec. 25, 2012, available at: https://www.nytimes.com/2012/12/26/opinion/global/the-shale-revolutions-shifting-geopolitics.html.

[4] Venezuelan oil output was down 29% in 2017, among the steepest national declines in recent history, driven by mismanagement and under investment at the state oil company.  Anatoly Kurmanaev and Kejal Vyas, Venezuela’s Oil Production Is Collapsing – Sharp drop in output increases the odds of a debt default, worsens economic crisis, Wall Street Journal, Jan. 18, 2018, available at: https://www.wsj.com/articles/venezuelas-oil-industry-takes-a-fall-1516271401.

[5] Amity Shlaes, Growth, Not Equality: American History Shows that Expanding the Economy Benefits Everyone, City Journal, Winter 2018, available at: https://www.city-journal.org/html/growth-not-equality-15643.html.

[6] J. Christopher Giancarlo, Re-Balancing Reform: Principles for U.S. Financial Market Regulation in Service to the American Economy, Remarks to the U.S. Chamber of Commerce, Nov. 20, 2014, available at: https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlos-2.


CFTC Chairman Giancarlo to Keynote the West Texas Legislative Summit



Fostering Innovation One Year Later



Just over one year ago, FINRA launched the Innovation Outreach Initiative as part of FINRA360, our comprehensive organizational review. The Initiative began an ongoing dialogue with industry participants, investor advocates and policy makers centered on the implications of financial technology (fintech) for the broker-dealer industry.

FINRA has already taken a number of steps to improve our understanding of how fintech is transforming the securities industry and to provide information to investors and our members about these developments.

For example, over the past year, FINRA has formed a Fintech Industry Committee (composed of fintech experts in public, private and academic sectors) and conducted a series of fintech regional roundtables in New York, San Francisco and Dallas. Through our efforts, FINRA has been able to learn more about how fintech is helping to transform various broker-dealers’ business lines, including investment banking, wealth management, trading and research. These discussions have also addressed how broker-dealers are exploring and leveraging new technologies such as artificial intelligence, cloud storage and blockchain to enhance their overall operational infrastructure and compliance functions.

All of these fintech-related changes are contributing to an evolving landscape for broker-dealers’ operations.  With these changes come exciting new opportunities, but also the potential for various risks to investors and the markets. Accordingly, FINRA has been considering how we can continue to support fintech innovations that benefit investors and the capital markets, consistent with our mission of investor protection and market integrity.

To this end, FINRA has issued reports and Investor Alerts on a number of fintech areas, highlighting associated risks and benefits related to applicable innovations. We have authored papers on crowdfunding, distributed ledger technology, digital investment advice and automated investment tools. We have also posted Investor Alerts on data aggregation, initial coin offerings, and considerations for investing in cryptocurrencies. In addition, FINRA has actively engaged our fellow regulators, both domestic and international, to share insights and approaches to fintech-related issues.

As FINRA considers taking further steps, however, we are mindful of the desire expressed by market participants to have a forum to provide views concerning what actions may be helpful.

That’s why this week, FINRA took another step forward in turning ideas into action by issuing a Special Notice on Innovation. The Notice seeks public comment regarding what steps FINRA can potentially take to further support innovators consistent with our regulatory responsibilities and role as a guardian of investor protection and market integrity. Additionally, we are asking for feedback on three specific areas that were raised during the course of the Innovation Outreach Initiative: the provision of data aggregation services, supervisory processes concerning the use of artificial intelligence, and the development of a taxonomy-based machine-readable rulebook.

Comments will be accepted until October 12 and can be submitted here. We encourage all interested parties to participate.





July 30, 2018

CFTC Orders R.J. O’Brien & Associates LLC to Pay a $600,000 Civil Monetary Penalty for Supervisory Failures and Violation of a Prior Commission Order

Washington, DC – The Commodity Futures Trading Commission (CFTC or Commission) today issued an Order filing and simultaneously settling charges against R.J. O’Brien & Associates LLC (RJO) of Chicago, Illinois, for failure to diligently supervise its employees’ handling of customer accounts and for violating the terms of a prior Commission Order.  At all relevant times, RJO was registered with the Commission as a Futures Commission Merchant.

The CFTC Order requires RJO to pay a $600,000 civil monetary penalty and to cease and desist from further violations of the Commodity Exchange Act, as charged.

Specifically, the Order finds that between at least January 2013 and January 2014 (Relevant Period), RJO failed to diligently supervise its employees to ensure that they properly processed bunched orders allocated post-execution, and that they appropriately monitored post-execution trade allocations for unusual activity.  These failures delayed the detection of a post-execution trade allocation scheme carried out by an RJO client (Client).

James McDonald, Director of the CFTC’s Division of Enforcement stated:  “Registrants stand as a first line of defense to prevent unlawful activity in our markets.  The Commission expects these registrants to fulfill their duties to monitor transactions like those at issue here for suspicious activity.  This ensures that wrongdoers will be identified and swiftly held accountable.”

During the Relevant Period, the Order finds, the Client, who was registered as a Commodity Pool Operator and Commodity Trading Adviser, took improper advantage of post-execution allocation, disproportionately allocating profitable trades to the accounts in which the Client or the Client’s associates had a proprietary interest, and unprofitable or less profitable trades to the customer accounts or the Pool account.

The Order further finds that during the Relevant Period, despite the presence of red flags indicating that the Client may not have been allocating bunched orders in compliance with Commission regulations, RJO failed to make a reasonably sufficient inquiry into the Client’s allocation practices or take other appropriate action.  In addition, the Order finds that RJO failed to adhere to its internal protocols governing the processing of bunched orders, did not employ adequate compliance procedures to monitor, detect, and deter unusual activity concerning bunched orders allocated post-execution, and failed to supervise its employees processing bunched orders.

The Order also finds that during the Relevant Period, the National Futures Association issued two regulatory actions prohibiting the Client from soliciting funds or withdrawing money from managed accounts, and ultimately, banning the Client from trading.  Despite these regulatory actions, the Client was able to open and operate a new account in the name of the Client’s spouse (Spouse Account).  In addition, following the first regulatory action, RJO processed numerous requests for withdrawals from the Spouse Account, and cleared trades executed in the Spouse Account after the Client was banned from trading.  The Order states that RJO’s failure to identify the relationship between the Client and the Spouse Account demonstrated the insufficiency of RJO’s policies and procedures regarding the opening of new accounts and compliance with regulatory actions.

In addition, the Order finds that these supervisory failures violated a 2013 Commission Order, in which RJO was charged with failure to supervise its employees in their processing of certain bunched orders, including the failure to employ adequate procedures to monitor, detect, and deter unusual activity concerning trades allocated post-execution. (See CFTC Order and Press Release, 6490-13, January 2, 2013.)

The CFTC thanks the National Futures Association for its assistance in this matter.

CFTC Division of Enforcement staff members responsible for this case are Lucy C. Hynes, George H. Malas, Christine M. Ryall and Paul G. Hayeck.


The Beginner’s Guide to Master Limited Partnerships

By: marketsfinance


July 20, 2018

The Beginner’s Guide to Master Limited Partnerships

Master Limited Partnerships are a business model in the form of publicly traded limited partnership. It brings together the advantages that partnerships provide and the liquidity of a public company. In partnerships, taxation only applies when dividends are being distributed to the partners. Click Here To Go Straight To Our Online Tutorial

MLPs have two types of partners:

Limited partners: These are investors who buy MLP shares and provide the capital that’s required to run the company. They get distributions from MLPs on a quarterly basis.

General partners: These are investors who are involved in the daily running of the business. They are paid according to how well the partnership is doing.

What’s a Master Limited Partnership?

The MLP is a partnership traded on the national exchange. It provides major tax advantages to all of its partners. Since MLPs are designed to use cash flows, they have to distribute any cash that they have to investors. MLPS can minimize the capital cost in businesses that require a lot of capital, for instance, businesses that are in the energy sector.

In fact, a large portion of MLPs can be found in the energy sector. They provide and manage resources. For instance, Genesis Energy is based in Texas and provides plant processing, supply, and logistic support services for companies that are in the oil business.

A lot of oil companies provide MLP shares instead of company stock. This makes it possible for individuals and corporations to own a stake in the company. The probability is that a company will own a stake in its own MLP. Other corporations that issue stock are founded with the sole intention of owning shares of the company. The corporation also distributes passive income as a dividend.

For instance, Linn Energy Inc. has an MLP and a corporation which has a stake in the MLP. Investors are then given the choice of selecting how they prefer to get the income that the company distributes. This is for tax purposes.

The History of MLP Investments 

The first master limited partnership stocks were started in 1981. However, Congress limited MLPs in 1987 to real estate companies and the energy sector. These measures were taken in response to what was deemed to be a loss of corporate tax considering that MLPs aren’t required to pay federal taxes. For the MLP to get a pass, 90% of its income needs to be qualifying income. This is income that’s obtained as a result of exploration, production, and transportation of real estate. This is to say that for a company to be classified as an MLP, 90% of its revenue should come from natural resources, commodities and real estate. This description of a ‘qualifying income’ greatly limits the industries in which MLPs can venture into.

Features of an MLP

An MLP is a hybrid of a partnership and a corporation. It’s viewed as a collection of partners and not as a separate legal entity which is the way a corporation is seen. Also, it doesn’t have any employees as it’s the partners who run the business. General partners usually have a 2 percent stake in the partnership, but they have the option of increasing their stake if they want to.

An MLP doesn’t issue shares, but it gives out units instead which can be traded on stock exchanges. This makes the uses quite liquid, and it’s a feature that normal partnerships don’t offer. Since these are not stock, people who buy these units are considered unitholders and not shareholders. People who invest in MLPs are referred to as Limited Partners. They usually get a share of the income made by the MLP.

Tax Advantages

Have you ever wanted to know how to avoid double taxation? When it comes to taxation, MLPs are treated as Limited Partnerships. In a Limited Partnership, any losses or profits that are made by the business are passed on to the Limited Partners. This means that MLPs are not held liable for corporate taxes as it happens with most companies. Instead, it’s the partners who are held liable for paying their own individual taxes from their MLPearnings. This is quite advantageous since profits won’t be double taxed. Double taxation usually happens in corporate companies, since the companies pay corporate taxes and partners also have to pay taxes on their dividend earnings. Also, depreciation and depletion are also passed on to the partners. This makes it possible for the owners to deduct the depreciation and depletion from their taxable income.

Just like dividends are paid out on a quarterly basis, the earnings of MLPs also get distributed on a quarterly basis. However, they are not handled as income but as return on capital. Therefore; unit holders aren’t required to pay tax on this income. The earnings are not immediately taxed. Rather, taxing takes place later on when the units are sold using the lower capital gains rather than the personal income rate, which is higher. This is quite advantageous when it comes to tax benefits.

More Advantages

MLPs are low-risk investments given that the investment opportunities are slow. This happens because industries they are in are slow, like for example, pipeline construction. The good thing is that you will be able to earn a regular income from them, given that they are longtime service contracts. MLPs are quite good at providing a regular cash flow; therefore, you will get periodic cash distributions. The good thing is that cash distributions come in at a rate that’s faster than inflation rates. Also, 80% of the partners get their income tax-deferred. This makes it possible for MLPs to provide great income gains and double taxation avoidance. In most cases, these gains are much higher than what you would get from the dividend yield of equities. Also, the avoidance of double taxation leads to bigger capital for other projects. This, in turn, gives MLPs a competitive edge.

In the case of limited partners, the snowballing effect of cash distributions often ends up being more than the capital gains taxes that you will have to pay once you sell off all your units.

There are several advantages of using MLPs when planning for the estate. In case you own units, and then you opt to transfer your units to another beneficiary, both of you won’t have to pay taxes during the transfer period. The value of the units will be calculated using the market rate at the time that the transfer is being made. In case the unit holder passes on, then the heirs will get the units transferred to them at the fair market value based on the date of death of the unit holder. Also, their previous distributions don’t get taxed.

MLPs Disadvantages

One of the major disadvantages of being an MLP unit holer is that you are asked to file a Schedule K-1 form. This form is much more complex to file than the 1099-DIV. That translates to you having to pay your accountant much more than you normally would. This is even when you haven’t made any money from selling your units. Moreover, in most cases, the Schedule K-1 form usually arrives late. This can be quite inconveniencing when you are trying to prepare your tax returns in time.

Furthermore, another disadvantage is that in case you get a net loss, you cannot use this loss to offset your income. You must carry forward any net losses that you make to the following year. Once you finally sell off all your units, then you can deduct these losses from your other income.

Also, another disadvantage is the limited upside potential. However, this is something that can happen since this is an investment that’s expected to generate a steady income flow.

Stay Away from MLPs despite High Dividends

Have you ever wanted to know how to buy MLP stocks? One of the reasons why people find MLPs so attractive is due to the high yields that they provide and because they qualify under the IRS Code.

MLPs can be classified under real estate, finance, and energy. Most MLPs can be found in the energy sector, given that 84% of MLPs are in this industry. There are various subcategories in energy. This includes oil, midstream, gas, upstream and downstream company. Since 2016, MLPs have felt the effect of the variations in the price of oil. The cost of the Alerian MLP declined by 32%. There was a time that it was lower than this, but the price went up after it hit a low of 20.7% in February. This gives MLP investors new confidence. Nevertheless, even if MLPs provide high returns, it’s still best to avoid them.

Unstable Commodity Prices

Many investors think that the cost of oil is directly related to the MLP index. This is not true. According to analysts, the price of commodities doesn’t have an effect on a company that’s involved in oil transportation or in the refining oil business. But when oil prices went down, the energy sector also went down. At the same time, when the Alerian MLP Index went down to 32%, the cost of oil was down by 44.84%. According to available information, it seems that the oil prices are a good indicator of the MLP index. The two seem as if they are highly interconnected. A lot of analysts are of the opinion that commodity prices have stabilized from the trend that was once dividing them. Recently, the price of oil shot up, but according to analysts, the price of oil will still remain unstable for the rest of the year. This instability will have a negative effect on the MLP industry and highlight any weaknesses that are in the balance sheets.

Inflated Distribution Rates

MLPs are quite unstable, unlike other investments that generate income like bonds. This explains why the industry’s main focus is on making high-income payouts to unit holders. In case a company has issues and is not able to make payouts, as usual, this will greatly affect the price of the shares. For instance, when Boardwalk Pipeline Partners Ltd. announced on Feb 10th, 2014, that it would reduce its payouts by 80%, its shares price dropped by 46%.

A lot of analysts are of the opinions that the companies are stretched to their limits and are having problems keeping up with their distribution rates. A Hedgeye Risk Management analyst, Kevin Kaiser, thinks that for MLPs to be a good investment, they need to absorb a lot of the pain in the form of reduced distributions. This puts investors at the risk of running MLPs whose payouts they cannot afford to maintain.

MLP Structure

MLPs have to pay out 90% of the cash that they have to shareholders. This means that they have little to no cash. That’s why a lot of MLPs turn to investment banks whenever they need funding to help them fund future projects.

A lot of companies have lots of debts. For instance, Enterprise Products has a debt-to-equity ratio of 106. This is very high for a company that isn’t based on the MLP model. One of the biggest oil companies in the world, Exxon Mobil Corporation, has a debt ratio of 24, which is substantially low. Given their really high leverage, MLPs are very dependent on erratic income streams to keep up with debt payments. During weaker times, weak companies will really struggle and will have to cut out distribution payouts or face bankruptcy.

Are Master Limited Partnerships A Good Fit For Me

The decision as to whether you should include MLPs in your investment portfolio is largely dependent on how open you are, on your tax advisor and how for long you intend to invest. Even though this might not be exactly the best time to invest in MLPs, you should consider doing it in the future.

Backlink: https://financeandmarkets.com/master-limited-partnerships/


Press Release

SEC Proposes Rules to Simplify and Streamline Disclosures in Certain Registered Debt Offerings



Washington D.C., July 24, 2018

The Securities and Exchange Commission today voted to propose rule amendments to simplify and streamline the financial disclosure requirements applicable to registered debt offerings for guarantors and issuers of guaranteed securities, as well as for affiliates whose securities collateralize a registrant’s securities.

The proposed amendments to Rules 3-10 and 3-16 of Regulation S-X would focus disclosures on information that is material to investors given the specific facts and circumstances, make the disclosures easier to understand, and reduce the costs and burdens for registrants.  By reducing compliance burdens, the proposed amendments should further encourage issuers to register debt offerings, and thus provide investors with additional protections that are not present in unregistered offerings.

“I have seen firsthand instances in which an issuer did not pursue SEC registration of a debt offering that included a subsidiary guarantee or pledge of affiliate securities as collateral because of the costs and, in particular, time burdens of these rules,” said Chairman Clayton.  “The proposed rules are intended to make the disclosures easier for investors to understand and to encourage these offerings to be conducted on a SEC-registered basis.”

The proposal will have a 60-day public comment period following its publication in the Federal Register.

# # #


Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities

July 24, 2018

The Securities and Exchange Commission today proposed amendments to the financial disclosure requirements in Rule 3-10 of Regulation S-X for guarantors and issuers of guaranteed securities registered or being registered, as well as the financial disclosure requirements in Rule 3-16 of Regulation S-X for affiliates whose securities collateralize securities registered or being registered.  If adopted, the proposed changes would amend both Rules 3-10 and 3-16 and relocate part of Rule 3-10 and all of Rule 3-16 to new Article 13 in Regulation S-X, which would comprise proposed Rules 13-01 and 13-02.


Both Rules 3-10 and 3-16 affect disclosures made in connection with registered debt offerings and subsequent periodic reporting:

  • Rule 3-10 requires financial statements to be filed for all issuers and guarantors of securities that are registered or being registered, but also provides several exceptions to that requirement.  These exceptions are typically available for individual subsidiaries of a parent company when certain conditions are met, including that the parent company provides certain disclosures in its consolidated financial statements.  If the conditions are met, separate financial statements of each qualifying subsidiary issuer and guarantor may be omitted.
  • Rule 3-16 requires a registrant to provide separate financial statements for each affiliate whose securities constitute a substantial portion of the collateral, based on a numerical threshold, for any class of registered securities as if the affiliate were a separate registrant.


The proposed changes are intended to:

  • focus disclosures on the information that is material given the specific facts and circumstances;
  • make the disclosures easier to understand;
  • reduce the cost of compliance for registrants and encourage potential issuers to offer guaranteed or collateralized securities on a registered basis, thereby affording investors protections they may not be provided in offerings conducted on an unregistered basis; and
  • facilitate, through lower costs and burdens of compliance, issuers’ flexibility to include guarantees or pledges of affiliate securities as collateral when they structure debt offerings, which may increase the number of registered offerings that include these credit enhancements and could result in a lower cost of capital and an increased level of investor protection.

Proposed Amendments to Rule 3-10

Under the proposed amendments, Rule 3-10 would continue to permit the omission of separate financial statements of subsidiary issuers and guarantors when certain conditions are met and the parent company provides supplemental financial and non-financial disclosure about the subsidiary issuers and/or guarantors and the guarantees.  Similar to the existing rule, the proposed rule would provide the conditions that must be met in order to omit separate subsidiary issuer or guarantor financial statements.  Proposed Rule 13-01, contained in new Article 13 of Regulation S-X, would specify the disclosure requirements for the accompanying proposed disclosures.  The proposed amendments would:

  • replace the condition that a subsidiary issuer or guarantor be 100% owned by the parent company with a condition that it be consolidated in the parent company’s consolidated financial statements;
  • replace condensed consolidating financial information, as specified in existing Rule 3-10, with certain proposed financial and non-financial disclosures.  The proposed financial disclosures would consist of summarized financial information, as defined in Rule 1-02(bb)(1) of Regulation S-X, of the issuers and guarantors, which may be presented on a combined basis, and reduce the number of periods presented.  The proposed non-financial disclosures, among other matters, would expand the qualitative disclosures about the guarantees and the issuers and guarantors, as well as require disclosure of additional information that would be material to holders of the guaranteed security;
  • permit the proposed disclosures to be provided outside the footnotes to the parent company’s audited annual and unaudited interim consolidated financial statements in the registration statement covering the offer and sale of the subject securities and any related prospectus, and in certain Exchange Act reports filed shortly thereafter;
  • require that the proposed disclosures be included in the footnotes to the parent company’s consolidated financial statements for annual and quarterly reports beginning with the annual report for the fiscal year during which the first bona fide sale of the subject securities is completed; and
  • require the proposed financial and non-financial disclosures for as long as the issuers and guarantors have an Exchange Act reporting obligation with respect to the guaranteed securities rather than for as long as the guaranteed securities are outstanding.

Proposed Amendments to Rule 3-16

The proposed amendments to the disclosure requirements in Rule 3-16 would be amended and relocated to proposed Rule 13-02, in new Article 13 of Regulation S-X.  Among other things, the proposed amendments would:

  • replace the existing requirement to provide separate financial statements for each affiliate whose securities are pledged as collateral with financial and non-financial disclosures about the affiliate(s) and the collateral arrangement as a supplement to the consolidated financial statements of the registrant that issues the collateralized security;
  • permit the proposed financial and non-financial disclosures to be located in filings in the same manner as described above for the disclosures related to guarantors and guaranteed securities; and
  • replace the requirement to provide disclosure only when the pledged securities meet or exceed a numerical threshold relative to the securities registered or being registered with a requirement to provide the proposed financial and non-financial disclosures in all cases, unless they are immaterial to holders of the collateralized security.

What’s Next?

The proposal will be subject to a 60-day public comment period.



Press Release

Elizabeth Baird and Christian Sabella Named Deputy Directors of the Division of Trading and Markets



Washington D.C., July 25, 2018

The Securities and Exchange Commission today announced that Elizabeth Baird and Christian Sabella have been named Deputy Directors in the Division of Trading and Markets.

Ms. Baird joins the SEC from Morgan, Lewis & Bockius LLP, where she was a partner in the firm’s Washington, D.C. office and served as a leading adviser to businesses and investors in the fixed income, equities, and options markets. Prior to attending law school, Ms. Baird spent nearly a decade trading bonds. Ms. Baird earned her bachelor’s degree from Brown University and her law degree from the Georgetown University Law Center.

Mr. Sabella has been an Associate Director in the division’s Office of Clearance and Settlement since 2015, and played a key role in the development, implementation and oversight of financial market infrastructure policy initiatives, including standards for systemically important clearing agencies and shortening the standard settlement cycle. He joined the SEC in 2011 as a branch chief in the division’s Office of Derivatives Policy and Trading Practices and later served as counsel to the director of the Division of Trading and Markets. Mr. Sabella earned his bachelor’s degree from the University of Notre Dame and his law degree from the Georgetown University Law Center.

“Lizzie and Christian bring a breadth of complimentary experience and perspectives that will help the Division and the agency continue to look out for the long term interests of Main Street investors,” said Brett Redfearn, Director of the Division of Trading and Markets.

“It’s an honor to be invited to contribute my experience to ongoing work on initiatives that support the fair operation of our capital markets,” said Ms. Baird. “I am excited to have the opportunity to work with the dedicated staff of Trading and Markets on issues that matter to investors.”

“I am humbled and honored to take on this new role,” said Mr. Sabella. “I am fortunate to work with talented and dedicated colleagues in the Division of Trading and Markets and throughout the SEC. I am excited to continue our shared goal of advancing the agency’s mission and serving investors across the country.”



Press Release

SEC Charges Failed Fyre Festival Founder and Others With $27.4 Million Offering Fraud



Washington D.C., July 24, 2018

The Securities and Exchange Commission today announced that New York entrepreneur William Z. (Billy) McFarland, two companies he founded, a former senior executive, and a former contractor agreed to settle charges arising out of an extensive, multi-year offering fraud that raised at least $27.4 million from over 100 investors.

The SEC’s complaint alleges that McFarland fraudulently induced investments into his companies Fyre Media, Inc., Fyre Festival LLC, and Magnises, Inc., including in connection with McFarland’s failed venture to host a “once-in-a-lifetime” music festival in the Bahamas. With substantial assistance from Grant H. Margolin, his Chief Marketing Officer, and Daniel Simon, an independent contractor to his companies, McFarland induced investors to entrust him with tens of millions of dollars by fraudulently inflating key operational, financial metrics and successes of his companies, as well as his own personal success – including by giving investors a doctored brokerage account statement purporting to show personal stock holdings of over $2.5 million when, in reality, the account held shares worth under $1,500.  McFarland used investor funds to bankroll a lavish lifestyle including living in a Manhattan penthouse apartment, partying with celebrities, and traveling by private plane and chauffeured luxury cars.

“McFarland gained the trust of investors by falsely portraying himself as a skilled entrepreneur running a series of successful media companies.  But this false picture of business success was built on fake brokerage statements and stolen investor funds,” said Melissa Hodgman, Associate Director of the SEC’s Enforcement Division.

The SEC’s complaint, which was filed in federal court in Manhattan, charges McFarland, Margolin, Simon, Fyre Media, and Magnises with violating the antifraud provisions of the federal securities laws.  McFarland has admitted the SEC’s allegations against him, agreed to a permanent officer-and-director bar, and agreed to disgorgement of $27.4 million, to be deemed satisfied by the forfeiture order entered in McFarland’s sentencing in a related criminal case.  Margolin, Simon, Fyre Media, and Magnises agreed to the settlement without admitting or denying the charges.  Margolin has agreed to a 7-year director-and-officer bar and must pay a $35,000 penalty, and Simon has agreed to a 3-year director-and-officer bar and must pay over $15,000 in disgorgement and penalty.  The settlements are subject to court approval.

The SEC’s investigation was conducted by James Bresnicky, Benjamin Brutlag, and Sarah Lamoree, with assistance from Sarah Heaton Concannon, and was supervised by J. Lee Buck II and Ms. Hodgman.  The SEC appreciates the assistance of the Federal Bureau of Investigation and the U.S. Attorney’s Office for the Southern District of New York.






July 19, 2018

CFTC Reduces Risk for Customer Funds Held by Derivatives Clearing Organizations by Expanding Investment Options

Washington, DC — The Commodity Futures Trading Commission (CFTC) unanimously approved an order that allows registered derivatives clearing organizations (DCOs) to invest customer euro cash in French and German sovereign debt.  Allowing DCOs to invest customer euro cash in high-quality European sovereign debt poses less risk than the current practice of holding customer euro cash at commercial banks.

“The CFTC is committed to promoting vibrant, competitive and financially sound global markets,” said Division of Clearing and Risk Director Brian Bussey. “With these expanded investment options, DCOs can manage their risks more effectively, while better protecting customer funds.”

The order exempts DCOs from certain restrictions on the investment of futures and swap customer funds, allowing funds held in euro cash to be invested in French and German sovereign debt. The CFTC granted this exemption on the basis that French and German debt have credit, liquidity, and volatility characteristics that are comparable to currently permitted investments in U.S. Government Securities, and adequately preserve principal and maintain the liquidity of customer funds.





July 19, 2018

Federal Court Orders Estonian Forex Dealer to Pay over $10 Million in Sanctions for Defrauding U.S. Customers and Orders Introducing Broker that Solicited for Dealer to Pay $85,000 Penalty

Tallinex Ltd. Ordered to Pay nearly $10.3 Million in Restitution to Defrauded Customers and Defendants Ordered to Pay Civil Monetary Penalties Totaling More than $760,000

Washington, DC -The U.S. Commodity Futures Trading Commission (CFTC) announced that Judge David Nuffer of the U.S. District Court for the District of Utah entered an Order for Final Judgment by Default against Tallinex, a/k/a Tallinex, Ltd. (Tallinex), an Estonian company that was licensed to do business in St. Vincent and the Grenadines.  The Default Order requires Tallinex to pay $10,289,391 in restitution to U.S. customers and a civil penalty of $681,888.  The Order, entered on July 9, 2018, also permanently prohibits Tallinex from violating the Commodity Exchange Act, as charged.

Judge Nuffer also entered a Consent Order on June 26, 2018, against General Trader Fulfillment (GTF), a Nevada company operating out of Pleasant Grove, Utah that introduced U.S. customers to Tallinex.  The Consent Order requires GTF to pay an $85,000 civil monetary penalty and permanently prohibits GTF from violating the CEA, as charged.

The Court’s Orders stem from a CFTC Complaint filed on May 30, 2017 (see CFTC Complaint and Press Release 7568-17: CFTC Charges Estonian Company Tallinex with Fraud and Failure to Register as a Retail Foreign Exchange Dealer and Nevada Company General Trader Fulfillment with Failure to Register as an Introducing Broker).

The Default Order

The Default Order found that Tallinex operated as an unregistered foreign exchange (forex) dealer by soliciting or accepting orders for leveraged or margined forex transactions from retail U.S. customers, and offered to be or was the counterparty to such contracts with its customers without being registered with the CFTC as a retail foreign exchange dealer.  The Order also found that Tallinex defrauded these customers by knowingly or recklessly misrepresenting or omitting material facts.  Specifically, the Default Order found that Tallinex falsely represented that it was lawfully doing business in the United States, falsely and misleadingly represented that customer funds were segregated and protected in the event of Tallinex’s financial collapse, and Tallinex failed to disclose risks but promoted extraordinary profits of between 162.29% up to 1301.10% to create the impression that forex investments made with it were likely to be profitable so that it could increase its number of customer accounts.

The Consent Order

The Consent Order finds that GTF, which was in the business of providing forex trading instruction, paid “coaches” to teach its customers forex trading using hypothetical accounts.  The Order finds that at least one coach introduced U.S. customers who were non-ECPs, i.e., not eligible contract participants, to Tallinex for the purposes of opening and maintaining individual forex trading accounts at Tallinex and participating in off-exchange retail forex transactions at Tallinex.  The Order also finds that by so doing, GTF acted as an introducing broker without being registered with the CFTC, as required.

The CFTC cautions victims that restitution orders may not result in the recovery of money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

The CFTC thanks and acknowledges the Estonian Finantsinspektsioon/Financial Supervision Authority, the St. Vincent and the Grenadines Financial Services Authority, the Bulgarian Financial Supervision Commission, and the Czech National Bank for their assistance in this matter.

The CFTC Division of Enforcement staff members responsible for this action are Camille Arnold, Diane Romaniuk, Joy McCormack, David Terrell, Scott Williamson and Rosemary Hollinger.

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CFTC’s Foreign Currency (Forex) Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Foreign Currency Trading (Forex) Fraud Advisory, which states that the CFTC has witnessed a sharp rise in Forex trading scams in recent years and helps customers identify this potential fraud.

Also before investing or trading with a firm, check the firm’s registration status and disciplinary history, if registered, with the National Futures Association.  A company’s registration status can be found at: www.nfa.futures.org/basicnet.

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.





July 19, 2018

Federal Court in District of Columbia Orders “Prediction Market” Companies to Pay $3 Million Civil Monetary Penalty for Illegally Trading Binary Options and Violating a 2005 CFTC Cease and Desist Order

Washington, DC – The Commodity Futures Trading Commission (CFTC) today announced that on July 5, 2018, Senior Judge Royce C. Lamberth of the U.S. District Court for the District of Columbia issued an Opinion and Order (Order) against Defendants Intrade The Prediction Market Limited (Intrade) and Trade Exchange Network Limited (TEN), Irish companies based in Dublin, Ireland, requiring them to pay, jointly and severally, a $3 million civil monetary penalty for violations of the Commodity Exchange Act (CEA) and CFTC Regulations.

In ordering Intrade and TEN to pay a multi-million dollar civil monetary penalty, Judge Lamberth found, among other things, that Intrade’s and TEN’s repeated “violations severely compromised the regulatory purpose of the CEA and [were] serious” and, therefore, those “violations of the CEA and Commission Regulations, coupled with their brazen defiance of the 2005 Commission Order, warrant[ed] a CMP of $3 million.”

The Opinion and Order stem from a July 31, 2015 Memorandum Opinion and Order in which Judge Lamberth granted the CFTC summary judgment on Counts I and II of a Complaint filed against Intrade and TEN on November 26, 2012.  (See CFTC Complaint and Press Release 6423-12, November 26, 2012: CFTC Charges Ireland-based “Prediction Market” Proprietors Intrade and TEN with Violating the CFTC’s Off-Exchange Options Trading Ban and Filing False Forms with the CFTC.)

In granting summary judgment to the CFTC, the Court found that TEN and Intrade permitted U.S. customers to trade 5,503 binary option contracts involving CFTC-regulated commodities from September 2007 through June 25, 2012 in violation of the CFTC’s ban on off-exchange options trading.  The Court also found that TEN violated a 2005 Cease and Desist Order that the CFTC issued against TEN for similar conduct by, among other things, (1) allowing U.S. customers to trade those 5,503 binary option contracts, (2) failing to have blocks in place for U.S. customers on 2,027 prohibited binary option contracts, and (3) lifting blocks on prohibited binary option contracts.  As a result, the Court permanently enjoined TEN and Intrade from further violating the CEA and CFTC Regulations but deferred a decision on disgorgement and a civil monetary penalty.  Subsequently, the CFTC voluntarily dismissed Count III and the parties reached a resolution in which Intrade and TEN disgorged and distributed to U.S. customers almost $250,000.

CFTC Division of Enforcement staff members responsible for this case are Kathleen Banar, James Deacon, Erica Bodin, Michelle Bougas, Mary Q. Lutz, and Rick Glaser.

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See CFTC’s Binary Options Customer Fraud Advisory

The CFTC has issued a Consumer Alert to warn about fraudulent schemes involving binary options and their trading platforms.  The Alert warns customers that the perpetrators of these unlawful schemes typically refuse to credit customer accounts, deny fund reimbursement, commit identity theft, and manipulate software to generate losing trades.

Also, before investing or trading with a firm, check the firm’s registration status and disciplinary history, if registered, with the National Futures Association.  A company’s registration status can be found at: www.nfa.futures.org/basicnet.

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.



How To Operate And Control Your Own Bitcoin Node

By: marketsfinance  – July 18, 2018


The value of a cryptocurrency is determined by how safe its network is. The security of Bitcoin is based on its ability to verify and validate genuine transactions in the nodes operating in its network. However, with Bitcoin, it takes a lot of time and resources to verify transactions in each node. This disadvantage was made clear in 2017 when Bitcoin’s blockchain became overwhelmed by lots of transactions that were being carried out at the same time. This led to the system getting clogged. Consequently, lots of delays were experienced when it came to processing transactions. Click Here To Go Straight To Our Online Tutorial

To deal with such problems, Bitcoin was divided into two networks: lightweight nodes and full nodes. Lightweight nodes can process transactions much faster than full nodes. The reason as to why it processes transactions faster is because they don’t download the full transaction on the blockchain. In case a transaction is downloaded, then just the header and any other information that’s relevant to the transaction are downloaded. This helps to speed up the transaction. Validated Bitcoin nodes confirm that all the transactions that are taking place within the blockchain are genuine. The nodes download all the transactions on Bitcoin’s blockchain and fully authenticate them.

The benefit of running a mining machine includes the coin rewards that you will get. This is in addition to any gains made on the coins when their value goes up. You will not be paid for running a full Bitcoin node. However, you will get to enjoy some other benefits. For instance, your transactions will be more secure. This is particularly essential if you are planning on carrying out multiple transactions a day. Also, you will make the entire Bitcoin network much more secure. Since a full node downloads all the transactions, it will always have the latest information about anything that’s related to Bitcoin’s blockchain.

If you’re an investor, then full nodes have two purposes: first, they will help monitor how healthy Bitcoin’s network is. The health of the blockchain is quite vital as it has a direct relation to the price of Bitcoin, considering that it’s the blockchain where transactions are carried out. Also, it will make the cryptocurrency much safer to use, therefore, ensuring that investments are safe. Secondly, it makes sure that only valid and accurate Bitcoin transactions take place.

How to Set Up a Full Node

It’s not that difficult to set up a full node.

There are three ways to go about it:

In the first method, you will have to run the full node in the cloud. This requires that you sign up for an Amazon Web Services or Google Cloud account. Then create a Virtual Machine (VM) so you can accelerate connection and sync to the cloud from your PC. Make sure the firewall rules have been properly set up. You will then need to download Bitcoin Core. You need this program to run Bitcoin and set it up by configuring the right port settings on your computer to the cloud.

The second method is similar to the first method, except that in this case, you will run the Bitcoin Core on your local machine. To run a Bitcoin core, you will need at least 145 GB of hard disk space and 2GB of RAM. According to some reports, Bitcoin’s blockchain was 200 GB in January. Also, your internet speed should be at least 50 Kbps. The upload and download limit should also be quite good. Preferably, go for a connection which doesn’t place any limits on the uploads and downloads. You can learn how to configure the Bitcoin core client from some websites or videos that you can find online. When you’re syncing Bitcoin’s blockchain for the first time, it might take a couple of days. Nevertheless, when you do it for the second time, it should be much faster.

The “node in a box” option is the third method that you can use to set up a full node. In this condition, full nodes that have already been configured are connected to the computer. These nodes come with an interface which you can use to control the device and check out the information included in it. In this case, the bulk of the work consists in storing Bitcoin’s blockchain in a portable external drive that doesn’t use a lot of energy. For instance, Bitseed, Digitalbit, and Stash are some providers that give this option.

How to Run a Full Bitcoin Node

We will show you here how to set up a Bitcoin full node using the Bitcoin Core client. For you to start, you will need to have enough space for the blockchain which requires at least 155GB and 2 GB RAM.

Since you will be uploading and downloading large quantities of information, you need a stable Internet connection.

You can take some measures to minimize the use of space and internet traffic.

To secure your full node, use a dedicated computer. This minimizes the chances of you accidentally downloading a virus that will infect your computer.

Download Bitcoin Core

From your computer, open a browser and then go to the Bitcoin Core website. Click on ‘Download Bitcoin Core.’ This automatically downloads the right version to your computer, based on the operating system that you’re using.

In case you have Windows 10, you can automatically run the installer.
The installer will start, and then you will click ‘Next.’ Then click ‘Finish,’ to complete the installation.

You are then ready to start Bitcoin Core. If you’re using Windows, then you can start it from the start menu.

Sync Blockchain Data

Once you launch Bitcoin Core, you will be asked where you want to store the data directory. This simply means where your Bitcoin wallet will be stored, including a Bitcoin blockchain copy which should be around 155GB.

Select the ‘Use the default data directory’ option. This will enable you to store your information on your hard drive. In case you don’t have enough space or you would rather store your information somewhere else, then select the ‘Use a custom data directory’ option. This allows you to choose in which specific folder to store the information, even if it’s in an external hard drive.

Then click “OK,” and the synchronization process will start. This can last for a couple of hours or even days.

Encrypt Your Wallet

Anyone who has a copy of the directory that you set up can automatically have access to your Bitcoins through the ‘wallet.dat’ file. Therefore, the best thing you can do is to encrypt this file, so that hackers cannot easily gain access to it.

Click on “Hide” then click on “Settings” menu and then “Encrypt” wallet. Go through the warning message that will pop up and then select a password.

Enter your password and then click “ok.” Make sure to write down your password, so you don’t forget it.

Backup Your Wallet

In case your ‘wallet.dat’ files get deleted or corrupted, you will not be able to access your Bitcoins.

To avoid this, go to “File,” then “Backup Wallet,” to export the wallet file. You can also back it up in a drive. Don’t upload you’re backed up the wallet to cloud storage. It makes other people know that you own BTC and hackers might try to hack your password.

You can also backup your file on a USB drive. Just make sure you store your USB in a safe place.

Download Tor

To prevent other people from knowing when you’re making BTC payments, route your Bitcoin core traffic through Tor by using ‘Onion Routing.’

Do this by going to ‘Windows,’ and then download ‘Expert Bundle.’

Right-click on the file and then choose ‘Extract all.’ Click on the new directory and then click on ‘Tor.’ Double click on ‘Tor.exe.’ In case you get an alert from Windows Defender, click on ‘more info’ and then click on ‘run anyway.’

Go back to the Bitcoin core, click on ‘Settings’ and then ‘Options.’ Click on ‘Network’ then check the box ‘Use separate SOCKS5 Proxy. Click ‘OK,’ then ‘File’ then ‘Exit.’

From this point, Bitcoin will use Tor when connecting to peers.

Choose Your Peers

Bitcoin connects to IP addresses of other full nodes through its DNS feeds. The moment you launch your client, Bitcoin core will automatically connect to eight other IP addresses through its DNS seeds, to download and authenticate information.

You can choose which IP addresses your Bitcoin connects to. Start by first going to the Wiki page to get a list of reliable nodes. Then launch Bitcoin Core and go to “Settings,” then “Options” then “Open Configuration File” and click “OK” in the end.

Paste your selected nodes in a blank document using ‘connect=.’ For instance, you can paste it like this ‘connect=’. Click ‘Save’ and then ‘Exit.’ Next time you launch Bitcoin Core, it will only try to connect to your selected nodes.

In case you used Tor connections in the last step, think about using the ‘Tor Nodes’ that have been listed on Wiki, for instance ‘connect=gyn2vguc35viks2b.onion’. This will keep your connections private and will make it much harder for other people to trace your connections. Just be aware that this can seriously slow down your upload/download speeds.

Enable Pruning

When you prune, it means that you are getting rid of old information that was used during previous transactions and you’re only storing information related to new transactions. When you prune, you can cut down storage space from 155 GB to 6GB.

Don’t prune if you have the space to store the data since it enables Bitcoin Core to download the entire blockchain if you are using it for the first time. But if you don’t have space, go to file configuration as described above and then add ‘prune=550’ in a new line. This will automatically get rid of any old transactions on Bitcoin Core.

Enable Incoming Connections

You can choose to allow other networks to connect to your network nodes automatically. To do this, go to ‘Settings,’ then ‘Options,’ then ‘Network.’

In case you’re using ‘Tor’ to connect, it’s possible for ‘Bitcoin Core’ to automatically set up a hidden service that allows other peers to connect to you via the Darknet. With this, it’s much more difficult for someone to know when you are carrying out Bitcoin transactions.

Fund Your Wallet

Once you have synced and configured your Bitcoin core network, then you are ready to receive funds in your account.

Go to Bitcoin Core, ‘File,’ then ‘Receiving Address,’ and list your payment address. It’s much safer for you to use a new address anytime you are receiving a new payment. Copy the address that you have and use it to send BTC to your wallet.

Double click on the label and set a ‘Name.’ To generate a new address, click on ‘New.’

To see if your funds have been sent, click on ‘Overview.’

Is Running A Bitcoin Node For Me

In case you want to use your BTC, click on ‘Send.’ Then input the receiver’s address in the ‘Send to’ field. Alternatively, you can set a label and the amount of money you want to spend. Then go to the drop-down menu and select any denomination that you might want to spend, like mBTC (millibitcoins).

Then click on ‘Choose,’ to have the amount you want to spend validated. The more money you’re spending, the faster your transaction will be. To select this, click on the ‘Confirmation Time Target’ drop-down menu. You have the option of paying the minimum required amount. But in case the network is busy, then your transaction might fail to go through.

Backlink: https://financeandmarkets.com/how-to-run-a-bitcoin-node/


Press Release

SEC Charges Oil Company CEO, Board Member With Hiding Personal Loans

Loans From Vendors Helped CEO Meet Margin Calls, Finance Extravagant Lifestyle



Washington D.C., July 16, 2018

The Securities and Exchange Commission today charged the former CEO of Energy XXI Ltd. with hiding more than $10 million in personal loans that he obtained from company vendors and a candidate for Energy XXI’s board.  At the time of the alleged misconduct, Energy XXI was NASDAQ-listed and one of the largest oil and gas producers on the Gulf of Mexico shelf.

According to the SEC’s complaint, CEO John D. Schiller Jr. maintained an extravagant lifestyle by using a highly leveraged margin account secured by his Energy XXI stock.  The complaint alleges that in 2014, when faced with significant margin calls, Schiller extracted more than $7.5 million in undisclosed personal loans from company vendors in exchange for business contracts with Energy XXI.

Schiller also is alleged to have obtained a $3 million loan from Norman Louie, a portfolio manager at Energy XXI’s largest shareholder Mount Kellett Capital Management LP.  Louie was appointed to Energy XXI’s board just weeks later.  The SEC alleges that Schiller did not disclose the vendor loans or the Louie loan to Energy XXI.

“Executives of public companies have a duty to act in the best interests of investors,” said Anita B. Bandy, an Assistant Director in the SEC’s Division of Enforcement.  “Secret backroom deals for the benefit of corporate insiders violate those duties and deprive investors of important information.”

The complaint also alleges Schiller received undisclosed compensation and perks in the form of lavish social events, first-class travel, a shopping spree, donations to Schiller-preferred charities, legal expenses for personal matters, and an office bar stocked with high-end liquor and cigars.  As a result, Energy XXI failed to report at least $1 million in excess compensation in its executive compensation disclosures over a five-year period.

Schiller consented, without admitting or denying the SEC’s charges, to a permanent injunction that enjoins him from violating anti-fraud and reporting provisions of the federal securities laws, imposes a $180,000 penalty, and bars him from serving as an officer or director of a public company for five years.

The SEC also charged Louie for his role in hiding his loan to Schiller, and Mount Kellett is charged with failing to disclose its activist plan to place Louie on Energy XXI’s board.  Louie and Mount Kellett consented, without admitting or denying the findings, to an SEC order that they cease and desist from committing or causing any violations or any future violations of certain reporting and disclosure provisions of the federal securities laws.  Louie must pay a $100,000 penalty and Mount Kellett, which is an SEC-registered investment adviser, must pay a $160,000 penalty.

The SEC’s investigation, which is continuing, has been conducted by Nicholas A. Brady and Asset Management Unit member Janene M. Smith with assistance from litigation counsel Charles D. Stodghill.  The case has been supervised by Ms. Bandy.


Press Release

SEC Charges Oil Company CEO, Board Member With Hiding Personal Loans

Loans From Vendors Helped CEO Meet Margin Calls, Finance Extravagant Lifestyle



Washington D.C., July 16, 2018

The Securities and Exchange Commission today charged the former CEO of Energy XXI Ltd. with hiding more than $10 million in personal loans that he obtained from company vendors and a candidate for Energy XXI’s board.  At the time of the alleged misconduct, Energy XXI was NASDAQ-listed and one of the largest oil and gas producers on the Gulf of Mexico shelf.

According to the SEC’s complaint, CEO John D. Schiller Jr. maintained an extravagant lifestyle by using a highly leveraged margin account secured by his Energy XXI stock.  The complaint alleges that in 2014, when faced with significant margin calls, Schiller extracted more than $7.5 million in undisclosed personal loans from company vendors in exchange for business contracts with Energy XXI.

Schiller also is alleged to have obtained a $3 million loan from Norman Louie, a portfolio manager at Energy XXI’s largest shareholder Mount Kellett Capital Management LP.  Louie was appointed to Energy XXI’s board just weeks later.  The SEC alleges that Schiller did not disclose the vendor loans or the Louie loan to Energy XXI.

“Executives of public companies have a duty to act in the best interests of investors,” said Anita B. Bandy, an Assistant Director in the SEC’s Division of Enforcement.  “Secret backroom deals for the benefit of corporate insiders violate those duties and deprive investors of important information.”

The complaint also alleges Schiller received undisclosed compensation and perks in the form of lavish social events, first-class travel, a shopping spree, donations to Schiller-preferred charities, legal expenses for personal matters, and an office bar stocked with high-end liquor and cigars.  As a result, Energy XXI failed to report at least $1 million in excess compensation in its executive compensation disclosures over a five-year period.

Schiller consented, without admitting or denying the SEC’s charges, to a permanent injunction that enjoins him from violating anti-fraud and reporting provisions of the federal securities laws, imposes a $180,000 penalty, and bars him from serving as an officer or director of a public company for five years.

The SEC also charged Louie for his role in hiding his loan to Schiller, and Mount Kellett is charged with failing to disclose its activist plan to place Louie on Energy XXI’s board.  Louie and Mount Kellett consented, without admitting or denying the findings, to an SEC order that they cease and desist from committing or causing any violations or any future violations of certain reporting and disclosure provisions of the federal securities laws.  Louie must pay a $100,000 penalty and Mount Kellett, which is an SEC-registered investment adviser, must pay a $160,000 penalty.

The SEC’s investigation, which is continuing, has been conducted by Nicholas A. Brady and Asset Management Unit member Janene M. Smith with assistance from litigation counsel Charles D. Stodghill.  The case has been supervised by Ms. Bandy.


Press Release

SEC Files Charges in Busted Microcap Schemes



Washington D.C., July 13, 2018 —

The Securities and Exchange Commission has charged a stock promoter and four others involved in an alleged series of microcap fraud schemes that were foiled by FBI undercover work and an SEC trading suspension.

According to the SEC’s complaint filed in federal court in southern California on July 6, stock promoter Gannon Giguiere took control of a purported medical device company.  Giguiere, together with a Cayman Islands-based broker, then allegedly engaged in a matched trading scheme that caused the company’s share price to rise from zero to $1.20 per share.  Giguiere and the brokerage owner, Oliver-Barret Lindsay, allegedly coordinated their matched trading through an individual who turned out to be an FBI cooperating witness.  According to the complaint, despite extensive encrypted communications, the defendants were caught by an undercover FBI operation that recorded their communications, with Lindsay going so far as to tell an individual cooperating with the FBI, “I’m a little hesitant about typing all of these details into this app. … You can just imagine if it finds its way somewhere it’s fairly incriminating.”  According to the complaint, the pair’s plan to dump millions of shares in the purported medical device company was thwarted when, this past March, the SEC suspended trading in the securities of the purported medical device company.

The SEC’s complaint also charges three others who began laying the groundwork for a pump-and-dump scheme involving a purported digital media company.  The SEC alleges that Kevin Gillespie, Annetta Budhu, and Andrew Hackett entered into a number of sham stock and debt issuances, and Hackett wound up communicating with someone he believed to be a participant in the scheme who in reality was an undercover FBI agent.

“As alleged in our complaint, these stock traders hijacked companies and manipulated the market to enrich themselves at the expense of the investing public.  Law enforcement is committed to rooting out microcap fraud and exposing it no matter how encrypted or complex such schemes may be,” said Marc P. Berger, Director of the SEC’s New York Office.

The U.S. Attorney’s Office for the Southern District of California today announced criminal charges.

The SEC’s investigation, which is continuing, has been conducted by John O. Enright, Joseph P. Ceglio, Diego Brucculeri, and Sheldon L. Pollock of the New York office.  The SEC’s litigation will be handled by Messrs. Enright and Ceglio.  The case is being supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the FBI, U.S. Attorney’s Office for the Southern District of California, and Financial Industry Regulatory Authority.


Press Release

SEC Issues Agenda for July 16 Meeting of the Fixed Income Market Structure Advisory Committee



Washington D.C., July 11, 2018 —

The Securities and Exchange Commission today released the agenda for the July 16 meeting of the Fixed Income Market Structure Advisory Committee.  The Commission established the advisory committee to provide a formal mechanism through which the Commission can receive advice and recommendations on fixed income market structure issues.

The meeting will be held at the SEC’s headquarters at 100 F Street, NE, Washington, DC, and is open to the public.  The meeting will be webcast live on the SEC’s website and archived on the website for later viewing.

Members of the public who wish to provide their views on the matters to be considered by the Fixed Income Market Structure Advisory Committee may submit comments either electronically or on paper, as described below.  Please submit comments using one method only.  Information that is submitted will become part of the public record of the meeting.

Top of Form

Electronic submissions:

Use of the SEC’s Internet submission form or send an e-mail to rule-comments@sec.gov  .

Paper submissions:

Send paper submissions in triplicate to Brent Fields, Secretary, Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-1090.

All submissions should refer to File Number 265-30, and the file number should be included on the subject line if e-mail is used.

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SEC Fixed Income Market Structure Advisory Committee


July 16, 2018


9:30 a.m.          Remarks by Commissioners; Division of Trading and Markets Director Brett Redfearn; and Committee Chairman Michael Heaney

10:00 a.m.        Pre-Trade Transparency under MiFID II

Neil Hamburger, JP Morgan Chase

Miranda Morad, MarketAxess

Michael Surowiecki, PIMCO

Mark Yallop, FICC Markets Standards Board

11:00 a.m.        Break

11:15 a.m.        Current State of Pre-Trade Transparency in the U.S. Corporate Bond Market

Jon Klein, Bank of America Merrill Lynch

Ben Macdonald, Bloomberg

Tim Morbelli, Alliance Bernstein

Steve Shaw, BondSavvy

Thomas Urano, Sage Advisory Services

Chris White, Viable Markets and BondCliQ

12:30 p.m.       Lunch Break

1:30 p.m.         Current State of Pre-Trade Transparency in the U.S. Municipal Securities Market

Bernard Costello, Morgan Stanley

Ric Edelman, Edelman Financial Services

Chris Ferreri, Hartfield, Titus and Donnelly

Ben Smelser, Breckinridge Capital Advisors

David Umeda, Charles Schwab

Ron Valinoti, Triangle Park Capital Markets Data

2:45 p.m.         Break

3:00 p.m.         Electronic Trading Venue Regulation – Draft Recommendation

Horace Carter, Raymond James

Doug Friedman, Tradeweb

Ben Macdonald, Bloomberg

Rick McVey, MarketAxess

Alex Sedgwick, T. Rowe Price

Bill Vulpis, ICE BondPoint

4:15 p.m.         ETFs and Bond Funds Subcommittee Update

4:45 p.m.         Adjournment






July 12, 2018

CFTC Orders Commodity Trading Firm to Pay $3.4 Million Penalty for Attempted Manipulation of Agricultural Markets

Washington, DC – The Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against Lansing Trade Group, LLC (Lansing), a commodity merchandising firm with headquarters in Overland Park, Kansas, for the attempted manipulation of the price of certain wheat futures and options contracts that were traded on the Chicago Board of Trade (CBOT) and for aiding and abetting the attempted manipulation of the cash price for yellow corn from Columbus, Ohio (Columbus Corn).

The CFTC Order requires Lansing to pay a $3.4 million civil monetary penalty, to undertake remedial measures to implement and strengthen its internal controls and procedures relating to compliance with the anti-manipulation provisions of the Commodity Exchange Act (CEA) and CFTC Regulations, and to cease and desist from further violations of the CEA and CFTC Regulations, as charged.

James McDonald, CFTC Director of Enforcement, commented: “This Order shows the CFTC’s relentless commitment to preventing manipulation in our agricultural markets.  The CFTC will continue to work with our law enforcement partners and other regulators to fight manipulation and to preserve market integrity.”

According to the CFTC Order, Lansing is largely focused on the purchase, handling, storage and sale of physical commodities including grains, feed ingredients, and certain energy products within North America and internationally.  Lansing has locations throughout North America, as well as the United Kingdom.  In addition to their transactions in the physical or cash grain markets, Lansing’s traders hedge their physical grain trading activity and take speculative positions by trading related commodity futures, including CBOT wheat futures and options contracts.

The CFTC Order further states that from at least March 3, 2015, to March 11, 2015, Lansing coordinated and executed a strategy to attempt to manipulate the price of certain CBOT wheat futures and options contracts.  Lansing’s strategy centered on acquiring and loading-out for delivery wheat with 3 parts per million deoxynivalenol (3 ppm Vomitoxin) through the purchase and cancellation of 250 wheat shipping certificates (Wheat Certificates).  Through the cancellation of these Wheat Certificates, Lansing intended to send a false or misleading signal to the market of a demand for 3 ppm Vomitoxin wheat in order to attempt to influence the price of certain wheat futures and options contracts being traded on the CBOT.  Lansing intended by these actions to increase the value of its wheat spread and option positions.

In order to maximize the potential influence of cancelling the Wheat Certificates on Lansing’s wheat spread and options positions, the CFTC Order further states that a Lansing trader communicated with the writer of a market newsletter, who agreed to disseminate information about Lansing’s intent to cancel and load-out the Wheat Certificates to the market.  For example, in a March 6 telephone call, a Lansing trader told the newsletter writer that the then-available receipts would not be available by night time but added that “I just wanted to make sure the market got lopsided first.”  In a call later that day, a Lansing trader further described his communications with the newsletter writer and said “I got (the newsletter writer), he’s gonna give it the gas tonight, and its gonna be good.” By such conduct, Lansing attempted to manipulate the price of certain wheat futures and options contracts being traded on the CBOT.

Separately, on February 19, 2015, according to the CFTC Order, a Commodity Broker (“Broker”) contacted a trader at Lansing by phone and requested that Lansing enter into a transaction with its counterparty, a Grain Company (Grain Company), for Columbus Corn at a price below the market price.  The CFTC Order further states that the Broker told the Lansing trader that the Grain Company wanted this reduced price for the Columbus Corn put “out there” to the market, and that this transaction would be used by the Grain Company to spread false or misleading information about the price of Columbus Corn.  Written confirmations from Lansing confirm that Lansing entered into two transactions with the Grain Company on that day at the exact lower prices discussed with the Broker.  By such conduct, Lansing aided and abetted an attempt to manipulate downward the price of Columbus Corn.

The CFTC’s investigation was conducted in conjunction with a related inquiry by the CME Group Inc.  Today, the CME Group Inc. issued a Notice of Disciplinary Action (NDA) in which Lansing agreed to pay a fine of $3.15 million arising out of the attempted manipulation of the wheat futures contracts that is the subject of the CFTC’s Order.  In imposing its civil monetary penalty, the CFTC took into account the fine imposed by the CME in its related action.  The CFTC thanks the CME Group, Inc. for its assistance.

CFTC Division of Enforcement staff members responsible for this case are Michael Cazakoff, Michael Geiser, Lara Turcik, James G. Wheaton, Steven Ringer, Lenel Hickson, Jr., and Manal M. Sultan.



Opening Statement of Commissioner Brian Quintenz before the CFTC Market Risk Advisory Committee Meeting


July 12, 2018

Thank you Commissioner Behnam for convening today’s meeting of the Market Risk Advisory Committee (MRAC).  I am delighted to join you and Chairman Giancarlo, and all of the new and returning members of this Committee, for the first meeting of the MRAC under its renewed charter.  I look forward to hearing from MRAC members about the priorities and initiatives they wish to address during their two-year term.

I am also pleased that today’s meeting is devoted to addressing the reform of London Interbank Offered Rates, otherwise known as LIBOR.  This is a timely matter and one that has a wide-ranging effect on the derivatives markets.  I support the ongoing benchmark reform initiatives and the development of alternative risk-free rates (RFRs), in particular the efforts of the Alternative Reference Rate Committee (ARRC) to establish the Secured Overnight Financing Rate (SOFR) as a new benchmark rate for U.S. dollar-based business.  It is essential to the vitality and stability of the global derivatives market that participants trust the integrity of global financial benchmarks.

I would like to take a moment to commend the Division of Enforcement’s aggressive prosecution of those who sought to manipulate LIBOR and other benchmarks that are critical to the functioning of our financial markets.  Those who seek to subvert the accuracy of these benchmarks for their own financial gain should be held accountable, and I support the Commission’s relentless efforts to pursue bad actors and restore public confidence in the integrity of these benchmarks.

Over $300 trillion of financial products, ranging from interest rate derivatives to home mortgages, are tied to LIBOR or other interbank offered rates.[1]  It is therefore critical that these reference rates reflect an honest assessment of the costs of borrowing unsecured funds in the interbank markets.  Since 2013, banks have worked to improve the governance surrounding their LIBOR submissions so that the rate is more closely tied to transactions rather than subjective judgements.[2]  However, given the decline in activity in the unsecured bank funding market, and the absence of an FCA mandate for LIBOR submissions post-2021, firms should seriously consider the long-term sustainability of solely relying on LIBOR.  Although LIBOR may continue to exist into the future, if participation continues to decline, questions may arise as to whether the rate continues to accurately reflect market conditions.  The development of alternative RFRs that are based on actual transactional data from robust, underlying markets will provide a transparent, viable alternative to LIBOR for market participants.

I appreciate the hard work of the ARRC to develop a market-based alternative, SOFR, which represents the cost of borrowing money secured by Treasury securities overnight.  I think it is incumbent upon the the Commission, our international counterparts, and the markets themselves to carefully consider how the widespread adoption of SOFR and other RFRs could be accomplished in a manner that avoids unnecessary confusion, fragmentation, and disruption.

The introduction of RFRs poses a number of significant challenges for the derivatives markets.  For starters, the markets must develop a forward-looking term structure for overnight rates like SOFR.  New cash and derivative products referencing alternative RFRs must be created and robust markets for those products must be cultivated, so that market participants continue to have access to liquid, efficient trading.  On that front, the launch of SOFR futures this past May is a first step toward creating a market for such products; additionally, these futures contracts may be useful as the markets build a forward-looking term structure.

For market participants transitioning to RFRs, much work lies ahead.  Each firm must develop its own individual implementation plan, including assessing its exposures tied to LIBOR-based products and determining how to amend legacy contracts to reflect an alternative RFR.  Risk management models must be updated to incorporate RFRs and take into account the basis risk that will exist between LIBOR and the various RFRs across jurisdictions during any transition period.  I would also encourage all firms to understand the fallback language that would govern their contracts in the event that LIBOR, at some point in the future, is no longer used.

For its part, the Commission can provide market participants with regulatory certainty regarding the treatment of legacy LIBOR-based contracts that are amended to reference new RFRs – including how margin, trading, and clearing requirements would apply to such amended contracts.

I would also like to note something we are not addressing today: the European Union (E.U.) Benchmarks Regulation, which took effect this past January and sets forth a comprehensive regulatory regime for benchmarks administrators.[3]  Proposed amendments to this regulation could impact U.S. firms.[4]  These amendments could result in yet another example of extraterritorial overreach by E.U. authorities, analogous to the proposed amendments to the European Markets Infrastructure Regulation (EMIR) regarding the regulation of third-country CCPs.[5]

The U.S. has not issued regulations analogous to the E.U. Benchmarks Regulation.  Instead, U.S. regulators have encouraged U.S. benchmarks administrators to abide by the Principles for Financial Benchmarks published by the International Organization of Securities Commissions (IOSCO) in 2013.[6]  Given the cross-border implications of the E.U.’s proposed amendments, I hope that U.S. regulators and their counterparts can coordinate on this issue so that benchmark administrators do not become subject to conflicting requirements across jurisdictions and that regulatory deference is respected.

In closing, I am eager to hear from the presenters on our panels today and MRAC members about how benchmark reform can be supported and what additional steps the Commission can take to foster the development of active derivatives markets referencing RFRs.  I look forward to the robust two-year agenda that this Committee will develop today, and I thank Commissioner Behnam and his staff for their hard work in planning today’s meeting.

[1]      ISDA, IBOR Global Benchmark Transition Report (June 2018),http://assets.isda.org/media/85260f13-66/406780f5-pdf/.

[2]      Remarks by Andrew Bailey, Chief Executive of the FCA, The Future of LIBOR (July, 27, 2017),https://www.fca.org.uk/news/speeches/the-future-of-libor.

[3]      Benchmarks, European Securities and Markets Authority, https://www.esma.europa.eu/policy-rules/benchmarks.

[4]      Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 2016 / 1011 on indices used as benchmarks in financial instruments (Benchmarks Regulation), Article 8 (Sept. 20, 2017), https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52017PC0536&from=EN.  See also Huw Jones, EU Lawyers Back More Say for Bloc’s Watchdog over Funds Industry, Reuters, June 26, 2018, https://www.reuters.com/article/us-eu-regulation-legal/eu-lawyers-back-more-say-for-blocs-watchdog-over-funds-industry-idUSKBN1JM261.

[5]      Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (ESMA) 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), https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52017PC0331&from=EN.

[6]      IOSCO Principles for Financial Benchmarks, https://www.iosco.org/news/pdf/IOSCONEWS289.pdf.


EVENT: CFTC Commissioner Behnam Announces Upcoming Market Risk Advisory Committee Public Meeting



Opening Statement of Commissioner Rostin Behnam before the Market Risk Advisory Committee Meeting


July 12, 2018


Good morning and welcome to the CFTC’s Market Risk Advisory Committee’s (MRAC or Committee) second meeting of 2018.  Since our last meeting in January, I renewed the Committee’s charter for another two-year term and reconstituted the membership.  I am pleased to welcome each and every one of our new and returning members to the MRAC.

The Committee members represent a balanced and diverse cross-section of interested derivatives market participants, including dealers, exchanges, clearinghouses, public interest groups, academics, and swap execution facilities.  In selecting among the candidates, I committed to ensuring that each member have demonstrable experience in the areas I envision addressing in the next few years, and a point of view from which to engage.  I believe the membership demonstrates these qualities and will bring depth and breadth to a public forum designed to tackle a full spectrum of critical market risk issues.


Before we move into the substance of today’s meeting, I want to thank Chairman Giancarlo and Commissioner Quintenz for being here today and for their contributions to this discussion.


I also want to thank today’s moderator, Tom Wipf, Vice Chairman of Institutional Securities at Morgan Stanley.  Tom has more than forty years of experience as an industry leader, and has served in multiple capacities in New York, London, and Tokyo.  Tom has always willingly shared his time and expertise here in Washington.  He currently serves as a member of the Alternative Reference Rates Committee (ARRC) sponsored by the Board of Governors of the Federal Reserve System (Federal Reserve Board), which will be particularly relevant to today’s conversation.


I want to thank each of the panelists for their willingness to travel to Washington in the middle of summer and contribute to this important conversation today.  We have gathered a distinguished group of speakers, and their readiness to participate is greatly appreciated and critical to today’s discussion.


I want to thank Alicia Lewis, the Committee’s Designated Federal Officer.  As Alicia demonstrated during the MRAC’s first meeting in January, her discipline, intelligence, and hard work, are the reasons why these meetings are executed with ease.


This advisory committee is tasked with critical responsibilities that can have profound effects on the health, transparency, and strength of our financial markets.  I believe it is important that all of us, as a unit, embrace this responsibility and use the opportunity to provide the Commission with thoughtful recommendations, directed at core principles, including identification and reduction of systemic risk; market safety, transparency, and efficiency; and prioritizing customer protections.  The task is not easy; but, with focus, and an all hands on deck approach, I believe the MRAC can add value to an effort that is greater than each of us individually.


The Agenda


Our first order of business today will be an open discussion of the MRAC’s priorities and agenda.  MRAC’s agenda has and will continue to be shaped by what members identify as the most pressing market risk issues.  I look forward to hearing from all of our members today.


Thereafter, we will begin a Committee discussion on an issue that has moved in surges and ebbs at the forefront of our market over the last decade: the erosion of the unsecured interbank term borrowing market, which underlies the world’s most prominent benchmark, the London Interbank Offered Rate (“LIBOR”), and the rampant misconduct incited by the decline.  LIBOR has been subject to pervasive fraud, abuse, and manipulation.  Since June 2012, the CFTC has levied sanctions of more than $3.3 billion for LIBOR-related misconduct. These important enforcement actions, initiated by prior CFTC leadership, not only addressed the bad actions of numerous individuals, but also a failure of financial institutions to properly police employees.


What much of the public also learned, as a result of these enforcement cases, is that LIBOR is not merely a financial tool for large institutions; LIBOR directly impacts the everyday lives of Americans across our nation.  From the terms of the most basic home mortgage, to student loan agreements, auto financing contracts, and credit card purchases, LIBOR is pervasive throughout our real economy.  At the expense of millions of Americans, a few individuals intentionally manipulated LIBOR to enrich themselves.  These actions, however discrete, are a cautionary tale that shows how important today’s exercise is to not only fix benchmarks, but ensure this type of fraud never happens again.


Our first panel will discuss the role of interest rate benchmarks in the economy, the impetus for LIBOR reform, and the current status of global reform initiatives.  The discussion will focus on the efforts of the Financial Stability Board (“FSB”) and the ARRC, as well as public and private sector coordination efforts in other jurisdictions.


Our second panel will do a deeper dive into current initiatives.  Specifically, the discussion will address efforts led by the ICE Benchmark Administration Limited (IBA) to improve LIBOR, and the development of the Secured Overnight Financing Rate (SOFR), and SOFR derivatives.


Our third panel will discuss the effect of LIBOR reform on the derivatives markets.  The discussion will focus on LIBOR reform’s impact on legacy derivatives contracts, the development of fallback language, and key risk management and governance considerations for market participants.  Finally, end-user and dealer representatives will discuss the risks their firms and clients face with respect to LIBOR Reform and how they or their clients are preparing to mitigate those risks.




I want to recognize the tremendous work of the ARRC, and also the work done overseas by the UK’s Financial Conduct Authority, the Bank of England, the European Central Bank, and other key stakeholders.  The timeline of events since the financial crisis is a compelling story of recognition and reform as well as collaboration and innovation in the benchmark space.  We have a few years to reach a consensus and lay the foundations for the next generation benchmarks.


Working today with several members of the ARRC, my goal is to use this venue, this advisory committee, as a solutions-oriented body that sheds light on the challenges ahead, identifies the potential risks for financial markets and individual Americans, and seeks to support the ongoing work of the ARRC through deliverables that both recognize the critical importance of benchmarks, but also demand integrity and reliability.


The derivatives markets play an integral role in benchmarks, and as I am sure we will hear throughout today, finding solutions to the many issues and concerns about benchmark reform and transition rest within the markets overseen by the CFTC.  I am certain the Market Risk Advisory Committee can play an important role in supporting all of the work that has been done dating back more than five years, but also in the few years ahead.  I look forward to today’s discussion.



Opening Statement of Chairman J. Christopher Giancarlo before the Market Risk Advisory Committee Meeting, Washington, D.C.


July 12, 2018

Thank you, Commissioner Behnam.

Good morning, everyone.

A warm welcome to the MRAC Committee members and today’s presenters and participants, both here and on the telephone.  Welcome to the CFTC.

All meetings of CFTC advisory committees are important.  But, today’s meeting isparticularly important.

The discontinuation of LIBOR is not a possibility.  It is a certainty.  We must anticipate it, we must accommodate it and we must adapt to it.

The transition from LIBOR to SOFR and the other risk-free rates requires thoughtfulness and preparation in order to support and not jeopardize financial stability.

It requires dialogue and planning – such as that we will conduct today under the rightful auspices of the market risk advisory committee, sponsored by Commissioner Behnam.

Some brief and selected history of this issue:

In July 2013, the Financial Stability Board established an Official Sector Steering Group, which includes senior officials from central banks and regulatory agencies, including the CFTC Chair.  The OSSG serves to focus the FSB’s work on the interest rate benchmarks that are considered to play the most fundamental role in the global financial system.

The FSB published its recommendations in July 2014 and called for the development of alternative interest rate benchmarks.

In November 2014, the Alternate Reference Rates Committee or ARRC was convened by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York.  The ARRC consists of a group of banks, market participants, industry associations, and other U.S. financial regulators.

The ARRC also includes the CFTC, first under my predecessor, Chairman Timothy Massad.  I have been pleased to continue that work.

The ARRC was tasked with two primary goals:

  • identify an alternative reference rate to replace LIBOR; and
  • develop a market strategy and make the transition.

After deliberating for over two years, in June 2017, the ARRC selected the Secured Overnight Financing Rate (or SOFR) as the replacement for LIBOR.  SOFR’s publication began in April of this year.

Trading in SOFR futures began in the United States in May and the initial trading volumes and liquidity are quite promising.

“ARRC 2.0” is now busy with the education and implementation of the transition from LIBOR to SOFR.

Yet, prior to all of this, LIBOR was well in the headlines of the mainstream press. In large part that was due to the CFTC’s vigorous enforcement efforts initiated under Chairman Gensler.

The CFTC’s leadership in policing benchmark manipulation has continued through to his successor and the current commission, where it remains bipartisan in importance and continues to set a global standard for enforcement of benchmark integrity.

It is undeniable that a major contributor to LIBOR’s ability to be manipulated was its weakening foundation.  Simply put, money center banks no longer rely on unsecured inter-bank lending to finance their daily operations.  As a result, LIBOR is a widely utilized benchmark that is no longer derived from a widely traded market.  It is an enormous edifice built on an eroding foundation – an unsustainable structure.

Yet because LIBOR is so widely used in a broad range of financial products and contracts, including derivatives such as swaps and futures, we must not – we cannot – stand still.

Insuring that LIBOR and other such benchmarks are not readily susceptible to manipulation is a key part of the statutory mission of this agency.

That is why the CFTC supports the transition from LIBOR to SOFR and the other risk-free rates.

That is why we continue to serve on the ARRC Committee through the change in administration.

It is why we continue to cooperate closely with our fellow U.S. financial regulators, in particular the Federal Reserve, regarding benchmark reform.

We also work closely with the FCA that has regulated LIBOR since 2013 when the ICE Benchmark Association took over the administration of the LIBOR.

A year ago, FCA Chief Executive Andrew Bailey signaled loud and clear that there is a fair amount of uncertainty about whether we will be able to keep the banks in the panel making submissions for the LIBOR through the transition period (that’s that eroding foundation I mentioned).

Last week, Andrew Bailey, David Bowman (of the Fed) and I along with senior CFTC staff, including Sayee Srinivasan, met in New York to discuss next steps in the transition away from LIBOR.

The three agencies are unified in determination to move forward.

This morning, Andrew Bailey gave a powerful speech stating that:

  • The underlying weakness of LIBOR cannot be remedied.
  • LIBOR’s discontinuation of LIBOR is NOT something that MAY happen, but is something that WILL happen; and
  • Market participants MUST prepare accordingly.

It is for these reasons that the work of the ARRC and the other risk-free reference rate working groups is so important.

It is why MRAC’s discussion today is so important.

We are going to be hearing from the experts on the current state of play, the plans for the months ahead, the many complex issues to be addressed, and the hopes and challenges for both market participants and the official sector.  It is an excellent program.

Clearly, we are in some uncharted territory.  There is still a lot to be done.

Yet, the forward course is clear – it is away from LIBOR.

The means of travel is also clear.  It is a market-driven one – led by the private sector, with participation by both the buy-side and the sell-side.

The official sector will assist and stay close by the course, helping coordinate and encourage, prod and explain and, if appropriate, give a shove or two.

On this side of the Atlantic, the Federal Reserve and we at the CFTC remain committed to working with the market participants, with the ARRC and the various trade associations, and global regulatory authorities to facilitate a smooth transition.

We also recognize ISDA for their work, specifically the recent consultation on the functioning of derivatives contracts through LIBOR discontinuation.

As I said at the beginning, this is an important issue.  Fortunately, it is one that has always been and continues to be nonpartisan.  There are Republican and no Democrat issues when it comes to benchmark integrity.

I want to particularly commend Commissioner Behnam for taking up such an important topic.  I anticipate that he, Alicia Lewis and all the members of MRAC will bring an impressive level of thought leadership and intelligence to the discussion.

Your work will also help educate the market about the transition from LIBOR to its chosen replacement.  That, in itself is an important public service.

Thank you again for participating.

Let’s get to work!





July 12, 2018

CFTC Announces Its Largest Ever Whistleblower Award of Approximately $30 Million

Washington, DC – The Commodity Futures Trading Commission (CFTC) today announced an award of approximately $30 million to a whistleblower who voluntarily provided key original information that led to a successful enforcement action.  The award is the largest award made by the CFTC’s Whistleblower Program to date and is the fifth award made by the program.

“The Whistleblower Program has become an integral component in the agency’s enforcement arsenal,” said CFTC Chairman, J. Christopher Giancarlo.  “We hope that an award of this magnitude will incentivize whistleblowers to come forward with valuable information and provide notice to market participants that individuals are reporting quality information about violations of the Commodity Exchange Act [CEA].”

James McDonald, Director of the Division of Enforcement, stated: “Whistleblower submissions have become a significant part of our enforcement program, allowing us to pursue violations we might otherwise have been unable to detect.  That’s one reason why we’ve worked hard to expand our Whistleblower Program, including by increasing the protections afforded to whistleblowers that come forward.  I expect the Whistleblower Program to contribute even more substantially to our enforcement efforts going forward.”

The CFTC’s Whistleblower Program was created by section 748 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).  The CFTC pays monetary awards to eligible whistleblowers who voluntarily provide the CFTC with original information on violations of the CEA that leads the CFTC to bring a successful enforcement action resulting in monetary sanctions exceeding $1,000,000.  By law, the CFTC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity.  Under the Dodd-Frank Act, employers may not retaliate against whistleblowers for reporting possible violations of the CEA to the CFTC.

Whistleblowers are eligible to receive between 10 percent and 30 percent of the monetary sanctions collected.  All whistleblower awards are paid from the CFTC Customer Protection Fund established by Congress and financed entirely through monetary sanctions paid to the CFTC by violators of the CEA.  No money is taken or withheld from harmed investors to fund the program.

Previously, the highest award amount paid to a CFTC whistleblower was in March 2016 of more than $10 million (see CFTC Press Release 7351-16, CFTC Announces Whistleblower Award of More Than $10 Million).

“The award today is a demonstration of the program’s commitment to reward those who provide quality information to the CFTC,” said Christopher Ehrman, Director of the CFTC’s Whistleblower Office.  “The number of leads the office receives continues to grow each year by the hundreds.  We hope that this award will continue to facilitate the upward momentum and success of the CFTC’s Whistleblower Program by attracting those with knowledge of wrongdoing to come forward.”

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To learn more about the CFTC’s Whistleblower Program and to find out how to provide a tip or apply for an award, please visit the program’s website at https://www.whistleblower.gov/.





July 10, 2018

CFTC’s Market Risk Advisory Committee Announces Agenda for July 12 Public Meeting

Washington, DC – The Commodity Futures Trading Commission (CFTC) today announced the agenda for the upcoming Market Risk Advisory Committee (MRAC or Committee) public meeting that will be held on July 12, 2018 at CFTC’s headquarters in Washington, D.C. [See CFTC Press Release 7744-18 for attending, viewing and listening instructions.]

CFTC Commissioner Rostin Behnam is the sponsor of MRAC.

In addition to discussing the Committee’s priorities and agenda, MRAC members and invited speakers will discuss the importance of interest rate benchmarks to the broader economy, end-users, and the general public.  More specifically, the MRAC meeting will focus on (1) the current initiatives to reform the London Interbank Offered Rate (LIBOR), including the efforts of the Alternative Reference Rates Committee and other key market participants; (2) the latest developments in LIBOR, the Secured Overnight Financing Rate (SOFR), and SOFR derivatives; and (3) the impact of LIBOR reform on the derivatives markets, including the effect on legacy swap contracts, the development of fallback language, and key risk management and governance considerations for market participants.

The meeting is open to the public with seating on a first-come, first-served basis. Members of the public may also listen to the meeting via conference call using a domestic toll-free telephone or international toll or toll-free number to connect to a live, listen-only audio feed. Persons requiring special accommodations to attend the meeting because of a disability should notify Alicia Lewis at (202) 418–5862.

See Agenda here and under Related Links


NR 2018-68


July 3, 2018

Contact: (202) 649-6870

OCC Releases CRA Evaluations for 20 National Banks and Federal Savings Associations

WASHINGTON — The Office of the Comptroller of the Currency (OCC) today released a list of Community Reinvestment Act (CRA) performance evaluations that became public during the period of June 1, 2018 through June 30, 2018. The list contains only national banks, federal savings associations, and insured federal branches of foreign banks that have received ratings. The possible ratings are outstanding, satisfactory, needs to improve, and substantial noncompliance.

Of the 20 evaluations made public this month, 17 are rated satisfactory and three are rated outstanding.

A list of this month’s evaluations is available here. Click on the institution’s charter number to view a pdf of the evaluation. The OCC’s Web site (https://www.occ.gov) also offers access to a searchable list of all public CRA evaluations. Copies of the evaluations may also be obtained by submitting a request electronically through the OCC’s Freedom of Information Act (FOIA) Web site https://foia-pal.occ.gov/palMain.aspx or by writing to the Office of the Comptroller of the Currency, Communications Division, Suite 3E-218, Washington, DC 20219. When requests are made electronically, remember to include your postal mail address.

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July 3, 2018

CFTC Chairman Giancarlo Names Matthew A. Daigler Senior Counsel

Washington, DC — Commodity Futures Trading Commission (CFTC/Commission) Chairman J. Christopher Giancarlo announced today that Matthew A. Daigler has joined the CFTC to serve as a Senior Counsel to the Chairman. Daigler will advise the Chairman on Commission matters, including the Chairman’s Swaps Regulation Version 2.0 agenda.

“I’m pleased that Matt has joined my team,” said Chairman Giancarlo. “He comes with a wealth of experience and knowledge of our work at the Commission and my vision for swaps reform. Matt has done extensive work in so many areas that are important to our mission, including Title VII of the Dodd-Frank Act, and has deep experience in cross-border issues.”

Prior to joining Chairman Giancarlo’s office, Daigler was as an Associate at the Washington, D.C. office of Allen & Overy LLP, where he advised financial institutions on a wide range of regulatory matters, including CFTC swap dealer registration matters and compliance with CFTC swap rules, as well as on a broad range of broker-dealer regulatory matters.

Daigler also served as an Associate at Cleary Gottlieb Steen & Hamilton LLP’s Washington, D.C. office, where he advised clients on the Securities and Exchange Commission (SEC) and CFTC implementation of Title VII, including cross-border issues and characterization of novel derivative products.

He also worked at the SEC for almost 10 years, most recently serving as Senior Special Counsel with the SEC’s Office of Derivatives Policy and Office of Market Supervision, Division of Trading and Markets, from October 2009 to September 2013. At the SEC, Daigler worked on the implementation of Title VII, including the proposed rulemaking to further define the terms “swap” and “security-based swap” and apply Title VII to cross-border security-based swap activities. He also analyzed novel derivative products to determine their appropriate regulatory characterization under the Commodity Exchange Act and the federal securities laws.

Daigler graduated from the University of Chicago (J.D.); Boston College (Ph.D.); and the University of Toronto (B.A.).





July 2, 2018

CFTC Staff Issues Report Assessing CME Agricultural Block Trades

Washington, DC — The Commodity Futures Trading Commission’s (CFTC) Market Intelligence Branch (MIB) issued a report today that analyzes agricultural block trading in the grains, oilseeds, and livestock markets at the Chicago Mercantile Exchange (CME).

CME launched block trading for the full suite of agricultural futures and option products on January 8, 2018.  The report analyzes industry concerns over the first three months of 2018. Block trades are privately negotiated futures/options transactions permitted to be executed away from the central limit order book and are subsequently submitted to CME Clearing.

This report specifically addresses if block trades are reducing liquidity from the central limit order book and reducing price transparency.

Key findings from the research:

  • Block trades in the agricultural markets are a very small portion of the overall volume, but are somewhat more significant on specific dates and for certain contract months.
  • Block trades are primarily occurring in nearby months (futures expirations occurring within the next 90 days).
  • Market makers appear to be offsetting much of the block volume into the central limit order book.
  • All block trades reviewed appear to be priced within the CME rule for “fair and reasonable” prices.

MIB staff will continue to engage the industry as block trading and other pertinent issues related to the agricultural community develop.

This is the third in a series of reports from MIB staff, a unit of CFTC’s Division of Market Oversight.  MIB will publish additional reports on issues of current market interest.  Part of MIB’s role at the CFTC is to analyze and communicate current and emerging market issues to CFTC leadership and the public and assist the CFTC in making informed policy.





July 2, 2018

CFTC Charges Operator of Commodity Trading Fund with Defrauding Fund Participants

Washington, DC — The Commodity Futures Trading Commission (CFTC or Commission) today filed a civil enforcement action in the U.S. District Court for the Eastern District of New York, charging Defendant Harris Bruce Landgarten of Old Brookville, New York, with defrauding participants in a commodity pool that he operated, the Tradeanedge Members Fund (TMF).  The CFTC Complaint also charges Landgarten with providing his pool participants false account statements and with commingling pool funds with non-pool funds.

On July 2, 2018, the U.S. Attorney’s Office for the Eastern District of New York filed a related criminal action charging Landgarten with commodity fraud and wire fraud related to the same fraudulent conduct alleged in the Complaint.  Further, Landgarten was also charged with one count of obstructing the CFTC’s investigation related to Landgarten’s communications with one of his pool participants, who was a potential witness, while the CFTC’s investigation that resulted in the filing of this enforcement action was pending.

James McDonald, CFTC Director of Enforcement, commented: “This matter shows the Commission’s ongoing commitment to root out fraud from our markets.  Today’s action also makes clear that we will not be deterred by those who attempt to obstruct our investigations, and that we will actively engage with our law enforcement partners both to protect our markets from fraud and to ensure wrongdoers are held accountable.”

In particular, the CFTC’s Complaint alleges that since at least July 2014 through at least March 2017 (the Relevant Period), Landgarten incurred what he characterized as expenses of TMF for which he reimbursed himself by withdrawals from TMF’s bank account.  According to the Complaint, at no point during the Relevant Period did Landgarten disclose such purported expenses or withdrawals to TMF’s pool participants, either before or after their decisions to invest.  Additionally, the Complaint alleges that Landgarten sent account statements to TMF participants which reflected that the value of each participant’s investment in TMF was affected only by trading gains and losses and Landgarten’s management and incentive fees, but did not indicate that he was incurring any expenses on behalf of TMF or that he was reimbursing himself for such claimed expenses.

Further, as alleged, when a participant of TMF sought to withdraw his investment, Landgarten failed to honor the request because TMF had less than the amount of the participant’s investment left in its accounts.  The Complaint also alleges that, partly due to Landgarten’s inadequate record keeping practices, on numerous occasions he withdrew more money from TMF than he had incurred in claimed expenses, thus commingling pool funds with non-pool funds.

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

The CFTC appreciates the cooperation and assistance of the U.S. Attorney’s Office for the Eastern District of New York and the United States Postal Inspection Service.

CFTC Division of Enforcement staff members responsible for this case are Gabriella Geanuleas, Trevor Kokal, David Acevedo, Lenel Hickson, Jr., and Manal M. Sultan.

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CFTC’s Commodity Pool Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Commodity Pool Fraud Advisory, which warns customers about a type of fraud that involves individuals and firms, often unregistered, offering investments in commodity pools.

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.


Complaint: Harris Bruce Landgarten





June 29, 2018

CFTC Staff Issues Research Report on Sharp Price Movements in the Commodity Futures Markets

Washington, DC — The Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) issued a report today that analyzed sharp, intraday price movements in the commodity futures markets. DMO staff in the Market Intelligence Branch (MIB) analyzed 2.2 billion transactions from 16 of the most actively traded futures contracts in all major market sectors using data from 2012 through 2017.

Key findings from the research:

  • Neither the frequency nor intensity of sharp price movements appear to be consistently increasing over time;
  • Sharp price movements are linked to volatility, market fundamentals, and news and data releases; and, significantly, this research does not show signs of weakness or fragility in the futures markets causing disruptive price movements; and
  • Most importantly, the U.S. commodity futures markets are very efficient, incorporate new information quickly, and continue to support the price discovery process.

This is the second in a series of reports from MIB staff. The first report wasLiquefied Natural Gas Developments and Market Impacts (May 2018). MIB staff will publish additional reports on issues of current market interest, such as market liquidity and volatility. MIB’s role is to analyze and communicate current and emerging market issues to CFTC leadership and the public and assist the CFTC in making informed policy.





June 28, 2018

Federal Court in Nevada Orders Commodity Futures Software Vendor to Pay More than $674,000 for Solicitation Fraud and Failing to Register with the CFTC

Washington, DC – The Commodity Futures Trading Commission (CFTC) announced today that the Honorable Gloria M. Navarro of the U.S. District Court for the District of Nevada (Las Vegas) entered an Order of Summary Judgment against Defendant Mirko (Mick) Schacke of Brentwood, California (formerly Antioch, California), and a Default Judgment against Schacke’s company, TradeMasters USA, LLC of Las Vegas, Nevada.

The Order, entered on June 22, 2018, amends a previous order entered on September 13, 2017, and finds that the Defendants committed fraud in their solicitations of futures trading software customers, failed to register with the CFTC and failed to provide required disclosures to investors.  The Court’s Order also requires Schacke and TradeMasters, jointly and severally, to pay disgorgement of $168,626 to defrauded customers and a $505,878 civil monetary penalty.

The Order also imposes permanent trading and registration bans against Schacke and TradeMasters and prohibits them from committing further violations of the Commodity Exchange Act and CFTC Regulations, as charged.

The Order arises from a CFTC enforcement anti-fraud action filed against Schacke and TradeMasters on August 15, 2016 (see CFTC Complaint and Press Release 7429-16).

The Court’s Order finds that Schacke and TradeMasters fraudulently solicited and accepted $168,626 from 39 customers who purchased TradeMasters’ automated futures trading software licenses for as little as $1,500 and as much as $20,000.  The Order further finds that Schacke and TradeMasters made false statements regarding the trading performance of TradeMasters and its software to the public via the TradeMasters’ website and other means, such as: a 300% return was earned in just three months by a “real customer,” and TradeMasters software users generate a monthly income of $5,000 to $10,000, when, in fact, the TradeMasters’ software did not work, and users lost money.  According to the Order, Schacke and TradeMasters also misrepresented that TradeMasters’ “coaches” have more than two decades of trading experience, when Schacke was the only coach and he had no prior trading experience; trading results presented as actual trading profits, in fact, were only hypothetical; and video testimonials were from “real customer[s],” when they were instead from paid actors.

The Court’s Order also finds that Schacke personally executed trades for three customers despite TradeMasters and Schacke not obtaining the required registrations to do so, and TradeMasters failed to provide the required disclosures concerning client testimonials on the TradeMasters website.

The CFTC cautions that Orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets.  The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

CFTC Division of Enforcement staff members responsible for this action are Joseph Patrick, Susan B. Padove, Susan Gradman, Scott R. Williamson, and Rosemary Hollinger.


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CFTC’s Fraud Advisories, Including Commodity Trading Systems Sold on the Internet

The CFTC has issued several customer protection Fraud Advisories that provide warning signs of fraud, including the Commodity Trading Systems Sold on the Internet Advisory, which helps customers identify this potential fraud.

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.


NR 2018-66


June 21, 2018

Contact: William Grassano
(202) 649-6870

OCC Reports First Quarter 2018 Bank Trading Revenue

WASHINGTON — The Office of the Comptroller of the Currency (OCC) reported trading revenue of U.S. commercial banks and federal savings associations of $8.2 billion in the first quarter 2018, which was $3.2 billion, or 62.8 percent, higher than the previous quarter.

In the report, Quarterly Report on Bank Trading and Derivatives Activities, the OCC also noted that trading revenue in the first quarter 2018 increased by 15 percent compared with the $7.1 billion reported in the first quarter 2017.

The OCC reported:

  • While four large banks held 89.8 percent of the total banking industry notional amount of derivatives, a total of 1,357 insured U.S. commercial banks and savings associations held derivatives at the end of the first quarter 2018.
  • Derivative contracts remained concentrated in interest rate products, which represented 76.3 percent of total derivative notional amounts.
  • The percentage of centrally cleared derivatives transactions increased slightly to 39.8 percent in the first quarter 2018.

Related Link

OCC’s Quarterly Report on Bank Trading and Derivatives Activities: First Quarter 2018 (PDF)

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June 25, 2018

Federal Court Orders Jody Dupont of Anderson, South Carolina, and His Company, Open Range Trading LLC, to Pay $192,000 for Defrauding Customers in Connection with Offering and Selling Futures Trading System

Washington, DC – The Commodity Futures Trading Commission (CFTC) announced that Judge Timothy M. Cain of the U.S. District Court for the District of South Carolina entered a Consent Order against Defendant Jody Dupont of Anderson, South Carolina, and an Order of Default Judgment against his company, Open Range Trading LLC (Open Range), also of Anderson.  Neither DuPont nor Open Range has ever been registered with the CFTC.

According to the Orders, from at least March 2012 until September 29, 2016, Dupont and Open Range fraudulently solicited at least 175 clients and prospective clients to subscribe to a commodity futures day-trading system that generated buy and sell trading signals in various futures markets, including the E-mini S & P 500 Index, the Russell 2000 Index Mini, crude oil, and soybeans.

Specifically, the Orders find that Dupont and Open Range misrepresented Dupont’s futures trading experience as well as the trading system’s profit and loss performance.  According to the Orders, Dupont and Open Range also falsely claimed that Dupont and Open Range were engaging in actual trading when in fact they were not, and falsely and misleadingly presented the trading system’s results as real rather than simulated or hypothetical.  For example, the Orders find that, for the time period January 2013 to January 2016, Dupont and Open Range had falsely claimed that the Open Range trading system had generated profits of between $700 to over $13,000 per month, with 30 of the 37 months shown as profitable.  According to the Orders, in fact, Open Range never had a futures account to make these purported profits and Dupont had only two futures accounts, both of which he traded at a loss.

Dupont and Open Range charged clients and prospective clients between $250 and $25,000 per month for the trading system and ancillary trading services, and clients paid Dupont and Open Range approximately $92,000, according to the Orders.

The Consent Order requires Dupont to disgorge $92,000 in illegal profits and pay a civil monetary penalty of $100,000.  The Consent Order also enjoins Dupont from future violations of the Commodity Exchange Act (CEA) and the CFTC’s Regulations, as charged, and permanently prohibits Dupont from seeking registration with the CFTC and from trading for five years.

Open Range is jointly and severally liable for Dupont’s disgorgement and civil monetary penalty, according to the Default Order.  In addition, the Default Order enjoins Open Range from future violations of the CEA and CFTC Regulations, as charged, and imposes permanent registration and trading bans on Open Range.

The Court’s Orders arise from a CFTC enforcement action filed on September 29, 2016, charging Dupont and Open Range with fraud and false advertising (see CFTC Complaint and Press Release 7465-16, October 4, 2016).

CFTC Division of Enforcement staff members responsible for this case are Camille Arnold, Jon Kramer, Melissa Cavers, David Terrell, Scott Williamson, and Rosemary Hollinger.  The CFTC thanks the South Carolina Attorney General’s Office and the United States Attorney’s office for South Carolina for their assistance in this matter.

* * * * *

CFTC’s Fraud Advisories, Including Commodity Trading Systems Sold on the Internet 

The CFTC has issued several customer protection Fraud Advisories that provide warning signs of fraud, including the Commodity Trading Systems Sold on the Internet Advisory, which helps customers identify this potential fraud.

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.


Consent Order: Jody Dupont

Default Order: Open Range Trading LLC


Press Release

Wells Fargo Advisors Settles SEC Charges for Improper Sales of Complex Financial Products

Misconduct Imposed Substantial Costs on Retail Customers



Washington D.C., June 25, 2018 —

The Securities and Exchange Commission today announced that Wells Fargo Advisors LLC agreed to settle charges of misconduct in the sale of financial products known as market-linked investments, or MLIs, to retail investors.

According to the order, the SEC found that Wells Fargo generated large fees by improperly encouraging retail customers to actively trade the products, which were intended to be held to maturity.  As described in the SEC’s order, the trading strategy – which involved selling the MLIs before maturity and investing the proceeds in new MLIs – generated substantial fees for Wells Fargo, which reduced the customers’ investment returns.

The order further found that the Wells Fargo representatives involved did not reasonably investigate or understand the significant costs of the recommendations.  The SEC found that Wells Fargo supervisors routinely approved these transactions despite internal policies prohibiting short-term trading or “flipping” of the products.

“It is important that brokers do their homework before they recommend that their retail customers buy or sell complex structured products,” said Daniel Michael, Chief of the Enforcement Division’s Complex Financial Instruments Unit.  “The products sold by Wells Fargo came with high fees and commissions, which Wells Fargo should have taken into account before advising retail customers to sell their investments and reinvest the proceeds in similar products.”

Without admitting or denying the findings in the SEC’s order, Wells Fargo agreed to return $930,377 of ill-gotten gains plus $178,064 of interest and to pay a $4 million penalty.  Wells Fargo also agreed to a censure and to cease and desist from committing or causing any violations and any future violations of certain antifraud provisions of the federal securities laws.  The order recognizes that Wells Fargo took remedial steps to address the allegedly improper sales practices.

The SEC’s investigation was conducted by Emily A. Rothblatt, Michael D. Wells, and Ana D. Petrovic, and supervised by Jeffrey A. Shank.  The SEC’s examination that led to the investigation was conducted by Jennifer L. Spicher and Christopher L. Caprio and supervised by John T. Brodersen and Daniel Gregus.




Remarks before the Institute of Management Accountant’s 2018 Annual Conference and Expo: “Advancing the Purpose and Promise of Those Involved in Financial Reporting”


Wesley Bricker
Chief Accountant

Indianapolis, IN

June 19, 2018

These remarks reflect solely my personal views, and do not necessarily reflect the views of the Securities and Exchange Commission, the individual members of the Commission or its staff. The Securities and Exchange Commission and I reserve the right to use my materials, statements and biographical information in any manner, including at other conferences and legal education programs.


Thank you, Marc [Palker] for the kind introduction and your service in leadership roles over the years at the IMA. Thank you also to Jeff Thomson for the invitation to be with you. I’m grateful for the opportunity to join you today.

At this conference, you are participating in an event described using words like “infinite potential.” Here, you have the opportunity to meet face-to-face with nearly one thousand management accounting and corporate finance professionals, executives, and decision-makers from around the globe who solve business challenges.

Founded in 1919 by farsighted business and accounting leaders, the Institute of Management Accountants (IMA) is now a worldwide association of accountants whose members reflect a wide variety of cultures, nationalities, and ages. As management accountants, your work is vital to the financial reporting process. You safeguard a company’s integrity when you make well-considered and adequately supported judgments and decisions.

As CFOs, controllers, budget analysts, treasurers, and other management accountants, you help drive the information that is ultimately included in many shareholder and creditor communications. These communications, when made with appropriate care and candor, build public trust and help sustain the ability of businesses to raise the capital they need to grow and compete.

Before I continue, let me remind you that the views expressed today are my own and not necessarily those of the Commission, the individual Commissioners, or other colleagues on the Commission staff.

Let me also express a word of gratitude to the entire OCA team for their work in providing advice to the Commission regarding accounting and auditing matters arising in the administration of the federal securities laws. I also want to acknowledge the valuable assistance of Tom Collens in preparing me to make today’s remarks.

Today, my remarks will examine the context for and vital role of management accountants within our financial reporting process and the relationship among management, the audit committee, and the auditor. Finally, I will close by sharing some views on technology.

Business and markets

Business and our capital markets are essential to our economy. In the United States, private-sector companies are the source of 126 million jobs.[1] These businesses contribute to the tax basis of every city and state as well as the federal government. These businesses help our global economy, with approximately $2.3 trillion of American exports in 2017 alone.[2] Among these businesses, public companies are a source of the long-term financial security for a significant number of American households. For example, among all families that held investments in stock as of 2016, which comprised over half of all households, more than 88% owned stock through a tax-deferred retirement account.[3]

Technology and trade have also made our world considerably smaller. Many companies operate in a global market and seek capital globally. In fact, today in the United States, more than ever before American investors are investing directly in the securities of foreign private issuers and companies based outside the United States and registered in non-U.S. jurisdictions. At the end of 2016, U.S. investors had invested $9.9 trillion (of which U.S. mutual funds had invested over $4.3 trillion, and U.S. pension funds had invested over $1.3 trillion) in equity and debt securities listed in non-U.S. jurisdictions.[4] Also, as of the end of 2016, according to one industry ranking of the world’s largest asset managers, U.S.-based asset managers occupied the top four positions and eight out of the top 10 slots.[5]

An effective capital allocation process through the public and private capital markets is critical to a healthy economy that promotes productivity, encourages innovation, and provides an efficient market for the purchase and sale of securities and the obtaining and granting of credit.

Financial reporting information in our markets

Such an allocation process would not be possible without financial disclosures, because adequate and high-quality information helps investors and creditors in the capital markets to judge the opportunities and risks of investment choices accurately. Financial reporting information impacts a company’s cost of capital,[6]which is reflected in the price that investors are willing to pay for the company’s securities.

Whether a long-term Main Street investor[7] or an investment professional, individuals make investment decisions—or rely on others to make decisions for them—based in part on interim financial information and annual audited financial statements. At its heart, public company financial reporting is and always has been about communication. Investors and creditors have the right to expect that the disclosure is complete, accurate, and reliable.

Those involved in financial reporting

We, in OCA, developed three renditions[8]of an overview of organizations involved in the structure of financial reporting in the U.S. markets[9]to help visualize and understand our necessarily complicated financial reporting system. The versions, of course, also contribute to an analysis of less obvious aspects of this system. For example, they help identify the multiple points of oversight, review, and advice that both preserve and advance general purpose financial reporting.

I encourage each of you and your organizations involved in the overall structure to consider how you might use the information (or other information) to identify ways on an ongoing basis to prevent financial reporting failures (whether due to errors or fraud) and add value for investors, including by asking what more can we do today to support the financial reporting of tomorrow, such as:

  • How can we bolster coordination and collaboration among the organizations involved in financial reporting?
  • What can we learn from previous financial reporting failures to evaluate whether and how each participant in the financial reporting process could more effectively contribute to the prevention of financial reporting failures?
  • What more could be done to understand and coordinate technological issues (and the programming languages used) within and across each phase of the financial reporting structure?
  • What information should be provided in the financial statements to meet the needs of investors, lenders, and other creditors, even as the context of demographics, technology, and market structures change?
  • Can more be done to help identify expectations and minimize expectation gaps, both globally and variations within particular markets?

The collective goal of all participants in the financial reporting architecture must be for the information to be complete, accurate, and reliable, the first time it is provided to investors.

There are positive signs in a general, sustained reduction in the number and severity of restatements of financial statements since the implementation of the Sarbanes-Oxley Act, although there are some specific areas that could benefit from a redoubling of efforts.[10] The positive signs are attributable, at least in part, to the vital role of the independent audit committee in overseeing the financial reporting process.

Management’s crucial responsibilities

High-quality financial reporting starts with companies. In companies subject to the reporting requirements of U.S. federal securities laws, management is required to keep and maintain books and records in reasonable detail.[11] From those books and records, management prepares financial statements according to a general purpose financial reporting framework, so that the reporting is comparable, verifiable, timely, and understandable by investors and others.

Accounting helps others understand the past so that users of accounting information can better understand present circumstances and future possibilities. Management accountants are expert historians, in a sense. You provide the critical “eyewitness” account of events and evidence needed to keep and maintain books and records in accordance with the federal securities laws.[12] In accounting and society, we all expect history to be based on evidence and prepared with discipline and diligence so that the historical narrative is reliable.

This is indeed not a new concept. The first written records of history date back a little more than five thousand years ago in Egypt and ancient Sumer. The earliest records look like accounts: lists of property, cattle, and wheat. By the 5th century B.C., the first works of what we might begin to consider modern history began to appear. During this period, the Greek historians Herodotus and Thucydides strengthened the credibility of their works of history by obtaining evidence and eyewitness accounts of the events they chronicled. These efforts, and the fact that once something is written down it is harder to alter, caused people to view written evidence as more authoritative than oral stories.

In a very real way, your work as management accountants has many parallels to the work of historians. And yet your work requires more. In addition to maintaining books and records, management is also required to design and implement internal accounting controls.[13] This requirement applies even if a public company is not subject to the requirements in the Sarbanes-Oxley Act that management assess the effectiveness of the company’s internal control over financial reporting or that the auditor attest to, and report on, management’s assessment of its internal control over financial reporting.[14]

Your work contributes to public companies being well-run. These companies have effective internal controls not just because internal controls are the first line of defense against preventing or detecting material errors or fraud in financial reporting, but also because strong internal controls contribute to better internal accountability and information flows, among many other attributes of good businesses. In fact, the books and records provisions of the securities laws have long included a requirement that U.S. public companies must devise and maintain a system of internal accounting controls to provide “reasonable assurances” that “transactions are recorded as necessary to permit preparation of financial statements” in conformity with U.S. GAAP.[15] Internal accounting controls include internal controls underlying the financial activities of a business.

As individuals with responsibility for the preparation of financial statements, you are the lynchpin of high-quality, reliable financial reporting. You are the ones who make the often difficult decisions and challenging judgments required to meet the objectives and principles of U.S. GAAP – from the new revenue recognition standard, to leases, to impairments, to fair value determinations, as just examples. The financial reporting system relies on those of you in management accounting, finance, forecasting, and internal audit roles to press and challenge each other on questions you have on transactions, judgments, and risk areas.

I encourage you to foster and share high-quality practices that are cost-effective and responsive to the objectives of securities laws. This can be done through illustrative training and educational materials that translate good practices into demonstrable solutions that are both effective and lead to sustained change. When the best thinking is identified and shared, quality in the preparation of financial statements goes up, and costs generally come down.

Ethics and culture

In addition to supporting your companies with proper controls and each other through the sharing of good practices, you also help each other and our markets through strong ethics and culture. Getting this right—consistently—is essential because even ethical managers sometimes are tested in doing the right thing in a complex business environment. For example, management might face intense pressure to produce consistently improving results. Even though lowering ethical operating standards might appear to provide more favorable outcomes in the short run, history shows that all too often these outcomes fail to be sustainable.

In your roles as board members, managers, or employees, each of you can play a vital role in supporting management to run the companies you serve in a manner that will promote long-term shareholder value without compromising the integrity of the company’s reputation for high-quality financial reporting. This gives management the courage to make right decisions.

Many companies acknowledge the value of an ethical culture. They see a clear linkage between long-term performance and a company’s behaviors. A company with clearly stated ethical values that are understood, promoted, and upheld can help attract or retain top talent. Just the opposite also can arise. Unethical behavior can damage reputations, in addition to bottom lines, as companies and employees see their reputations tarnished. All these negative effects undermine value.

Chairman Clayton just yesterday spoke about the importance of effecting positive culture in the financial profession.[16] Similarly, in previous remarks,[17] I also have discussed how corporate structure and culture, when paired in positive ways, can nurture appropriate behaviors and have provided a spectrum for assessing the maturity of a culture. I want to mention a few illustrative attributes of an ethical corporate culture, which is foundational to an effective control environment. For example:

  • The board and corporate leaders must consistently demonstrate ethical behavior in words and actions. Employees must be able to trust the board’s and management’s commitment to systems that both prevent and detect bad behavior, including in the financial reporting and preparation processes.
  • As companies become more geographically diverse, the more important it can be for senior management to be heard across geographies and at all levels regarding expectations about compliance with the company’s code of conduct.

The importance of ongoing training and literacy

Change is constant, even in financial reporting. And so, cultivating ethics and culture among the other elements of an effective control environment on an ongoing basis will require management accountants to contribute to the literacy of members at every phase of the financial reporting process. As management accountants, you play a crucial role in not only being literate in these items, but also providing essential briefings to the boards, senior leaders, investors, lenders, and others, so they understand the information and its usefulness.

Responsibility of auditors

Preparers, of course, are not solely responsible for high-quality financial reporting. It also depends on thorough and objective audits performed by independent, knowledgeable, and skeptical public accountants. Indeed, while preparers are the lynchpin of high-quality financial reports, auditors are the critical gatekeepers for those reports, protecting shareholders by promptly identifying and addressing issues.

Whether or not engaged to report on internal control over financial reporting separately, external auditors are still responsible for considering internal controls in the performance of their audits.[18]In an audit of the financial statements, the audit process includes deciding whether and how much to plan to rely on the company’s internal control over financial reporting. By obtaining an understanding of internal control over financial reporting, auditors can better plan their audits and provide management and the audit committee with observations about a company’s internal controls. These procedures provide meaningful feedback to the auditor in performing other audit procedures.

Significant credit for the increase in audit quality should be given to the PCAOB. The PCAOB has had a positive impact on the firms’ system of quality controls. I continue to support the continuity of the PCAOB’s core activities that further its statutory mission to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports.[19] Notably, the Board has decided to reach both within and beyond its own four walls for input into what strategic direction to take to improve audit quality through surveys, interviews, and other outreach. The Board is demonstrating a belief, which I also hold, that consistent and meaningful engagement with key constituencies is critical to effectively shaping the PCAOB’s future direction.[20]

Responsibility of audit committees

Boards of public companies in the U.S. have a financial reporting oversight responsibility, which they usually assign to their audit committees. The entire board has to approve the release of public company financial reports. As a result, management and directors have a vital interest in whether the quality of the company’s books and records and related internal accounting controls enable them to address their responsibilities adequately.

Companies and directors should carefully choose who serves on their audit committee, selecting those who have the time, commitment, and experience to do the job well. Just meeting the technical requirements of financial literacy may not be enough to understand the financial reporting requirements fully or to challenge senior management on major, complex decisions.

Audit committees of every company must be committed to their oversight of financial reporting. They must, for example, be able to adequately review how management is designing and implementing internal controls. As I mentioned earlier, the responsibility to maintain internal controls is incumbent upon management, with oversight of the audit committee, regardless of the size of the company.

As part of their oversight of the external audit, audit committees can make a positive impact on financial reporting by asking probing questions of external auditors about the auditor’s risk assessment and strategy undertaken for the audit. For example,

  • In an audit of the financial statements, was the external auditor able to rely on a company’s internal control over financial reporting?
  • If not, which of the business processes included the internal controls on which the auditor did not (or could not) place reliance? What were the factors that prevented reliance?
  • Were any significant deficiencies or material weaknesses identified (and communicated in writing)?
  • How did management consider that feedback in preparing the financial statements, including in its period end closing processes?

Audit committees can take insights from the conversation with auditors about whether, where, and why they were unable to rely on internal controls. The audit committee’s expectations for clear and candid communications from the auditor and management in this area should not be taken lightly, particularly when it is time to evaluate the relationship with the auditor. Just the same, the auditor should expect appropriate support and tone from audit committees when internal control or other matters arise.

Relationship with the external auditor

A board and audit committee should also understand the external auditor’s compliance with the auditor independence rules and the impact on the board and company of noncompliance.

Trust in financial reporting is maintained by protecting the independence of the outside auditor from its audit client. Audit committees of listed companies play an especially important role in this regard by safeguarding auditor objectivity, in part, through direct oversight of the audit relationship. The audit committee must own the selection of the audit firm, make the final decision when it comes time to negotiate the audit fee and oversee the auditor’s independence.[21]

In a recent survey conducted of members of the CFA Institute, 86% of respondents said that standards for auditor independence should be a “high priority” for audit standard-setters and regulators.[22] On May 2nd the Commission proposed for public comment rulemaking to address certain substantial practical challenges to compliance related to one part of our auditor independence rules, known as the “Loan Provision.”[23] I encourage you to read the proposal and provide us with your input as part of this rulemaking.

Innovations and emerging issues in technology and commerce

Turning now to innovations and emerging issues, perhaps a useful way for each of us to think about the effects of innovations in technology and commerce on an issuer’s financial reporting to investors is to organize our thinking along the following lines:

  • It is a role of the SEC staff and of the accounting profession to consider the possible effects of innovations in technology and commerce on the financial reporting obligations of issuers of securities to those who invest in the public capital markets.
  • In order for an issuer to appropriately report the financial statement effects of its innovation efforts to investors, the company’s management and its auditor, respectively, must understand the nature of the innovations.
  • The very innovations in technology and commerce that the public capital markets help to bring about can, not surprisingly, prompt questions regarding how management should prepare and how auditors should audit a company’s financial statements in accordance with the respective accounting and auditing standards.

It may be helpful to use an example to illustrate this approach to organizing one’s thinking about innovations in technology and commerce.

Considering the Possible Effects of Innovations

A useful way to illustrate the first point, above, may be to consider distributed ledger—sometimes referred to as “blockchain”—technology, an innovation in technology and commerce that is of current interest in the business world and whose possible uses are becoming more prevalent. These potential uses may involve an issuer’s books and records, its internal control over financial reporting, its application of accounting standards and, correspondingly, the audit of its financial statements.

Another related area is in the cryptocurrency and initial coin offering space. In a speech given just last week, my colleague Bill Hinman, Director of the Division of Corporation Finance discussed the application of aspects of the securities laws to digital assets.[24] I encourage you to read a copy of his remarks. It is critical that we keep ourselves informed about these emerging technologies so that the accounting profession can continue to perform the essential gatekeeper function for issuer compliance with both the financial reporting and auditor independence frameworks.

As we do so, it is essential to keep in mind that innovations in technology can be the ally of a company’s financial reporting activities, not their opponent. Accordingly, changes in technology need not work against the model for financial reporting to investors in the public capital markets. For example, even with the advent of innovations in technology, and in particular distributed ledger technology, management accountants should maintain appropriate books and records—regardless of whether distributed ledger technology, smart contracts, and other technology-driven applications are used or not. Likewise, the auditor of an issuer should determine the nature and extent of the audit procedures to perform based on the circumstances of the company and the auditing standards applied.

In addition to seeing the innovations in distributed ledger technology and digital assets, each of us needs to take what is learned and then act appropriately within the parameters of the existing internal control and financial reporting requirements of the federal securities laws. Distributed ledger technology and digital assets, despite their exciting possibilities for financial recordkeeping, do not alter this fundamental responsibility.


I want to thank you again for the opportunity to be with you today.

We all have a shared and weighty responsibility to advance the role of high-quality information in our capital markets, which leads to better decisions and outcomes for investors and all Americans.

Your and your colleague’s responsibilities create a collective culture around safeguarding that internal controls are effective, robust, and sufficiently elastic to respond to the varied and substantial changes shaping today’s companies. Investors are counting on each of you to fulfill your responsibilities towards the production of high-quality financial reporting.

It is not an easy job, and we will continue to do what we can to share our perspectives with the participants in the financial reporting process – whether through rulemaking; or by providing staff views on the implementation of new or existing standards to help prevent failures in financial reporting.

We are witnessing a whole succession of technological innovations, but none of them will do away with the need for integrity in the individual or the ability to think.

Thank you, and I look forward to taking your questions.

[1] See data from the U.S. Bureau of Labor Statistics, available at https://data.bls.gov/timeseries/CES0500000001.

[2] See“U.S. Trade in Goods and Services – Balance of Payments (BOP) Basis,” U.S. Census Bureau, Economic Indicator Division (June 6, 2018),available at https://www.census.gov/foreign-trade/statistics/historical/gands.pdf.

[3] See “Changes in U.S. Family Finances From 2013 to 2016: Evidence From the Survey of Consumer Finances,” Federal Reserve Bulletin Vol. 103, No. 3 (Sept. 2017), at pages 20-21, available at https://www.federalreserve.gov/publications/files/scf17.pdf.

[4] See “U.S. Portfolio Holdings of Foreign Securities, as of December 31, 2016,” U.S. Department of the Treasury, Federal Reserve Bank of New York, and Board of Governors of the Federal Reserve System (Oct. 2017), at page B-8, available at http://ticdata.treasury.gov/Publish/shc2016_report.pdf.

[5] See “The World’s 500 Largest Asset Managers,” Pension & Investments and Willis Towers Watson (Oct. 2017), at page 29, available at http://www.ioandc.com/wp-content/uploads/2017/11/7-WYW-Top-500-report.pdf .

[6] See Cassell, C., Myers, L., and Zhou, J.,The Effect of Voluntary Internal Control Audits on the Cost of Capital, (2013)available at,http://ssrn.com/abstract=1734300 (finding that, among non-accelerated filers from 2004 to 2010, six percent voluntary complied with Section 404(b)).

[7] See “Remarks at the Economic Club of New York,” Chairman Jay Clayton, U.S. Securities and Exchange Commission (“SEC”) (July 12, 2017), available at https://www.sec.gov/news/speech/remarks-economic-club-new-york.

[8] The three renditions on the financial reporting structure include: (1) Blue Print – an illustration of the players involved; (2) Flow Chart – a simplified representation of the blue print; and (3) Segment Chart – variations in financial reporting requirements in three different market segments: domestic issuers, foreign private issuers, and private companies.

[9] See “U.S. Financial Reporting Structure for Public Issuers,”available at https://www.sec.gov/oca/us-financial-reporting-structure-public-issuers.

[10] See “2017 Financial Restatements Review,” Audit Analytics (June 7, 2018), available at http://www.auditanalytics.com/blog/2017-financial-restatements-review/ .

[11] See Section 13(b)(2)(A) of the Securities Exchange Act of 1934 (“Exchange Act”).

[12] See Section 13(b)(2)(B) of the Exchange Act.

[13] See id.

[14] See id.

[15] See Section 13(b)(2)(B)(ii) of the Exchange Act.

[16] See Remarks at the NY Fed “The Importance of Effecting Positive Culture in the Financial Profession,” Jay Clayton, Chairman, SEC (June 18, 2018).

[17] See Remarks before the 2018 Baruch College Financial Reporting Conference: “Working Together to Advance Financial Reporting,” Wesley Bricker, Chief Accountant, SEC (May 3, 2018),available at https://www.sec.gov/news/speech/speech-bricker-040318.

[18] See Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard (“AS”) 2110, Identifying and Assessing Risks of Material Misstatement, paragraphs .18 through .38.

[19] See Section 101(a) of the Sarbanes-Oxley Act of 2002.

[20] See “PCAOB Transitions for the Future,” William D. Duhnke, Chairman, PCAOB (May 17, 2018), available at https://pcaobus.org/News/Speech/Pages/PCAOB-Transition.aspx?utm_source=PCAOB+Email+Subscriptions&utm_campaign=5737c06839-EMAIL_CAMPAIGN_2018_05_08&utm_medium=email&utm_term=0_c97e2ba223-5737c06839-125364285 .

[21] See Rule 10A-3(b) of the Exchange Act.

[22] See “CFA Institute Member Survey Report: Audit Value, Quality, and Priorities,” CFA Institute (2018), at page 13, available at https://www.cfainstitute.org/en/research/survey-reports/audit-value-quality-priorities-survey-report .

[23] See Auditor Independence with Respect to Certain Loans or Debtor-Creditor Relationships, Release No. 33-10491 (May 2, 2018), available at https://www.sec.gov/rules/proposed/2018/33-10491.pdf.

[24] See “Digital Asset Transactions: When Howey Met Gary (Plastic),” William Hinman, Director – Division of Corporation Finance, SEC) (June 14, 2018), available at https://www.sec.gov/news/speech/speech-hinman-061418.



Remarks of Commissioner Brian Quintenz at the Institute of International Bankers Membership Luncheon


June 21, 2018


Thank you for that very kind introduction.  I am honored to join you today at the Institute of International Bankers Membership Luncheon.  Let me congratulate Sally Miller on her distinguished tenure with this organization as well as congratulate Briget Polichene on taking the reins.  I look forward to continuing to work with you on important issues facing the global financial markets.  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.

Deference for Different Approaches

The European Union (EU) and the United States share an interest in fostering a liquid, competitive, well-functioning global derivatives market.  Although we frequently share the same goals—for example preventing a buildup of systemic risk or prosecuting manipulation and fraud—this does not mean that we must each approach every regulatory solution identically.  There are many different means by which to achieve a shared goal, and regulators should have the discretion to adopt the framework that works best for their markets.  In my opinion, the expectation should not be that our rules are identical, but rather that they seek to establish comparable standards to prevent undesirable outcomes.

However, I recognize that when regulatory requirements differ across jurisdictions, market participants may face costs and inefficiencies.  In order to operate in a global marketplace, participants have to comply with multiple jurisdictions’ requirements, which takes time, money, and talent away from their core missions.  This is why a deference-based approach to regulation is so important for a global marketplace like the swaps market.  It allows a participant to access other countries’ markets, but be exempted from their regulations, if the participant already complies with its home country’s rules which achieve similar regulatory outcomes.

A troubling argument that I have heard recently attacking such a deference-based approach focuses on “regulatory arbitrage,” and postulates that market participants move to the jurisdictions with the least onerous regulation, thereby incentivizing jurisdictions to participate in a regulatory “race to the bottom” to win market share for their countries and economies.  Let me be clear – I completely reject this disingenuous claim.

Market participants seek neither the least nor the most regulated marketplaces, but rather marketplaces that have the best balance of sensible, objective, and reliableregulation.  The more we as regulators are forced into a mindset of minimizing regulatory arbitrage as an end unto itself, the more we empower the most restrictive and most punitive regimes to be the standard-bearers.  It is those regimes who will complain the loudest about their lost economic opportunities, liquidity and participants, and it is they who will demand that other countries also implement their “higher,” “stronger,” or “safer” standards.

As I have said before, there is a fine line between protecting the financial system and punishing it.[1]  Financial regulations which are more punitive do not necessarily offer more protection.  Other jurisdictions may pursue a punitive approach if they believe it is best for their markets.  However in my capacity as Commissioner, I will not be persuaded to follow their course purely for the sake of harmonization and will remain adamant that we judge comparability by outcomes.

Moreover, in order to achieve an appropriate regulatory balance, different jurisdictions must have the flexibility to adopt the approaches that fit best within their existing regulatory frameworks and market structures.  An added benefit of this approach is that regulators can learn from other jurisdictions’ choices and make improvements to their domestic regulations if an alternative approach has worked better elsewhere.  If every jurisdiction is forced to adopt the same, one-size-fits-all mandate, there is no opportunity to tailor the requirements to the needs of particular markets or to learn from experience what approach works best.

In particular, today I would like to discuss two different areas of regulation where the CFTC is continuing to consider regulatory approaches, and ultimately may not follow in lockstep with EU regulatory authorities, before moving on to an important area of deference-based regulation – overseeing cross-border clearinghouses.

Algorithmic Trading Regulations

The EU’s Markets in Financial Instruments Directive (MiFID) II took effect January 2018 and includes rules for entities involved in algorithmic and high frequency trading (HFT).[2]  A European algorithmic or HFT firm must comply with numerous requirements, including: notifying its national regulator that it is involved in this type of trading,[3] potentially disclosing its trading “source code” to its national regulator,[4] and maintaining particular risk controls that are subject to certain testing requirements.[5]  These firms must organize themselves according to a certain governance framework, including designating certain senior management responsible for authorizing the use or update of trading algorithms.[6]

An HFT firm must also keep a sequenced record of all its placed orders, including cancellations, executed orders, and quotations, for five years.[7]  Even a day’s worth of such trading records represents a huge volume of data for a firm to collect and store, let alone five years’ worth, and the costs of such data storage can be quite significant.[8] Additionally, if the firm is a market maker, it must comply with additional rules, including entering into an agreement with the trading venue outlining the trading firm’s market making obligations to provide liquidity during a specified portion of the venue’s trading hours.[9]

In 2015 and 2016, the CFTC proposed and re-proposed rules in this area but has not finalized them.[10]

Although Europe has instituted an algorithmic and high frequency trading regime, this does not mean that the CFTC should automatically adopt comparable regulatory requirements, at least not until the CFTC has more appropriately considered what would be the best policy.  Indeed, some MiFID II concepts are ones which Chairman Giancarlo and I have specifically rejected, such as allowing for a regulator to access a firm’s source code without a subpoena.[11]  Additionally, the CFTC must give further consideration to several topics, including:  judging the imposition of any potential requirement from a market protection versus an investor protection perspective, the balance between mandating requirements through government agency rulemaking versus more flexible controls designed and enforced by trading platforms, and scope considerations, such as whether requirements should apply only to market intermediaries or to end-user traders as well.

However, just because the CFTC has not acted on an algorithmic or automated trading regulation does not mean that we are not focused on the impact of such activity on the market.  The CFTC’s Market Intelligence Branch, a new group formed by Chairman Giancarlo to study market dynamics, has been researching the causes of volatility and sudden price swings in the futures markets.  This research suggests that recent price swings are attributable not to HFT activity but rather to world events, economic releases, and market fundamentals.[12]

I have the honor of sponsoring the CFTC’s Technology Advisory Committee (TAC) at the agency, which brings in outside experts to advise the Commission on technological innovations, potential risks, and whether any regulatory response is appropriate. The TAC recently formed a subcommittee on algorithmic trading and market structure, and I look forward to its discussion and recommendations on the true risks and challenges of the modern trading environment and algorithmic trading activity.[13]

It is not just the CFTC that is taking a measured approach.  Earlier this year, the International Organization of Securities Commissions (IOSCO) solicited public input about best practices used by trading venues to manage extreme volatility and preserve orderly trading.[14]  I look forward to learning from any public comments and reading IOSCO’s final report.  As we gain additional insight into the impact algorithmic and high frequency trading have had on our markets, we will be better positioned to assess what, if any, additional regulatory requirements may be appropriate.

Position Limits

Similarly, MIFID II’s requirement for member states to implement position limits on commodity derivatives also went into effect in January 2018.  The purpose of these position limits is to prevent market abuse and to support orderly pricing and settlement conditions.[15]  Under the European position limits regime, each member state must impose limits on the net position which a person can hold in commodity derivatives traded on one or more EU trading venues and in economically equivalent over-the-counter contracts.  This means that firms must develop the technological infrastructure to monitor their aggregate trading activity across multiple exchanges and in the OTC markets to ensure they remain below any applicable limits.

It is interesting to note that around the time MiFID II’s position limits went into effect, ICE Futures Europe transferred 245 futures and options contracts in oil and natural gas to ICE Futures U.S.[16]  In addition, some brokers reported customers switching from ICE Futures Europe to contracts traded on CME.[17]  Did this happen because, all of a sudden, the U.S. market in comparison became a regulation-free haven for excessive speculation?  The answer, quite obviously, is no.

Of course, the CFTC has its own position limits framework for exchange-traded futures contracts.  Currently, CFTC regulations apply position limits on nine agricultural futures contacts, with U.S. futures exchanges applying position limits on other types of commodity futures contracts.  The Commission is currently considering how and to what extent it should establish CFTC-set position limits on certain enumerated contracts.

In addition to position limits, the Commission also has a suite of other regulatory tools that have been implemented to address issues of excessive speculation and manipulation, including the special call powers of the agency, market surveillance capabilities, large trader reporting obligations, and exchange-set accountability levels in various contract months.  The exchanges have proved to be strong partners in the CFTC’s efforts to promote and protect vibrant, liquid, well-functioning derivatives markets.[18]

I have heard some argue that the CFTC should move to quickly implement position limits requirements similar to the European regime.  They express concerns that the United States is providing a regulatory haven to those seeking to avoid the requirements of MiFID II.  I disagree.  I believe the current CFTC position limits regime, in conjunction with the agency’s other extensive reporting and recordkeeping requirements for futures, swaps, and related cash transactions, allows for fulsome oversight by the Commission.  Although the Commission may ultimately decide to augment its position limits regime, it should not feel pressured to do so under an artificial time frame or in order to align itself with another jurisdiction’s requirements.  Instead, any new policy should be carefully considered and appropriately tailored to complement existing CFTC regulations.

Although the CFTC’s and EU’s position limits and oversight regimes differ, they both are designed to diminish the possibility of market manipulation and facilitate orderly trading and settlement.  There are legitimate reasons why our respective regulatory approaches may differ and I hope that through deference and communication, we can each learn from the other’s implementation experiences.

CCP Equivalency

While we are on the topic of deference, I want to spend a few moments now discussing an issue of paramount importance to both the EU and CFTC – the supervision of cross-border central counterparties (CCPs or clearinghouses).  I have spoken at length about this issue previously, but it is worth spending a few minutes reviewing how we arrived at the current state of affairs.  Over two years ago, the EU and the CFTC agreed to a common approach to the regulation and supervision of cross-border CCPs.[19]  The 2016 CCP equivalence determination has two components.

First, the CFTC issued a comparability determination for EU-domiciled clearinghouses registered with the CFTC.[20]  Those clearinghouses are deemed compliant with certain CFTC requirements if they satisfy corresponding European laws, lessening the regulatory burden on EU CCPs.  The comparability determination also reduces the burden on EU-domiciled clearinghouses seeking to register with the CFTC.  Currently, four European clearinghouses benefit from the CFTC’s determination.[21]

The second component is the European Commission’s equivalence determination for U.S. clearinghouses registered with the CFTC.[22]  European recognition is required for any non-European clearinghouse – a “third-country CCP” – to operate in the EU.  Today, five CFTC-registered U.S. clearinghouses are recognized to provide clearing services directly to EU market participants.[23]

The 2016 CCP equivalence determination was the result of three years of intense negotiations between the CFTC and EU.  In my opinion, the agreement promoted the vibrancy and liquidity of our global derivatives markets.  It sought to avoid the fragmentation of those markets and reflected both sides’ commitment to regulatory deference and to ensuring that CCPs on both sides of the Atlantic are held to rigorous standards.

However, just over a year ago, the European Commission introduced legislation that would unilaterally abandon the “recognition conditions” set forth in the 2016 equivalence agreement.  Under the proposed legislation, CFTC-registered U.S. clearinghouses that are deemed to be systemically significant would be required to adopt all of EMIR and accept enhanced oversight by the European Securities and Markets Authority (ESMA) and the European Central Bank (ECB).

Moreover, despite the repeated efforts of Chairman Giancarlo, my fellow Commissioner Rostin Behnam, and myself to explain our concerns to European authorities and the European Commission, the European Parliament recently voted on amendments to the legislation that failed to reaffirm the 2016 equivalence agreement.  Of particular concern, the amendments modify the criteria by which ESMA should evaluate if a third-country CCP is systemically important to the EU.  Unfortunately, the proposed criteria do not provide a clearly delineated standard requiring that a third-country CCP’s systemic importance to the EU be evaluated based only on its nexus to the EU.  Instead, the amendments provide that ESMA should consider the extent of a CCP’s business outside of the EU in evaluating whether the CCP is systemically important to the EU.[24]

In my view, any EU systemic risk determination of a CCP should only focus on that CCP’s EU impact.  A CCP whose clearing members and activities are predominantly located in the EU, or that has a substantial business in clearing euro-denominated contracts, would be a reasonable candidate for such a determination. However, other clearinghouses whose overall activities may be globally significant, but do not have a direct systemic connection to the EU, should be handled differently.  I believe any jurisdiction’s regulatory concerns over these types of entities can be addressed through robust information-sharing agreements on supervisory procedures and open dialogue with the CCP’s home country regulator.  There is no reason why the ultimate legislative text could not create a middle tier or category for CCPs who are not independently systemic to the EU, but whose reach and complexity warrant a robust dialogue and data sharing arrangement with the home country regulator that can provide continued confidence in a deference-based approach.

If the EU continues to ignore the 2016 equivalence agreement, then I hope that the legislation, at the very least, can be revised so that third-country CCP systemic risk determinations focus solely on the CCP’s activities in, and impact on, the EU.

Without such a middle tier, aspects of the proposed legislation could create troubling outcomes for U.S.-based CCPs.  For instance, the legislation now proposes a direct and independent supervisory role for the ECB and the central banks of EU member states over any third-country CCP, including a U.S. clearinghouse, deemed systemically significant.  The rationale behind this expansive role for European central banks is that the risks of a malfunctioning CCP could “affect the instruments and counterparties which are used to transmit monetary policy.”[25]

In my opinion, it would be a grave mistake to introduce central bank monetary policy or liquidity perspectives into the supervision of clearinghouses generally, and it would be an unacceptable outcome in the regulation of U.S.-domiciled CCPs specifically.  This is especially true during times of crisis or stress, where a CCP’s interest in maintaining its financial integrity may conflict with a foreign central bank’s interest in easing the money supply and protecting the health of its domestic banks.

This is a good time to reaffirm to all concerned parties why CCPs exist:  as a stability mechanism to ensure the integrity of their members’ transactions – not as a monetary policy transmission vehicle and not as a regulatory tool to help manage foreign banks’ liquidity and balance sheets during times of stress.

Further, I also believe that a U.S. clearinghouse should not be forced to adopt risk management measures decreed by a European central bank for the benefit and well-being of EU financial markets if such measures would adversely impact the integrity, stability, and well-being of a U.S. clearinghouse.  In fact, I find such a scenario to be alarming.

In line with the above concept of creating an additional tier of status in the proposed legislation, I would suggest that an alternative, more appropriate approach would be to establish a consultative role for central banks.  This is the approach we follow at the CFTC in working collaboratively with the Federal Reserve to promote the financial integrity of the swaps and futures markets CCPs.[26]

Earlier this year, I explained that given the EU’s decision to renege on the 2016 equivalence agreement, I would not support the CFTC granting additional equivalence determinations or any relief requested by EU authorities until a satisfactory outcome had been achieved on this issue.[27]  I felt this position was warranted in light of the EU’s violation of our trust and cooperation.  I remain steadfast in my position given the lack of progress, and Chairman Giancarlo is well aware of my stance.  Indeed, the Chairman and Ranking Member of the CFTC’s oversight committee in the U.S. Senate have expressed support for the CFTC’s reconsideration of existing accommodations to EU firms, exchanges, and CCPs doing business in the U.S. markets in response to this proposal.[28]  I hope that is not necessary, but I am open to such measures in order to ensure an acceptable and appropriate outcome.  Until European authorities commit to honoring their current agreement with the U.S. and reaffirm an appropriate deference-based approach to CCP oversight, I do not believe the CFTC should make additional accommodations to EU authorities.

Once a home country regulator implements a comprehensive supervisory framework, it should have primary authority over its domestic CCPs, and other foreign regulators should defer to its expertise.  This is the approach that Chairman Giancarlo has championed, and I support his efforts to establish a global regulatory framework that is appropriately deferential to domestic regulators.[29]  It is my hope that the EU will reaffirm its commitment to the 2016 equivalence agreement so that we can continue to work together to minimize cross-border burdens and market fragmentation to our mutual benefit.

Let me close by stating that I continue to believe that the optimal approach toward the cross-border regulation of our global derivatives market is to defer to comparable foreign regulatory frameworks.  Failure to do so will ultimately lead to fragmented liquidity, less hedging, more volatility, higher costs, and fewer market participants.

Thank you for having me today; I am honored to be with you.


[1]      See Remarks of Commissioner Brian Quintenz before the Structured Finance Industry Group Vegas Conference (Feb. 26, 2018),https://www.cftc.gov/PressRoom/SpeechesTestimony/opaquintenz7.

[2]     Directive 2014/65/EU of the European  Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2009/92/EC and Directive 2011/61/EU  (MiFID II), https://ec.europa.eu/info/law/markets-financial-instruments-mifid-ii-directive-2014-65-eu_en.  Article 17 prescribes requirements for algorithmic and high frequency trading.  See alsoHogan Lovells, MiFID II, Algorithmic and High-Frequency Trading for Investment Firms(Dec. 2016), https://www.hoganlovells.com/~/media/hogan-lovells/pdf/mifid/new_mifid_update_31_dec_2016/5466119v1mifid-ii-algorithmic-trading-29122016lwdlib01.pdf; Megan Woodward, The Need for Speed: Regulatory Approaches to High Frequency Trading in the U.S. and the E.U., 50 V and. J. Transnat’l  L. 1359 (2017).

[3]     MiFID II, Article 17(2).

[4]     Id.

[5]     MiFID II, Article 17.

[6]     MiFID II, Article 17.  See also Commission Delegated Regulation (EU) 2017/589 of 19 July 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards specifying the organisational requirements of investment firms engaged in algorithmic trading, Articles 1-4, http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32017R0589&from=EN (RTS 6).

[7]     MiFID II, Article 17(2); RTS 6, Article 28.

[8]      FIA EPTA Responds to MiFID II Consultation at 59 (Aug. 1, 2014),https://epta.fia.org/file/136/download?token=uZ_D-4QD.

[9]     MiFID II, Article 17(3)-(4).

[10]    Regulation Automated Trading, 80 Fed. Reg. 78,824 (Dec. 17, 2015) and 81 Fed. Reg. 85,334 (Nov. 25, 2016).

[11]     Remarks of Commissioner Brian Quintenz before the Symphony Innovate 2017 Conference (Oct. 4, 2017), https://www.cftc.gov/PressRoom/SpeechesTestimony/opaquintenz1; Gregory Meter,US regulator declares ‘dead’ moves to seize HFT code, Financial Times, Oct. 4, 2017,https://www.ft.com/content/068ce050-a922-11e7-93c5-648314d2c72c.

[12]    Remarks of CFTC Chairman J. Christopher Giancarlo before the Women in Derivatives Forum, Washington, DC June 12, 2018, available at,https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo48;
Prop Traders, HFTs Do Not Make Markets Less Stable – CFTC, by Louisa Chender, Futures & Options World (June 13, 2018).

[13]     CFTC Commissioner Quintenz Announces TAC Subcommittees (June 4, 2018),https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement060418a.

[14]  Mechanisms Used By Trading Venues To Manage Extreme Volatility And Preserve Orderly Trading, IOSCO Consultation Report (March 2018), available athttps://www.iosco.org/library/pubdocs/pdf/IOSCOPD594.pdf.

[15]    MiFID II, ¶ 127 of Recitals.

[16]    Gregory Meyer and Philip Stafford, Commodity traders gain relief on position limits under Mifid, Financial Times (Feb. 7, 2018), https://www.ft.com/content/f50a9630-0c25-11e8-8eb7-42f857ea9f09.

[17]    Id.

[18]    Since 2015, NYMEX, COMEX, CME, CBOT, and ICE Futures U.S. have brought over 50 exchange enforcement actions for violations of position limits or position accountability levels.  SeeCME Group, Market Regulation Enforcement, http://www.cmegroup.com/market-regulation/enforcement.html; ICE Futures U.S., Disciplinary Notices, https://www.theice.com/futures-us/notices.  This is in addition to the exchanges’ regular market surveillance activity that enables them to detect and investigate potential trade practice violations. See also NYMEX-COMEX Market Surveillance Rule Enforcement Review, Division of Market Oversight 6-10 (Oct. 11, 2016),http://www.cftc.gov/idc/groups/public/@iodcms/documents/file/rernymex_comex101116.pdf; Ice Futures U.S. Market Surveillance Rule Enforcement Review, Division of Market Oversight 10-11 (July 22, 2014),http://www.cftc.gov/idc/groups/public/@iodcms/documents/file/rericefutures072214.pdf.

[19]    Joint Statement from CFTC Chairman Timothy Massad and European Commissioner Jonathan Hill, CFTC and the European Commission: Common approach for transatlantic CCPs (February 10, 2016).

[20]    Comparability Determination for the European Union: Dually-Registered Derivatives Clearing Organizations and Central Counterparties, 81 Fed. Reg. 15260 (March 22, 2016).

[21]    Eurex Clearing AG, ICE Clear Europe Ltd., LCH.Clearnet Ltd., and LCH.Clearnet SA.

[22]    Commission Implementing Decision (EU) 2016/377 (March 15, 2016), https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016D0377&from=EN.

[23]    CME Inc., ICE Clear Credit LLC, ICE Clear US Inc., Minneapolis Grain Exchange Inc., and Nodal Clear LLC.

[24]    Report on the 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 authorisation of CCPs and requirements for the recognition of third-country CCPs (COM(2017)0331 – C8-0191/2017 – 2017/0136(COD)), proposed ¶2b amending Article 25.

[25]  Report on the 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 authorisation of CCPs and requirements for the recognition of third-country CCPs (COM(2017)0331 – C8-0191/2017 – 2017/0136(COD)), ¶7.

[26]    See Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010); Derivatives Clearing Organization General Provisions and Core Principles; Final Rule, 76 Fed. Reg. 69334, 69335 (Nov. 8, 2011).

[27]     See Keynote Address of Commissioner Brian Quintenz before FIA Annual Meeting, Boca Raton, Florida (March 14, 2018),https://www.cftc.gov/PressRoom/SpeechesTestimony/opaquintenz9.

[28]    Letter from Senators Roberts and Stabenow to CFTC Chairman Giancarlo, dated Jan. 8, 2018.

[29]    See Remarks of CFTC Chairman J. Christopher Giancarlo before the Eurofi Financial Forum, “Future of CFTC-EU Regulatory Coordination in the Financial Sector,” (Sept. 14, 2017),http://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo-28.


Press Release


SEC Shuts Down $102 Million Ponzi Scheme


Washington D.C., June 19, 2018 —

The Securities and Exchange Commission today filed charges and obtained an asset freeze against the individuals and companies behind a $102 million Ponzi scheme that bilked investors throughout the U.S.

According to the SEC’s complaint, the defendants defrauded more than 600 investors through sales of securities in issuers they controlled, including First Nationle Solution LLC, United RL Capital Services, and Percipience Global Corp.  The complaint alleges that investors were told that their funds would be used for the companies and some were guaranteed dividends or double-digit returns.  But, according to the complaint, the defendants spent at least $20 million to enrich themselves, paid $38.5 million in Ponzi-like payments, and transferred much of the remainder in transactions that appear unrelated to the issuers’ purported businesses.

The complaint charges Perry Santillo, of Rochester, New York, Christopher Parris, also of Rochester, Paul LaRocco, of Ocala, Florida, John Piccarreto, of San Antonio, and Thomas Brenner, of Orville, Ohio, along with the three companies.

“We allege that the defendants engaged in a massive fraud and swindled investors to line their pockets with ill-gotten gains,” said Marc P. Berger, Director of the SEC’s New York Office. “Investors should be on high alert whenever they are promised guaranteed returns.”

The SEC’s complaint, filed in federal district court in Manhattan, charges Santillo, Parris, LaRocco, Piccarreto, Brenner, and the three issuers with violating the antifraud provisions of the federal securities laws.  The court granted the SEC’s request for an asset freeze and a temporary restraining order.  The court will hold a hearing in 10 days concerning the asset freeze and will consider ordering a preliminary injunction.

The SEC encourages investors to check out the background of their investment professional by using the free and simple search tool on http://Investor.gov.  Investors should be cautious of investment professionals with a history of misconduct, including disciplinary actions by the Financial Industry Regulatory Authority, or FINRA.

The SEC’s continuing investigation is being conducted by Dina Levy, Jordan Baker, and Thomas P. Smith, Jr., and supervised by Lara S. Mehraban.  The SEC’s litigation will be led by Dugan Bliss and Ms. Levy.  The SEC appreciates the assistance of FINRA.



Press Release

Investors, Innovation, and Performance Top SEC’s Draft Strategic Plan



Washington D.C., June 19, 2018 —

The Securities and Exchange Commission today published a draft strategic plan that focuses on investors, innovation, and performance as the top strategic goals in coming years.

The SEC is seeking public comment on the proposed draft that will guide the SEC’s priorities through FY 2022.  The plan highlights the SEC’s commitment to serving the long-term interests of Main Street investors; becoming more innovative, responsive, and resilient to market developments and trends; and leveraging staff expertise, data and analytics to bolster performance.

“This plan focuses on the most important goals and initiatives that will best position the SEC to fulfill our mission of protecting investors, ensuring fair, orderly, and efficient markets and facilitating capital formation,” said SEC Chairman Jay Clayton. “We are presenting the plan in a more concise and readable format this year, which we hope will further encourage investors – particularly our Main Street investors – and market participants to share their views on how we can meet and exceed their expectations of our agency.”

The draft plan was prepared in accordance with the Government Performance and Results Modernization Act of 2010, which requires federal agencies to outline their missions, planned initiatives, and strategic goals for a four year period.

To comment on the 2018-2022 Draft Strategic Plan, send an email to PerformancePlanning@sec.gov.


Press Release


Daniel J. Wadley Named as Regional Director of Salt Lake Office


Washington D.C., June 18, 2018

The Securities and Exchange Commission today named Daniel J. Wadley as Regional Director of its Salt Lake office.  Mr. Wadley succeeds Richard R. Best, whom the agency named Regional Director of its Atlanta office in January.

Mr. Wadley, who served as acting Regional Director after Mr. Best’s move to Atlanta, began at the SEC in 2010 as a trial counsel in the Salt Lake office.  He also has served as counsel to the Co-Directors of the Division of Enforcement.

“Dan possesses excellent judgment and deep institutional knowledge of the Salt Lake office and the Commission that is so critical to this position,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.  “I am confident of the office’s continued success under his leadership.”

“Dan is well known in the Salt Lake office and region as a tough-but-fair litigator who has a keen mind and sound judgment,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.  “We are very fortunate to have him lead the Salt Lake office.”

Mr. Wadley said, “I am honored by this appointment and look forward to continuing the Salt Lake office’s strong tradition of enforcement in complex and cutting-edge cases as well as its effective collaboration with the Commission’s law enforcement and regulatory partners.”

As a trial counsel in the agency’s Salt Lake office, Mr. Wadley handled an array of litigation including:

Before joining the SEC, Mr. Wadley was in private practice in Salt Lake City and in the Washington, D.C. area.  He received his law degree with honors from Georgetown University Law Center in 2000 and his undergraduate degree with honors from Brigham Young University in 1997.






June 15, 2018

Giancarlo, Tuckman Discuss Swaps Reg Version 2.0 on CFTC Talks

Washington, DC — Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo and CFTC Chief Economist Bruce Tuckman discuss Swaps Reg Version 2.0, the white paper the two co-authored, on today’s edition of “CFTC Talks,” the agency’s podcast hosted by Andy Busch, CFTC’s Chief Market Intelligence Officer.

The white paper formally titled, Swaps Regulation Version 2.0: An Assessment of the Current Implementation of Reform and Proposals for Next Steps was released in April this year.

On the show, Giancarlo and Tuckman provide insight on the five key areas the paper addresses: Swaps Central Counterparties (CCPs); Swaps Reporting Rules; Swaps Execution; Swaps Dealer Capital; and End User Exception

When asked how this paper compares to the one Chairman Giancarlo wrote in 2015 (Pro-Reform Reconsideration of the CFTC Swaps Trading Rules: Return to Dodd-Frank.), Giancarlo explained this paper is not intended to further develop that paper, but it does try to achieve the same objectives, which is to “demystify a subject matter.” His earlier paper focused on swaps execution only, the current paper looks at a range of aspects of the global swaps market and explains why refreshing how swaps are being regulated is important and pivotal at this time. “This paper also looks forward as to what swaps reform will look like not only in the months to come, but in years to come and well into the future. The process of swaps reform is not a one-and-done approach,” he said.

Tuckman says that, in working with the Chairman to write the paper, he sought out the enormous amount of wisdom and insight across Commission staff. “I collected and organized those pieces of wisdom and worked with the Chairman to mold this significant knowledge and insight into a cohesive, easy to read, easy to understand explanation of the current state of affairs of swaps reform and the vision going forward.”

Giancarlo and Tuckman comprehensively discuss the five key areas the paper addresses to ultimately explain why the concepts presented are important.


News Release


For Release: 

Thursday, June 14, 2018


Michael Rote (202) 728-6912
Michelle Ong (202) 728-8464

FINRA Announces Initiative to Transform CRD, Other Registration Systems

New Technology Will Lead to Enhanced Efficiencies and Reduced Compliance Costs for Firms

WASHINGTON—FINRA today announced details of a multi-phased effort to overhaul its registration and disclosure programs, including the Central Registration Depository (CRD)—the central licensing and registration system that FINRA operates for the U.S. securities industry and its regulators and that provides the backbone of BrokerCheck. The first phase of the transformation—a new WebCRD interface that highlights important information or activities requiring immediate attention of firms, branches and individuals—goes into effect June 30.

The transformation aims to increase the utility and efficiency of the registration and disclosure process for firms, investors and regulators, as well as to reduce compliance costs for firms. FINRA’s Board of Governors has approved moving forward with the project, which FINRA expects to complete in 2021.

“This important initiative will strengthen an essential function of the securities industry,” said FINRA President and CEO Robert W. Cook. “The transformation will allow FINRA to develop systems that help firms effectively maintain compliance programs and reduce compliance costs, while continuing to operate and enhance BrokerCheck as an essential tool for investors.”

“The CRD is an important tool for the financial services industry, regulators, and investors. We applaud FINRA for undertaking this initiative to upgrade the system’s operations,” said Joseph Borg, President of the North American Securities Administrators Association (NASAA) and Director of the Alabama Securities Commission.

FINRA developed and operates several systems that support registration and disclosure requirements for the securities industry, and works closely with the SEC and NASAA on policy and program requirements for the systems. Securities firms use these systems to register and maintain the records of associated persons who operate within the securities industry, and investors use them—through BrokerCheck—to research the professional backgrounds of brokers and brokerage firms. These registration systems are essential to the operation of the securities industry, and experience consistently high usage volume.

The redeveloped registration systems will facilitate more efficient interaction for users and leverage information from other FINRA regulatory programs, resulting in a more accurate and complete set of information about registered individuals, branches and firms—enhancing firm compliance programs and reducing compliance costs. The transformation also allows FINRA to leverage the information security benefits of cloud-based technology, and architect systems that address dangers associated with current and anticipated cyber threats and risks.

The changes are being made in response to feedback FINRA has received through various channels during its ongoing organizational improvement initiative—FINRA360—including via recommendations from firms in response to FINRA’s 2017 Special Notice on Engagement. FINRA is working closely with member firms throughout the multi-year project, and will continue to solicit their input and feedback to ensure the enhanced systems are meeting the industry’s needs.

More information about the registration system transformation is available at www.finra.org/newcrd.


Background of the Registration Systems

The systems that support registration and disclosure requirements in the securities industry include the following:

  • Central Registration Depository (CRD) – maintains the registration records of close to 3,800 SEC-registered broker-dealers (more than 3,700 are member firms) and over 630,000 FINRA-registered professionals
  • Web CRD – the online registration system that allows the securities industry, federal and state regulators, and securities exchanges to interact with CRD
  • Investment Adviser Registration Depository (IARD) – the registration system for investment advisors and their federal and state regulators
  • Investment Advisor Public Disclosure (IAPD) – the public disclosure system for investment advisers
  • Private Fund Reporting Depository (PFRD) – the SEC private fund reporting system
  • BrokerCheck – a free online tool where investors research the professional backgrounds of brokers and brokerage firms, as well as investment adviser firms and advisers

FINRA operates CRD and works with the SEC and NASAA on policy and program requirements for the program. FINRA operates and maintains the WebCRD system in accordance with these requirements. FINRA operates and maintains the BrokerCheck system to provide CRD-based information to investors and other users. In addition, FINRA operates IARD, IAPD and PFRD under contract with the SEC. Throughout the envisioned transformation, FINRA will collaborate closely with the SEC, NASAA and state regulators to ensure alignment with their regulatory programs, operational requirements and contractual commitments.

Reasons for System Overhaul

These registration systems are essential to the operation of the securities industry, and experience consistently high usage volume (e.g., in October 2017, Web CRD processed its 50 millionth registration since launching in 1999, and throughout 2017 processed over 2.1 million filings, more than 60,000 disclosure filings, and over 285,000 fingerprint cards). FINRA has regularly enhanced these applications to address regulatory requirements and the needs of the industry over time, but the technology upon which the systems were built now creates development and maintenance challenges. These factors limit opportunities to expand the registration systems in response to regulatory changes and industry needs.

Benefits of the Registration Systems Transformation Project

The changes will facilitate more efficient interaction for users and leverage information from other FINRA regulatory programs, resulting in a more accurate and complete set of information about registered individuals, branches and firms—enhancing firm compliance programs and reducing compliance costs. The transformation also allows FINRA to leverage the information security benefits of cloud-based technology, and architect systems that address dangers associated with current and anticipated cyber threats and risks.

Scope of Multi-Phase Transformation Project


FINRA is currently running a pilot program of the first step of the multi-phased transformation—replacing functionality in Web CRD with a new user interface focused on important information and activities that firms, branches and individuals should address immediately. The new functionality becomes available for all firms on June 30. Other near-term enhancements include overhauling functionality for firm staff to review information about an individual, branch or firm, and implementing an automated feature for notifying registered representatives when a new Uniform Termination Notice for Securities Industry Registration (Form U5) is available for review.


Longer-term, FINRA plans to revamp the process for completing required submissions, including by allowing efficient, paperless information updates without requiring full form submissions, expanding the ability for firms to delegate work and collaborate with registered staff, introducing e-signature functionality, and developing capabilities for bulk transactions (e.g., filings that impact many individuals and firms). In addition, FINRA plans to include as part of the system transformation customized reporting options for users.


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.


NR 2018-61


June 14, 2018

Contact: Bryan Hubbard
(202) 649-6870

Comptroller of the Currency Discusses Priorities for the Federal Banking System

WASHINGTON—Comptroller of the Currency Joseph M. Otting today discussed his priorities for the agency and the federal banking system during testimony before the Senate Committee on Banking, Housing, and Urban Affairs.

  • The Comptroller’s testimony highlighted agency effortsto modernize the regulatory approach to the Community Reinvestment Act to promote investment where it is needed most;
  • to encourage banks to meet customers’ needs for short-term, small dollar credit;
  • to promote more efficient compliance with the Bank Secrecy Act and anti-money laundering regulations that protect the nation’s banking system from being used for illegal purposes;
  • to simplify regulatory capital and the Volcker Rule, particularly for small and midsize banks; and
  • to ensure the agency operates as effectively and efficiently as possible.

The testimony also provides an overview of the condition of the federal banking system and the key risks it faces.

Related Links

Oral Statement (PDF)

Written Testimony (PDF)

# # #





June 13, 2018

CFTC Charges Omega Knight 2, LLC, Aviv Michael Hen, and Erez Hen with $5.5 Million Precious Metals Fraud

CFTC Also Charges Defendants with Engaging in Illegal, Off-Exchange Precious Metals Transactions

Washington, DC – The Commodity Futures Trading Commission (CFTC) filed a civil enforcement action in the U.S. District Court for the Southern District of Florida against Defendants Omega Knight 2, LLC (Omega Knight), its owner and president, Aviv Michael Hen (Aviv Hen) of Great Neck, New York, and Erez Hen(Eric Hen) of Florida.

The CFTC’s Complaint charges Defendants with fraud and engaging in illegal, off-exchange transactions in precious metals.  The Complaint also charges Omega Knight with failing to register with the CFTC as a Futures Commission Merchant (FCM), as required, and alleges that Aviv Hen, as controlling person for Omega Knight, is liable for Omega Knight’s violations of the Commodity Exchange Act (CEA).

Specifically, from March 2013 and continuing through at least June 2017, Omega Knight allegedly engaged in a scheme to defraud customers located throughout the United States in connection with precious metals transactions.  The Complaint alleges that Defendants made numerous false statements to induce customers to enter into leveraged, financed, and fully-paid precious metals transactions, and they received at least $5.5 million from at least 90 customers in connection with these transactions.

According to the Complaint, Defendants failed to use all of the customer funds they collected to purchase metal for their customers’ precious metals transactions.  Instead, Defendants allegedly misappropriated customer funds to pay personal expenses, to distribute purported “profits” and disbursements to other customers, and to fund Omega Knight’s operations.  Through the issuance of false trade confirmations and account statements and other communications to customers, Defendants allegedly concealed their misappropriation and the fraudulent scheme.

Moreover, the Complaint alleges that Defendants’ leveraged or financed precious metals transactions constituted illegal, off-exchange retail commodity transactions.  Notably, Defendants’ leveraged or financed precious metals transactions never resulted in actual delivery of the full amount of metal purchased to customers, according to the Complaint.  The Complaint also alleges that Omega Knight accepted customer orders and funds in connection with those transactions and therefore acted as an FCM, but failed to register with the CFTC as an FCM, as required.

In its continuing litigation against Omega Knight, Aviv Hen, and Erez Hen, the CFTC seeks disgorgement of ill-gotten gains, civil monetary penalties, restitution, 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 Patricia Gomersall, Jason Wright, Kassra Goudarzi, A. Daniel Ullman II, and Paul G. Hayeck.

*   *   *   *   *   *

CFTC’s Precious Metals Customer Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Precious Metals Fraud Advisory, which alerts customers to precious metals fraud and lists simple ways to spot precious metals 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.





June 12, 2018

CFTC Charges Florida-Based Mark Olsen Mining Company and Betty Lea Grimes with Engaging in Illegal, Off-Exchange Precious Metals Transactions

Washington, DC – The Commodity Futures Trading Commission (CFTC) today filed a civil enforcement action charging Florida-based Defendants Mark Olsen Mining Company (MOMC) and Betty Lea Grimes with engaging in illegal, off-exchange transactions in precious metals with retail customers on both a fully paid as well as a leveraged, margined, or financed basis.  Grimes is MOMC’s president, controlling person, and managing member.  Grimes has used the following names, and/or combinations of these names, in various legal documents: Betty Grimes, Lea Grimes, Lea Lauren, Betty Nehme, and Lea Nehme.  Neither MOMC nor Grimes has ever been registered with the CFTC.

The CFTC Complaint, filed in in the U.S. District Court for the Southern District of Florida, further alleges that Grimes, as controlling person for MOMC, is liable for MOMC’s violations of the Commodity Exchange Act (CEA).

According to the Complaint, from at least April 2013 and continuing through at least February 2014, MOMC, by and through its employees, including Grimes, solicited retail customers by telephone to engage in fully paid as well as leveraged, margined, or financed precious metals transactions.  During that period, MOMC collected more than $870,000 from three customers for the purported purpose of investing in precious metals.  Instead, as alleged, MOMC customers never received precious metals, and the Defendants misappropriated all MOMC customer funds.  The Defendants used the misappropriated funds to pay for Grimes’ personal expenses, with the remaining funds wire transferred to a person purporting to be Mark Olsen in South Africa, according to the Complaint.

Defendants Made Material False and Misleading Representations and Omissions

The Defendants in their solicitations to actual and potential customers allegedly used a website and marketing materials that contained false representations to defraud customers who wished to purchase precious metals from MOMC.  Also, the Defendants allegedly made additional misrepresentations in direct oral and written communications with customers.

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

This is not Grimes’ first violation of the CEA.  In 2007, using the fictitious name Lea Lauren, Grimes signed a Consent Order with the CFTC.  CFTC v. Madison Forex LLC, No. 05-61672 (S.D. Fla. July 16, 2007).  The Consent Order found that Defendants fraudulently solicited more than $4.5 million from customers, in connection with the trading of forex options.  As a salesperson for one of the Defendants, Grimes was similarly charged with making false statements and omissions.  (See CFTC Press Releases 5134-05 and 5379-07.)

The CFTC thanks and acknowledges the assistance of the Financial Sector Conduct Authority (FSCA), formerly known as the Financial Services Board (FSB), of South Africa for its assistance in this matter.

CFTC Division of Enforcement staff members responsible for this action are Maura Viehmeyer, Aimée Latimer-Zayets, and Rick Glaser.

*   *   *   *   *   *

CFTC’s Precious Metals Customer Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Precious Metals Fraud Advisory, which alerts customers to precious metals fraud and lists simple ways to spot precious metals 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.


Press Release

SEC Modernizes the Delivery of Fund Reports and Seeks Public Feedback on Improving Fund Disclosure



Washington D.C., June 5, 2018 —

Yesterday, the Commission voted to improve the experience of investors who invest in mutual funds, ETFs and other investment funds.  In three related releases, the Commission provided a new, optional “notice and access” method for delivering fund shareholder reports, invited investors and others to share their views on improving fund disclosure and sought feedback on the fees that intermediaries charge for delivering fund reports.  These actions are part of a long-term project, led by the Division of Investment Management, to explore modernization of the design, delivery and content of fund disclosures for the benefit of investors.

“These actions are an important part of the Commission’s effort to better serve Main Street investors in our ever changing marketplace,” said SEC Chairman Jay Clayton.  “The new rule significantly modernizes delivery options for fund information while preserving the right of fund investors to receive information in paper form as they do today.  I look forward to public feedback on next steps, and encourage everyone with an interest in fund disclosure—especially Main Street investors—to give us their ideas on how to improve the design, delivery and content of fund disclosures.”

In the first of three releases, the Commission adopted new rule 30e-3.  The rule creates an optional “notice and access” method for delivering shareholder reports.  Under the rule, a fund may deliver its shareholder reports by making them publicly accessible on a website, free of charge, and sending investors a paper notice of each report’s availability by mail.  Investors who prefer to receive the full reports in paper may—at any time—choose that option free of charge.  Funds may rely on the new rule beginning no earlier than January 1, 2021.

The Commission is also seeking public comment on additional ways to modernize fund information.  Investors, academics, literacy and design experts, market observers, and fund advisers and boards of directors are invited to visit www.sec.gov/tell-us to provide feedback on how to improve the experience of fund investors.  This input will help inform the Commission on how to modernize the design, delivery and content of fund information, including how to make better use of 21st century technology to provide more interactive and personalized disclosure.

Finally, the Commission is seeking comment on the framework for certain processing fees that broker-dealers and other intermediaries charge funds for delivering fund shareholder reports and other materials to investors.

The Commission requests that commenters provide feedback on the requests by October 31, 2018.



Investment Company Disclosure and Delivery Rulemaking Package
June 5, 2018

The Commission adopted a new rule and related rule and form amendments that provide certain registered investment companies (“funds”) with an optional method to transmit shareholder reports to investors.  The Commission also issued two requests for comment: the first seeking comment from individual investors and others on enhancing fund disclosures to improve the investor experience; and the second seeking comment on the framework for processing fees charged to funds by intermediaries for the forwarding of fund shareholder reports and other materials to investors. These actions are part of the Commission’s larger initiative to improve and modernize the design, delivery, and content of information provided to fund investors.


Adoption of an Optional Delivery Method for Fund Shareholder Reports

New rule 30e‑3 under the Investment Company Act provides an optional “notice and access” method to allow funds to satisfy their obligations to transmit shareholder reports.  Subject to conditions in the rule, a fund may make its reports and other required materials publicly accessible at a specified website address, free of charge, and send investors a paper notice of each report’s availability by mail.  Funds will be permitted to satisfy their delivery obligations for shareholder reports by mailing reports in paper, delivering reports electronically to investors who have chosen this method under the Commission’s electronic delivery guidance, providing notice and website accessibility under rule 30e-3, or a combination of the above.

Investors who prefer paper could—at any time—elect to receive all future reports in paper that are sent by the fund complex or forwarded by the financial intermediary, or request to receive particular reports in paper on an ad-hocbasis.  Each notice provided to investors under the rule is required to explain how investors may access the report and request paper copies.  The final rule provides for an extended transition period that is intended to better inform current investors of the coming change and better enable them to easily continue to receive paper reports if they wish.

The conditions of new rule 30e‑3 include:

  • Report accessibility.  The shareholder report and the fund’s most recent prior report must be publicly accessible, free of charge, at a specified website.
  • Availability of quarterly holdings.  Quarterly holdings for the last fiscal year must also be publicly accessible at the website.  These holdings would include those in the shareholder reports, which would cover the second and fourth fiscal quarters, and would also include holdings for the first and third fiscal quarters.
  • Format.  Funds must satisfy conditions designed to ensure accessibility of reports for shareholders, including format and location.
  • Notice.  Investors will receive a notice of the availability of each report that includes a website address where the shareholder report and other required information is posted and instructions for requesting a free paper copy or electing paper transmission in the future.  The notice may include certain additional information, including, (1) instructions by which an investor can elect to receive shareholder reports or other documents by electronic delivery, and (2) additional content from the shareholder report.
  • Print upon request.  Funds must send a free paper copy of any of these materials upon request.
  • Investor elections to receive reports in paper.  At any time, an investor may elect to receive all future reports in paper by calling a toll-free telephone number or otherwise notifying the fund or intermediary.  Elections to receive reports in paper with respect to one fund will apply to other funds held currently or in the future in the same account with the fund complex or financial intermediary.
  • Extended transition period.  During the extended transition period, the earliest that notices may be transmitted to investors in lieu of paper reports is January 1, 2021.  In general, funds will be required to provide two years of notice to shareholders before relying on the rule, if relying on the rule before January 1, 2022.

Request for comment on enhancing fund disclosure to improve the investor experience

The Commission seeks public input, particularly from individual investors, on enhancing fund disclosures.  This request for comment is the first major step in a long-term initiative, led by the Division of Investment Management, to improve the investor experience by updating the design, delivery, and content of fund disclosure for the benefit of individual investors.  The request for comment investigates whether fund information is presented in a way that works best for individual investors. The release requests feedback directly from individual investors, academics, literacy and design experts, market observers, and fund advisers and boards of directors on the design, delivery, and content of fund disclosure, including shareholder reports as well as prospectuses, advertising, and other types of disclosure.  It also solicits feedback on investor preferences for means of delivery and how to make better use of 21stcentury technology, including how to make disclosure more interactive and personalized.  In order to encourage feedback from individual commenters, the release includes a short Feedback Flier, which includes key questions from the request for comment and can be submitted to www.sec.gov/tell-us.

Request for comment on processing fees intermediaries charge for forwarding fund materials

With the adoption of rule 30e‑3, the Commission believes that it is appropriate to consider more broadly the overall framework for the processing fees that broker-dealers and other intermediaries charge funds.  These fees are charged in connection with forwarding shareholder reports and other materials to beneficial shareholders under current rules of the New York Stock Exchange and other self-regulatory organizations.  The Commission seeks public comment and additional data on the current processing fee framework for fees charged by intermediaries for the distribution of disclosure materials other than proxy materials (e.g., shareholder reports and prospectuses) to fund investors to better understand the potential effects on funds and their investors.  The Commission is requesting comment on topics such as, but not limited to, the assessment of processing fees, transparency of these fees, remittances received by financial intermediaries for delivery of fund documents, whether the structure and level of processing fees should be set by another entity, and the appropriateness of these fees in cases where intermediaries are separately paid shareholder servicing fees from fund assets.

What’s Next?

New rule 30e-3 and the related amendments to rules and forms will be published on the Commission’s website and in the Federal Register.  Funds will be permitted to rely on the new rule as early as January 1, 2021.

The Commission will seek public comment on the two requests for comment until October 31, 2018.  These extended comment periods will permit retail investors and other interested parties the opportunity to review the releases, and potentially to gather relevant data for submission in the comment file.




Opening Statement of Chairman J. Christopher Giancarlo before the Open Commission Meeting


June 4, 2018

Good morning.  This meeting will come to order.  This is a public meeting of the Commodity Futures Trading Commission (CFTC).

I am pleased to be joined today by my colleagues, Commissioners Brian Quintenz and Rostin Benham in our first public meeting together as a Commission.

These hearings require great preparation.  I would like to thank the CFTC staff for their hard work and input.

We are here today to consider one final rule amending the swap data access provisions and two proposed rules amending the Volcker Rule and Swaps Dealer de minimis calculations.

Indemnification Rule

I turn first to the final rule on amendments to the swap data access provisions of Part 49, also formerly known as the swap data repository (SDR) indemnification rule.

Eight years ago, Congress included in the Dodd-Frank Act a requirement that foreign and domestic regulators indemnify SDRs and the Commission for any expenses arising from litigation relating to the information provided by SDRs.  Foreign and domestic regulators were unable or unwilling to provide this indemnification hindering the ability to share swaps data.  The indemnification requirement also hindered the ability of foreign and domestic regulators to access SDR data to assess risks their regulated entities are assuming, and the impact of such risks on the broader markets.

I am pleased that Congress has since amended the Dodd-Frank Act to take out the indemnification requirement.  We therefore can change our regulations accordingly, which we propose to do today.

In addition to the removal of the indemnification requirement, the final rule adds a category of “other regulators” that the Commission may deem to be appropriate to receive access to SDR swap data.

The final rule sets out the process by which appropriateness is determined for those entities that are not already specifically enumerated.  This process is a change to current Commission regulations, as it would apply to any such entity, including domestic regulators not enumerated in Commission regulations and foreign regulators.

The statute also now requires a SDR to receive a written agreement from each requesting entity stating that the entity shall abide by the confidentiality requirements described in the CEA prior to sharing information with the requesting entity.  Commission regulations currently require the SDR and the requesting regulator to execute a confidentiality agreement, but do not provide a form or details of such an agreement.

The final rule modifies the current Commission regulations by providing a form of confidentiality arrangement, as Appendix B to part 49, and by requiring the confidentiality arrangement to be between the requesting regulator and the Commission.  The Commission expects that this will benefit SDRs in that most, if not all, confidentiality arrangements will be exactly the same, and the Commission will be in the place of entering into the confidentiality agreements with regulators.

We received comments from the affected CFTC-registered SDRs on the proposed rule that I believe that we have sufficiently addressed.  The final regulations provide long-awaited clarity to the official sector regarding the CFTC’s requirements to determine access to, and safeguard the confidentiality of, transactional information reported to SDRs.

In my experience as a Commissioner and Chairman of the CFTC, I have found, as have other foreign and domestic regulators, that conducting oversight of global derivatives markets can be difficult as a result of the current fragmented financial regulatory structure.  In this regard, I expect that the final rule will enable authorities to enhance their oversight of derivatives markets across product and asset classes by marrying up the trading and position data they receive from regulated entities with the data sets obtained directly from SDRs.  In so doing, I believe we have made significant progress towards cross-border data sharing and enhancing transparency in the global swaps market.

Because today’s swaps markets are global in scope, utilizing the data and information available in only one jurisdiction does not provide a complete picture of cross border trading activity and systemic risk.  To that end, I expect that CFTC staff will seek to facilitate access to SDR data for authorities with which we have a history of regulatory assistance and that similarly seek to facilitate CFTC access to data maintained by trade repositories in their jurisdiction.  Such data sharing represents an opportunity for greater cooperation among market and prudential regulators, as well as among foreign and domestic regulators, providing more effective financial market oversight, expanding data driven policymaking, and improving early warning systems to reduce the probability or severity of a financial crisis.

These regulations will have a direct positive impact on the operational readiness of the official sector, providing authorities with critical information to make sound near-term and long-term policy and oversight decisions.

I am particularly pleased that this rule represents a final step in eliminating a major legal impediment to sharing swaps market data with overseas regulators.  The Dodd-Frank Act’s original insistence on an indemnification requirement may have been well-intentioned to protect the safety of data held in SDRs, but Congress wisely determined that any such benefit is outweighed by the greater public interest of allowing international regulators to share and access information to carry out the regulatory and supervisory functions necessary to protect the global financial markets.

It is essential that policymakers in other jurisdictions make determinations similar to these before us today concerning current legal barriers to information sharing.  Even a law, like the new EU General Data Protection Regulation (GDPR), which has laudable objectives, must not be applied in ways that hinder the sharing and access of information between European and U.S. regulators for regulatory and supervisory purposes.  Such a result could have dangerous implications for our global markets.  I hope today’s action by the CFTC will encourage international regulators and policymakers to take affirmative steps to address other existing legal barriers to information sharing and access.

The Volcker Rule

I turn next to the proposal for amendments to the Volcker rule.

Section 619 of the Dodd-Frank Act added a new section 13 to the Bank Holding Company Act of 1956 (BHC Act) that is commonly known as the Volcker Rule.  The new section generally prohibits “banking entities” from engaging in “proprietary trading” for the purpose of selling financial instruments to profit from short-term price movements.  Section 13 of the BHC Act also generally prohibits banking entities from acquiring or retaining an ownership interest in, or sponsoring, a hedge fund or a private equity fund (“covered funds”).

As we know, the Volcker rule is named for former Federal Reserve Chairman, Paul Volcker.  The basic premise of the Volcker Rule is to restrict use of insured bank depositors’ money for bank proprietary trading but permit it for market making, hedging and other traditional financial service activities. It is a sound premise, but one that relies on correctly identifying and separating these activities, a task that is far from simple.  No other major economy outside of the United States has adopted restrictions similar to the Volcker Rule.

Recognizing that the “devil is in the details,” Congress left the finer points of developing Volcker Rule regulations to five agencies: the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Securities and Exchange Commission (SEC), and the CFTC (together, the “Agencies”).  The Agencies issued the final rule in December 2013.

We now have four years of experience with the initial version of the Volcker Rule.  In that time, concern has grown that US regulators’ first pass at the rule was not ideal in several respects.  Specifically, the current rule causes confusion as to what is acceptable activity, presumes unacceptable activity in various cases and imposes highly intensive compliance burdens in all cases unfairly benefitting large Wall Street banks over smaller regional ones.

A year and a half ago, I had the opportunity to speak about the rule with Chairman Volcker.  Chairman Volcker said that he was proud of the rule that bears his name.  But he also said told me that regulators should have come up with something more straightforward than what is currently in place, especially for smaller banks.

The amendments to the Volcker Rule in the proposal before us today address that concern.  The proposal seeks to simplify and tailor the Volcker Rule to increase efficiency, right-size firms’ compliance obligations, and allow banking entities – especially smaller ones – to more efficiently provide services to clients.  It adopts a risk-based approach relying on a set of clearly articulated standards for both prohibited and permitted activities and investments.

The proposal addresses a number of targeted areas of widespread concern.  First, it tailors the application of the Volcker Rule to a firm’s risk profile and size and scope of trading activities.  In particular, it further streamlines compliance obligations for firms with smaller trading operations.  These changes reflect the experience of the Agencies that the costs and uncertainty faced by smaller and mid-size firms of complying with the 2013 final rule have been disproportionately high relative to the amount of their typical trading activity.

Second, the draft proposal seeks to streamline and clarify for all banking entities certain definitions and requirements related to the proprietary trading prohibition and limitations on covered fund activities and investments.  To this end, and where appropriate, the Agencies have sought to codify, or otherwise address, matters currently covered by staff guidance through responses to Frequently Asked Questions (FAQs).  Additionally, the Agencies are seeking in this proposal to reduce reporting, recordkeeping and compliance program complexity where appropriate.

This proposal will provide banking entities and their affiliates, including a number of swap dealers, FCMs and commodity pools subject to CFTC oversight, with greater clarity and certainty about what activities are permitted under the Volcker Rule.  For the CFTC, “banking entities” subject to the Volcker Rule include primarily swap dealers and FCMs that are:  insured depository institutions, certain foreign banking entities operating in the U.S. and affiliates of either of those two categories.  In addition, certain commodity pools that are owned or controlled by any such entity may also be banking entities or covered funds under the Volcker Rule.

Third, this proposal will address the implicit bias against market making in the current version of the Volcker Rule.  Last year, I testified to Congress that the 2013 Volcker Rule presumes that some activities are impermissible proprietary trading that really should be permissible market-making.  That presumption creates a bias against market activity and healthy trading liquidity – a first order concern for the CFTC as a market regulator.  Today’s proposal would remove the presumption, and that bias, by allowing banking entities the ability to more effectively and efficiently engage in routine market making. It will benefit CFTC registrants by allowing them to support trading markets more actively without having to prove that each trade was not on the wrong side of this presumption.

So why are these modest changes important?  Because, as monitored by the CFTC’s Market Intelligence Branch, current market conditions are becoming increasingly volatile as a result of a range of factors, including changes in US monetary policy, strong US economic growth and increased global political risk.  In higher volatility markets, such as we saw last week in European sovereign debt, durable trading liquidity and vigorous market making are essential to smooth out trading gaps in price and supply and avoid potential panic.[1] That is why these amendments to the Volcker Rule simplifying legitimate market making activity will enhance market orderliness and resiliency in times of market stress.

As important as are these improvements on their individual merits, equally important is that we and the other Agencies are today re-endorsing as a foundational element of US financial market regulation the Volcker Rule and its prohibition on bank proprietary trading with depositor funds. This fact must not go unrecognized in accounts of the important, but relatively modest amendments, before us today.

Today’s proposal is the product of a collaborative effort with the Federal Reserve, FDIC, OCC, and SEC.  I thank my fellow regulators for close cooperation, especially my fellow agency Chairman and friend, Martin Gruenberg, who will soon step down.  Marty worked with us to make sure today’s amendments do not disrupt the “core principles” of Volcker and that its prohibitions on proprietary trading remain “robust.”

I also thank CFTC staff for their fine work that resulted in today’s proposal. I look forward to reviewing comments from the public.

Swap Dealer de minimis

Finally, I want to turn to the proposal for the swap dealer de minimis definition.

Since becoming Chairman, I have committed to resolving this outstanding issue and giving market participants the regulatory certainty they need.  Still, as you know, last year I requested that the Commission postpone a decision on the de minimis threshold for a year.  That decision was understandably disappointing to some, including my fellow Commissioners, who said they were then ready to vote on it.

Yet, as I told Congress at the time, I did not just want to address the de minimis threshold; I wanted to get it right.

Today, I believe the staff has had adequate time to analyze the most current and comprehensive trading data and arrive at a recommendation for the best path forward in terms of managing risk to the financial system.  The staff has provided Commissioners with full access to the data they have used in their analysis.  They have also conducted additional and specific data analyses requested by Commissioners.

The data shows quite clearly that a drop in the de minimis definition from $8 billion to $3 billion would not have an appreciable impact on coverage of the marketplace.  In fact, any impact would be less than one percent – an amount that is truly de minimis.

On the other hand, the drop in the threshold would pose unnecessary burdens for non-financial companies that engage in relatively small levels of swap dealing to manage business risk for themselves and their customers.  That would likely cause non-financial companies to curtail or terminate risk-hedging activities with their customers, limiting risk-management options for end-users and ultimately consolidating marketplace risk in only a few large, Wall Street swap dealers.

In my travels around the country over the past four years on the Commission, I have met numerous small swaps trading firms that make markets in local markets or in select asset classes.  These firms are often housed in small community banks, local energy utilities or commodity trading houses.  They all trade below the $8 Billion threshold.  Almost all of them say that if the de minimis threshold were to drop to $3 Billion, they would reduce their trading accordingly.  They just cannot afford to be registered as swap dealers.

Who are the winners if these small firms reduce their market making activities? Big Wall Street banks.  Who are the losers if these small firms reduce their market making activities?  Small regional lenders, energy hedgers and Ag producers, who become more dependent on Wall Street trading liquidity.  Who is the really big loser?  The US economy, which becomes more financially concentrated and less economically diverse.

That is why I think the proposed rule rightly balances the mandate to register swap dealers whose activity is large enough in size and scope to warrant oversight without detrimentally affecting community banks and agricultural co-ops that engage in limited swap dealing activity and do not pose systemic risk.  Leaving the threshold at the $8 billion level allows firms to avoid incurring new costs for overhauling their existing procedures for monitoring and maintaining compliance with the threshold.  It fosters increased certainty and efficiency in determining swap dealer registration by utilizing a simple objective test with a limited degree of complexity.  And it ensures that smaller market makers and the counterparties with which they trade can engage in limited swap dealing without the high costs of registration and compliance as intended by Congress when it established the de minimis dealing exception to begin with.

The changes proposed today will also not count swaps of Insured Depository Institutions (IDIs) made in connection with loans.  They would allow, for example, an insured depository institution swap dealer to write a swap with a customer 181 days after entering into a loan without counting it towards the $8 billion threshold.  These types of changes will allow small and regional banks to further serve customers’ needs without the added burden of unnecessary regulation and associated compliance costs.

This proposal incorporates feedback and input from my two fellow Commissioners and their fine staffs.  We now look forward to feedback from the public and market participants.  We ask numerous questions about whether any additional exceptions or calculations should be included in the final rule.  Three years ago, I raised the question of whether there should be an exclusion from counting cleared swaps towards the registration threshold and that question is asked again.  Your response to questions regarding adding other potential components will help the Commission assess whether further adjustments to the de minimis exception may be appropriate in the final rule.

As discussed in the adopting release, staff continues to consult with the SEC and prudential regulators regarding the changes in the proposal in particular some of the questions regarding exclusions.   I remain committed to working with Chair Jay Clayton and the SEC in areas where harmonization is necessary and appropriate.

I also remain committed to finalizing this rule before the end of the year.  I recognize that market participants need certainty.  Today’s proposal is a major step forward in doing just that.  I applaud staff for this proposal and look forward to feedback.

Thank you.


[1] It was widely reported that last week’s extraordinarily high volatility in European sovereign debt markets was exacerbated at least in part by the reluctance of large banking institutions to commit trading capital due to regulatory constraints on use of capital. See, Kate Allen & Miles Johnson, Italian Rout Points to Strains in Post-Crisis Regulatory Structure, Financial Times, June 1, 2018; and In Italy, A Hair-Trigger Market, Riva Gold & Jon Sidreu, Wall Street Journal, June 1, 2018.


CFTC to Hold an Open Commission Meeting on June 4



Opening Statement of Commissioner Brian Quintenz, Open Meeting on Final Rule: Indemnification (Amendments to the Swap Data Access Provisions of Part 49 and Certain Other Matters), Proposed Rule: Volcker Rule (Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds), and Proposed Rule: De Minimis Exception (Amendments to Swap Dealer Registration De Minimis Exception)


June 4, 2018

Mr. Chairman, thank you for calling this meeting.  It is a great pleasure to participate today with you and my fellow Commissioner in my first open meeting, as well as the first under your Chairmanship.  The matters before us today are important and timely.

Proposed Rule: De Minimis Exception (Amendments to Swap Dealer Registration De Minimis Exception)

This rulemaking which governs swap dealer registration is fundamental to the Commission’s effective oversight of the swaps market.

Swap dealers are subject to extensive and costly regulatory requirements: registration fees; minimum capital requirements; posting margin for uncleared swaps; IT costs for trade processing, reporting, confirmation, and reconciliation activities; costs to create and send clients daily valuation reports; costs for recordkeeping obligations; third party audit expenses; legal fees to develop and implement business conduct rules and many, many more. If that sounds like a big bill, it is. A prominent economic research firm estimated the present value of the cost for swap dealer registration compliance at $390 million per firm.[1]

Those significant requirements and costs are imposed to advance equally significant policy objectives, such as the reduction of systemic risk, increased counterparty protections, and enhanced market efficiency and integrity.  Therefore, the registration threshold, as the trigger mechanism for those costs and objectives, must be appropriately and specifically calibrated to ensure that the correct market group shoulders the burdens of swap dealer regulations because they are best situated to realize the corresponding policy goals of that registration.

I have stated previously, in great detail and with considerable evidence, the importance of appropriately calibrating the de minimis threshold so that entities posing no systemic risk and with a relatively small market footprint are not regulated under a regime that is more appropriate for the world’s largest, most complex financial institutions.[2]  If we fail to calibrate this threshold appropriately, firms at the margin will likely reduce their activity to avoid registration as opposed to serving their clients’ interests and accepting the burdens of registration. A public policy choice which drives away market participants and reduces market activity is undeniably flawed.

From my first confirmation hearing in 2016 to the present day,[3] including meetings with elected representatives, my second confirmation hearing,[4]interviews with the press,[5] discussions with market participants, and in public remarks at event forums, [6] I have been adamant that notional value is a poor measure of activity and a meaningless measure of risk, and therefore, by itself, is a deficient metric by which to impose large costs and achieve substantial policy objectives.[7]  Therefore, I have some reservations about this proposal’s continued reliance on a one-size-fits-all notional value test for swap dealer registration.

I still, and will continue to, believe that the criteria for determining swap dealer registration should be more closely correlated to risk.  However, if any final rule is going to settle for an activity-based threshold, a notional value metric should at least be combined with additional measures (such as dealing counterparty count and dealing transaction count) to determine what constitutes a de minimis quantity of swap dealing activity.  Including additional measures should mitigate instances of “false positives” that could result from the use and deficiencies of any one activity-based metric.[8]

While it would have been my preference that this concept appear in this proposal’s rule text as the operative standard, I am very grateful to the Chairman and the Division of Swap Dealer and Intermediary Oversight (DSIO) for including a robust discussion in the preamble on the merits of replacing the current notional value de minimis threshold with a three-prong test. Specifically, the preamble suggests an entity could qualify for the de minimis exception if its dealing activity is below any of the following three criteria: (i) a notional threshold, (ii) a proposed dealing counterparty count threshold, or (iii) a proposed dealing transaction count threshold.  In other words, an entity would have to surpass all three hurdles collectively in order to lose the de minimis exception’s safe harbor.

I have included several questions in the proposal that ask for feedback on this approach, particularly with respect to the dealing counterparty and transaction count thresholds which I believe would provide market participants with additional flexibility to serve their clients’ needs without triggering a very costly and burdensome registration process. I thank the staff of DSIO for including my questions in the proposal and welcome market participant’s feedback on this potential approach.

I also welcome comments on the Proposed Rule’s preamble discussion on accounting for exchange-traded or cleared swaps in an entity’s de minimis calculation.  Many of the policy goals of swap dealer regulation are accomplished when a swap is exchange-traded and cleared.  For example, systemic risk concerns are diminished with respect to cleared swaps: the swaps are standardized, the executing counterparties do not incur counterparty credit risk because they face the clearinghouse and not each other, and each side is required to post margin that helps guarantee performance and prevent unfunded losses from accumulating. Removing such swaps from the de minimis calculation would better align the registration threshold with risk and would also, I believe, encourage additional liquidity on SEFs.  I am hopeful that with the benefit of additional industry comment and further Commission analysis, the Commission will either adopt an exclusion for exchange-traded and cleared swaps or adjust their notional weighting in an entity’s de minimis calculation.

We must remember, the Commission is not establishing the de minimis exception in a vacuum. Subsequent to the adoption of the swap dealer definition, other regulatory requirements have gone into effect which also advance the goals of swap dealer registration, such as mandatory clearing, SEF trading, reporting swap data to repositories, and margin requirements for uncleared swaps. For example, regardless of whether an entity is registered as a swap dealer, its swap activity is transparent to the Commission because of the swap data and real-time reporting requirements that apply to all market participants.

When the Commission first established the $8 billion de minimis threshold in 2012, it did so without the benefit of swap data.[9]  Now almost six years later, staff has conducted a comprehensive analysis of the available swap data collected by Commission-registered SDRs and presented estimates about the impact that lower or higher notional amount thresholds would have on swap dealer registration.  Although much work remains to be done to further refine the data, particularly with respect to the non-financial commodity asset class, I commend staff for their hard work, progress, and thoughtful analysis.  I believe the data in the Proposed Rule clearly supports maintaining the de minimis threshold at $8 billion or potentially increasing it.  For example, at a $20 billion notional threshold, the estimated amount of notional swap activity that would no longer be covered by swap dealer regulation is approximately only 1/100th of 1 percent of the $221 trillion market analyzed.  I am interested to hear from commenters about the policy and market implications of maintaining or raising the de minimis threshold.

Finally, I would like to commend the Chairman and DSIO for including many important improvements to the de minimis exception in this proposal which I fully support.  For instance, I support an appropriate Insured Depository Institution exemption that will allow for banks to serve their clients’ needs. By removing unnecessary timing restrictions and expanding the types of credit extensions that qualify for the exclusion, the proposal should improve the ability of IDIs to help their customers hedge loan-related risks as the statute intended.  I also support the proposed rule’s clarification that swaps that hedge financial risks may be excluded from an entity’s de minimis count.  Market participants should be able to use swaps to manage their financial and physical risks without concern that such activity may trigger swap dealer registration.

I will vote in favor of issuing this proposal to the public for feedback and look forward to hearing from market participants about how these proposed amendments may be further refined or calibrated to increase the efficacy of the de minimis threshold to meet the goals of swap dealer registration.

Proposed Rule: Volcker Rule (Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds)

I support today’s proposal to amend the Volcker Rule and efforts to acknowledge core elements of banking entities’ trading activities in a manner consistent with the statutory provisions that established the Volcker Rule.

I am pleased that the proposal would revise elements of the prohibition on proprietary trading to provide banking entities, including CFTC-registered swap dealers and futures commission merchants, with greater flexibility in their trading activities and to simplify their compliance with the rule.

Banks and financial intermediaries are in the business of taking risk. When a bank extends a mortgage to a home buyer, it is taking a proprietary risk.  When a bank provides working capital to a farmer, it is taking a proprietary risk.  When a bank provides a revolving credit facility to a small business, it is taking a proprietary risk. And, in the context of the CFTC’s jurisdiction, when a financial firm allows a client to hedge its exposures so that the client can focus on its core competency and better predict its operations, that financial institution is taking a proprietary risk.  All of these financial functions provide crucial support to our economy and go to the heart of the complexity of implementing the Volcker Rule – the distinction between taking a proprietary risk that serves clients and a proprietary trade that is generated purely by the financial institution.

This proposal intends to tailor the requirements of the Volcker Rule to focus on entities with relatively large trading operations, and to simplify regulatory requirements by clarifying prohibited and permissible activities.  I am particularly pleased that the proposal requests public input regarding key exceptions to the proprietary trading ban, concerning market-making, loan-related swaps, and risk-mitigating hedging.

I would like to highlight that today’s proposal serves as an example of effective cooperation among five regulators: the CFTC; the Securities and Exchange Commission; the Federal Reserve Board; the Office of the Comptroller of the Currency; and the Federal Deposit Insurance Corporation.  I firmly believe in inter-agency cooperation over areas of joint jurisdiction and applaud the Chairman for his hard work to develop productive and positive relationships with fellow regulators.

Finally, I would like to thank the staff of the Division of Swap Dealer and Intermediary Oversight for their efforts on this matter.

Final Rule: Indemnification (Amendments to the Swap Data Access Provisions of Part 49 and Certain Other Matters)

I would like to thank the staff in our Division of Market Oversight for their work to amend Part 49 of the Commission’s Regulations to implement provisions of the Fixing America’s Surface Transportation Act of 2015 (Fast Act)[10].

The Fast Act amended provisions of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act)[11] that proved unworkable. Most significantly, the Fast Act repealed the Dodd-Frank Act’s requirement that to obtain data from swap data repositories (SDR) registered with the CFTC, domestic and foreign authorities must indemnify the CFTC and SDRs from any claims arising from a SDR’s production of information to those authorities. Foreign regulators unfamiliar with the U.S. tort law concept of “indemnification” that is inconsistent with their traditions and legal structures, have opted against requesting any information from SDRs. Domestic regulators have also opted against requesting information from SDRs because of the indemnification requirement. Removing the indemnification requirement will facilitate the sharing of SDR information with domestic and foreign authorities and better enable regulators in the United States and abroad to monitor risk across the global financial system.

[1] See National Economic Research Associates, Cost-Benefit Analysis of the CFTC’s Proposed Swap Dealer Definition 1(Dec. 20, 2011) (“NERA Report”),http://www.nera.com/content/dam/nera/publications/archive2/PUB_SwapDealer_1211.pdf. It is difficult to estimate the initial and incremental, ongoing costs of swap dealer regulation. NERA’s report regarding the costs of registration for non-financial energy firms remains one of the only comprehensive analyses produced.

[2] Keynote Address of Commissioner Brian Quintenz before the Smart Financial Regulation Roundtable (Nov. 2017), https://www.cftc.gov/PressRoom/SpeechesTestimony/opaquintenz3.

[3] Transcript, “Hearing to Consider Pending CFTC Nominations,” Senate Agriculture, Nutrition, and Forestry Committee, September 15, 2016, 2016 WL 4938280 p.12)

[4] Transcript, “Hearing to Consider Pending CFTC Nominations,” Senate Agriculture, Nutrition, and Forestry Committee, July 27, 2017, 2017 WL 3215667 p.14 (“With regard to the de minimis threshold level, I think when this threshold was set originally it was really done without the benefit of a lot of data. I think if there is a scenario where this shortfall reduces from $8 billion to $3 billion. And instead of increasing registration, it would drive participants out of the market or force them to reduce their activity because of the cost that would be imposed upon them.”).

[5] Bain, Benjamin, “CFTC Swaps Dealer Threshold Criticized by Its Newest Republican,” Bloomberg (Oct. 9, 2017); and DeFrancesco, Dan, “CFTC’s Quintenz: Dealer Threshold Could Exclude Cleared Swaps – Commissioner Suggests Risks should be Better Considered in De Minimis Reappraisal,” Risk.Net (Oct. 24, 2017)

[6] “Fireside Chat: CFTC Commissioners,” FIA Expo Chicago (Oct 19, 2017) available at:https://expo2017.fia.org/articles/fireside-chat-cftc-commissioners, at 9’30” through 10’25”.

[7] For further discussion, see comment letter to CFTC from Financial Services Roundtable dated January 19, 2016 (“We do not see a benefit to requiring an entity that enters into a small number of swaps with a large notional amount but little exposure to choose between exiting the market or registering as a swap dealer, nor should entities that are taking on very large exposures without crossing a notional threshold, or a trade or counterparty count metric, be unregulated because they have concentrated risk in a small number of trades.”).

[8] For further discussion, see letter from Institute of International Bankers dated January 19, 2016.

[9] See Hearing to Review the 2016 Agenda of the Commodity Futures Trading Commission Before the H. Comm. on Agric., 114th Cong. 17 (2016) (response of Timothy Massad, former CFTC Chairman, to question posed by Congressman David Scott (D-GA)),https://agriculture.house.gov/uploadedfiles/114-40_-_98680.pdf.

[10] Public Law 114–94, 129 Stat. 1312 (Dec. 4, 2015).

[11] Public Law 111–203, 124 Stat. 1376 (Jul. 21, 2010).


Press Release

SEC Charges 13 Private Fund Advisers for Repeated Filing Failures



Washington D.C., June 1, 2018 —

The Securities and Exchange Commission today announced settlements with 13 registered investment advisers who repeatedly failed to provide required information that the agency uses to monitor risk.

According to the SEC’s orders, the advisers failed to file annual reports on Form PF informing the agency about the private funds they advise, including the amount of assets under management, fund strategy, performance, and use of borrowed money and derivatives.  Private fund advisers managing $150 million or more of assets have been required to make annual filings on Form PF since 2012.  The orders found that the 13 advisers were delinquent in their filings over multi-year periods.

“These advisers’ repeated reporting failures deprived the SEC of important information they were required by law to provide,” said Anthony S. Kelly, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “We encourage investment advisers to take a fresh look at whether they are meeting their reporting obligations and adjust their compliance programs accordingly.”

The SEC uses Form PF data to monitor industry trends, inform rulemaking, identify compliance risks, and target examinations and enforcement investigations.  The SEC publishes quarterly reports with aggregated information and statistics derived from Form PF data to inform the public about the private fund industry.  It also provides Form PF data to the Financial Stability Oversight Council to help it evaluate systemic risks posed by hedge funds and other private funds.

The SEC’s orders find that the advisers violated the reporting requirements of the Investment Advisers Act of 1940.  Without admitting or denying the findings, the advisers agreed to be censured, to cease and desist, and to each pay a $75,000 civil penalty.  During the course of the SEC’s investigation, the advisers also remediated their failures by making the necessary filings.

The SEC’s investigation was conducted by Oreste P. McClung and Lisa M. Candera of the Enforcement Division’s Asset Management Unit with assistance from the Private Funds Unit in the Office of Compliance Inspections and Examinations and the Analytics Office in the Division of Investment Management.  Brendan P. McGlynn supervised the investigation.

The SEC’s orders are:

Bachrach Asset Management Inc.

Biglari Capital LLC

Brahma Management Ltd.

Bristol Group Inc.

CAI Managers & Co. L.P.

Cherokee Investment Partners LLC

Ecosystem Investment Partners LLC

Elm Partners Management LLC

HEP Management Corp.

Prescott General Partners LLC

RLJ Equity Partners LLC

Rose Park Advisors LLC

Veteri Place Corp.



Press Release

SEC Charges Investment Banker in Insider Trading Scheme



Washington D.C., May 31, 2018 —

The Securities and Exchange Commission today charged an employee of a prominent investment bank with repeatedly using his access to highly confidential information in order to place illicit and profitable trades in advance of deals on which the bank was providing investment banking advisory services.

According to the SEC’s complaint, Woojae “Steve” Jung, a Vice President of Investment Banking who worked in the bank’s San Francisco and New York offices, used sensitive client information in order to trade in the securities of 12 different companies prior to the announcement of market-moving events.  The SEC alleges that between 2015 and 2017, Jung used an account held in the name of a friend living in South Korea to place these illegal trades and generate profits of approximately $140,000.  As alleged in the complaint, by using his friend’s brokerage account, Jung attempted to evade detection by skirting his employer’s requirements that he pre-clear his trades and that he use an approved brokerage firm that would have reported the trading to his employer.

“Jung tried to insulate himself by allegedly placing trades in the brokerage account of a friend who lived overseas,” said Joseph G. Sansone, Chief of the SEC’s Market Abuse Unit.  “Like others before him, Jung’s alleged scheme failed when our data analysis uncovered the account’s suspicious trading pattern and, despite Jung’s attempts at evasion, traced the trading back to him.”

The SEC’s complaint, filed in federal district court in Manhattan, charges Jung with fraud and seeks disgorgement of allegedly ill-gotten gains, pre-judgment interest, penalties, and injunctive relief.  The complaint also names Jung’s friend, Sungrok Hwang, as a relief defendant to have him disgorge illicit gains that Jung generated by trading in his brokerage account.  The U.S. Attorney’s Office for the Southern District of New York today unsealed criminal charges against Jung.

The SEC’s investigation was conducted by Megan Bergstrom, David Brown, and Diana Tani of the Market Abuse Unit in the Los Angeles Regional Office with assistance from John Rymas of the unit’s Analysis and Detection Center.  Gary Leung will lead the SEC’s litigation.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.



Press Release

SEC Announces Agenda for June 14 Investor Advisory Committee Meeting in Atlanta


First-Ever Off-Site Meeting Will Take Place in Atlanta


Washington D.C., May 30, 2018 —

The Securities and Exchange Commission today announced that the SEC Investor Advisory Committee (IAC) will hold its first-ever meeting outside Washington, D.C. on June 14, 2018 at 8:30 a.m. in Atlanta.

In another first, all five SEC Commissioners are planning to hold an “Investing in America” Town Hall in Atlanta on June 13 from 2 p.m. to 4 p.m. to meet with, and hear from, Main Street investors. For details, please see the event’s webpage.  Both the Town Hall and Investor Advisory Committee meeting will take place at Georgia State University College of Law, 85 Park Place NE, in Atlanta.

The June 14 IAC meeting will include two panel discussions with outside speakers: “Discussion of the Commission’s Proposed Regulation Best Interest and Proposed Restriction on the Use of Certain Names or Titles,” and “Discussion Regarding the Commission’s Proposed Form CRS Relationship Summary, including Effective Disclosure and Design.” In addition, the committee will discuss disclosure enhancements for municipal and corporate bonds and may discuss a possible recommendation on that topic. For the full agenda, please see the IAC’s webpage.

The committee welcomes three new members: Paul Mahoney, David and Mary Harrison Distinguished Professor of Law, University of Virginia School of Law; Lydia Mashburn, Managing Director, Center for Monetary and Financial Alternatives, Cato Institute; and J.W. Verret, Associate Professor of Law (with tenure), Antonin Scalia Law School, George Mason University and Senior Scholar, Mercatus Center.

Members of the IAC represent a wide variety of investor interests, including those of individual and institutional investors, senior citizens, and state securities commissions. For a full list of IAC members, see the committee’s webpage. The June 14 IAC meeting will be open to the public and webcast live, and it will be archived on the IAC’s website for later viewing.

The IAC was established under Section 911 of the Dodd-Frank Act to advise the SEC on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. The Dodd-Frank Act authorizes the committee to submit findings and recommendations to the Commission.



Press Release

SEC Charges Long Island Investment Professional in $8 Million Scam Targeting Long-Standing Brokerage Customers



Washington D.C., May 30, 2018 —

The Securities and Exchange Commission today charged a former registered representative with defrauding long-standing brokerage customers in an $8 million investment scam.

According to the SEC’s complaint, Steven Pagartanis, who was affiliated with a registered broker-dealer, told some investors – including retirees who had been Pagartanis’s customers for many years – that he would invest their funds in either a publicly-traded or private land development company.  He promised that the funds would be safe and also promised guaranteed monthly interest payments on the investments.  At Pagartanis’s direction, his investors wrote checks payable to a similarly-named entity that was secretly controlled by Pagartanis.  In all, the customers invested approximately $8 million, which Pagartanis used to pay personal expenses and make the guaranteed “interest” payments to his customers.  To conceal the scam, which unraveled earlier this year when Pagartanis stopped making the so-called interest payments to customers, Pagartanis created fictitious account statements reflecting ownership interests in the land development companies.

The Suffolk County District Attorney’s Office today filed criminal charges against Pagartanis.

“As part of the alleged scam, Pagartanis preyed on his customers’ trust, duping them to write checks payable to his own entity,” said Marc P. Berger, Director of the SEC’s New York Regional Office.  “Regardless of how long investors have worked with their brokers, they should always confirm that recommended investments are approved for sale by their brokerage firm before transferring funds.”

The SEC’s Office of Investor Education and Advocacy (OIEA) and the Division of Enforcement’s Retail Strategy Task Force (RSTF) today issued an Investor Alert educating investors about warning signs that a broker may be offering investments outside of the broker’s firm.  According to the alert, even if you are investing through a broker you have known for years, you should be cautious if your broker asks you to make out a check or to wire money to an individual or to a different firm.  OIEA and RSTF’s ongoing collaboration, including through Investor Alerts and other deterrence and detection initiatives, aims to help prevent frauds targeting retail investors.

The SEC’s complaint, filed in federal district court in Brooklyn, charges Pagartanis with violating the antifraud provisions of the federal securities laws.  The SEC is seeking a judgment ordering Pagartanis to disgorge his allegedly ill-gotten gains plus prejudgment interest, and to pay financial penalties.

The SEC’s investigation, which is continuing, is being conducted by Gerald Gross, Haimavathi Marlier, Sheldon Mui and Neil Hendelman of the New York Regional Office.  The litigation will be led by Ms. Marlier and Mr. Mui.  The case is being supervised by Lara Shalov Mehraban.  The SEC appreciates the assistance of the Suffolk County District Attorney’s Office and FINRA.







May 29, 2018

CFTC Orders X-Change Financial Access LLC to Pay a $150,000 Civil Monetary Penalty for Supervisory and Recordkeeping Failures

Washington, DC – The Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against X-Change Financial Access LLC (XFA) of Chicago, Illinois, for failure to diligently supervise its employees’ handling of its customer accounts and failure to preserve complete records.  At the time of the conduct charged, XFA was registered with the CFTC as a Futures Commission Merchant and is now registered as an Introducing Broker.

Specifically, the Order finds that, between at least January 2013 and January 2014 (the Relevant Period), a client registered as a commodity pool operator and commodity trading adviser (Client) engaged in an unlawful post-execution allocation scheme in which the Client disproportionately allocated profitable trades to the accounts in which the Client or the Client’s associates had a proprietary interest, and unprofitable or less profitable trades to customer or pool accounts.  The Order finds that during the Relevant Period, XFA had no written policies or procedures concerning the post-execution allocation of bunched orders and did not train its staff on their obligations regarding the handling of such bunched orders.  As a result, an XFA floor broker (Broker) processed the Client’s allocations despite various red flags indicating that the Client was not complying with CFTC regulations governing such allocations, the Order finds.

The Order also finds that during the Relevant Period, the National Futures Association issued two regulatory actions prohibiting the Client from soliciting funds or withdrawing money from managed accounts, and ultimately, banning the Client from trading.  Despite these regulatory actions, the Client was nonetheless able to allocate trades to a new account in the name of the Client’s spouse (Spouse Account), and the Broker executed trades in the Spouse Account after the trading ban took effect.  The Order finds that XFA’s failure to identify the relationship between the Client and the Spouse Account demonstrated the insufficiency of XFA’s policies and procedures regarding compliance with regulatory actions.

In addition to supervisory failures, the Order finds that XFA failed to preserve complete records of its orders subject to post-execution allocation and to preserve electronic records in native (i.e., as originally created) file format.

The CFTC Order requires XFA to pay a $150,000 civil monetary penalty and to cease and desist from further violations of the Commodity Exchange Act, as charged.

The CFTC thanks the National Futures Association for its assistance in this matter.

CFTC Division of Enforcement staff members responsible for this case are Lucy C. Hynes, George H. Malas, Christine M. Ryall, and Paul G. Hayeck.



Treasury, IRS To Issue Proposed Rule on State and Local Tax Deductions


MAY 23, 2018

Washington – The U.S. Department of the Treasury and the Internal Revenue Service (IRS) will issue proposed regulations in the near future addressing legislation adopted or being considered by state legislatures that allow taxpayers to receive a credit against their state and local taxes for contributions to certain organizations or funds designated by the state. In addition to cutting income tax rates, expanding the child tax credit, and nearly doubling the standard deduction, the Tax Cuts and Jobs Act limited the amount of state and local taxes an individual can deduct in a calendar year to $10,000.

In the notice issued today, Treasury and the IRS informed taxpayers that proposed regulations will be issued addressing the deduction of contributions to state and local governments, and other state-specified funds, for federal tax purposes. The proposed regulations will make clear that the Internal Revenue Code, not the label used by states, governs the federal income tax treatment of such transfers. The proposed regulations will also assist taxpayers in understanding the relationship between the federal charitable contribution deduction and the new statutory limitation on the deduction of state and local income taxes.



NR 2018-53

May 24, 2018


Contact: Bryan Hubbard
(202) 649-6870

Comptroller of the Currency Congratulates Jelena McWilliams on Her Confirmation as Chairman of the Federal Deposit Insurance Corporation

WASHINGTON—Comptroller of the Currency Joseph M. Otting released the following statement on the U.S. Senate’s confirmation of Jelena McWilliams as Chairman of the Federal Deposit Insurance Corporation (FDIC).

Congratulations to Jelena McWilliams on being confirmed as the Chairman of the Federal Deposit Insurance Corporation.

Chairman McWilliams will bring a breath of fresh air, energetic leadership, and a real spirit of collaboration to the agency and the board and to our interagency regulatory process.

I look forward to a positive relationship and to open and constructive communication as we work closely together to eliminate unnecessary regulatory burden so that the nation’s banks and savings associations can realize their full potential as a positive force for job creation and economic opportunity by serving the needs of consumers, businesses, and communities across the country.

I also commend the outgoing FDIC Chairman Marty Gruenberg on his tenure and service to the nation, which helped ensure our banking system remains safe and sound, provides fair access, and treats customers fairly. Chairman Gruenberg saw the FDIC through one of the most challenging periods in its 85-year history. I look forward to serving alongside him as a member of the board through the completion of his term in November.

# # #





May 24, 2018

CFTC Charges Los Angeles, California Resident Jin Choi and His Companies, Apuro Holdings Ltd. and JCI Holdings USA with Forex Fraud and Registration Violations

Washington, DC –The Commodity Futures Trading Commission (CFTC) filed a civil enforcement action in the U.S. District Court for the Central District of California, Western Division, charging Defendants Jin Choi of Los Angeles, California, and his companies, Apuro Holdings Ltd. (Apuro) d/b/a ApuroFX and JCI Holdings USA (JCI) d/b/a JCI Trading Group, LLC, with off-exchange retail foreign currency (forex) fraud and failure to register with the CFTC as a Commodity Trading Advisor and Associated Person of a Commodity Trading Advisor, as required.

The Complaint alleges that, from at least January 2014 through the present, Choi, individually and as agent and principal of Apuro and JCI, has fraudulently solicited at least $350,600 from not less than six individuals (clients) for the purported purpose of trading off-exchange leveraged or margined retail forex contracts on their behalf.  Choi allegedly solicited and continues to solicit clients and prospective clients in person and at investor seminars hosted by Choi in the United States and abroad, through social media services (including Facebook and Instagram), and through various websites operated by Choi.  As alleged, in their solicitations, Defendants, by and through Choi, made material misrepresentations and omissions concerning Choi’s trading expertise and successful track record.  Defendants also allegedly misrepresented that all of clients’ funds would be used to open trading accounts in their names to trade forex on their behalf and that ApuroFX is a CFTC-registered Futures Commission Merchant.

Client Funds Allegedly Misappropriated to Support Choi’s Lavish Lifestyle  

In fact, however, the Complaint alleges that Defendants never opened any trading accounts in clients’ names and never conducted any trading on behalf of clients.  Instead, Defendants misappropriated all of the at least $350,600 in client funds to support Choi’s lavish lifestyle and to return approximately $24,000 to certain clients as purported “profits” in the manner of a “Ponzi” scheme, as alleged in the Complaint.  Defendants allegedly used the majority of clients’ funds to pay for Choi’s personal expenses, including paying for the rental of a Beverly Hills condominium; the purchase and lease of luxury automobiles; shopping sprees at high-end retailers mostly located on Rodeo Drive in Beverly Hills, California; travel to Las Vegas, Nevada, for gambling and luxury hotel stays; the purchase of cell phones; and for cash withdrawals.

In its continuing litigation, the CFTC seeks full restitution to defrauded investors, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction against future violations of the Commodity Exchange Act, as charged.
The CFTC appreciates the assistance of the Hong Kong Securities and Futures Commission, the Financial Services Agency of Japan, and the British Virgin Islands Financial Services Commission.  CFTC Division of Enforcement staff members responsible for this case are Timothy J. Mulreany, Danielle Karst, Jim Holl, George H. Malas, Anthony Homer, Erica Bodin and Paul G. Hayeck.

*   *   *   *   *   *

CFTC’s Foreign Currency (Forex) Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Foreign Currency Trading (Forex) Fraud Advisory, which states that the CFTC has witnessed a sharp rise in Forex trading scams in recent years and helps customers identify this potential fraud.

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.


Press Release

Investing in America: SEC Commissioners are Heading to Atlanta to Interact with Investors



Washington D.C., May 23, 2018 —

The Securities and Exchange Commission today announced that the five-member Commission and staff from across the agency will be in Atlanta on June 13 for an interactive event with investors at Georgia State University College of Law. The event is an opportunity for all Main Street investors—from those who just started their first job to those approaching retirement—to hear directly from, and share feedback with, the SEC’s leaders on topics that directly affect their personal finances and the regional and national economies.

“With its dynamic population, innovative ideas, and thriving economy, Atlanta is an ideal place for us to discuss the work we do and hear directly from the people we serve,” said SEC Chairman Jay Clayton, who will be joined in Atlanta by Commissioners Kara Stein, Michael Piwowar, Robert Jackson, and Hester Peirce.

The Commissioners will kick the day off with a town hall-style event covering a range of topics from choosing a financial professional, to initial coin offerings and digital assets, to cybersecurity. Directly after the town hall, attendees are invited to join the Commissioners and SEC staff at one of the interactive breakout sessions to gain greater insight into some of the most requested topics before the SEC today.

Breakout session topics:

  • The Investor Experience: Does the Information You Get From Mutual Funds and ETFs Work for You?
  • Tips for Savers, Including Military and Early Career
  • Stopping Fraud
  • Bitcoin & ICOs
  • Investing in, and Raising Money by, Small Companies

“As anyone in the Atlanta Regional Office can tell you, this area has no shortage of people with great ideas, and I know their input will make this event a meaningful learning opportunity both for our agency and the region,” said Richard Best, Director, SEC Atlanta Regional Office.

Seating is first come, first served and attendants are encouraged to RSVP via the SEC’s Atlanta Regional Office’s webpage, which has event details. There is convenient parking and a MARTA Station nearby. The event is free and open to the public and the media.






May 22, 2018

CFTC Opens Access for U.S. Customers to Trading in Australian Markets

Washington, DC — The Commodity Futures Trading Commission (CFTC) today announced the approval of Australian Securities Exchange Limited’s (ASX 24) application to permit direct access for U.S. customers to trade on its platform. By this order, issued May 15, 2018, ASX 24, a foreign board of trade (FBOT) is registered with the CFTC and allowed to permit members and other participants in the U.S. to trade by direct access on the exchange without having to trade through an intermediary.  In order to be registered with the CFTC, an FBOT must be legally organized under its home country regulatory regime and must be subject to relevant regulations and appropriate supervision.

The ASX 24 Order follows in the spirit of the CFTC’s regulatory deference program, which reflects the Commission’s confidence and trust in the oversight of market infrastructures and participants by the relevant home country regulators, especially in matters of market practices, transparency, and price formation. In the case of ASX 24, such supervision is carried out by the Australian Securities and Investments Commission (ASIC), which oversees ASX 24’s compliance with relevant requirements, including customer protection and market integrity measures.

“By their very nature, derivatives instruments trade in global markets,” said CFTC Chairman J. Christopher Giancarlo. “Cross-border competition, growth, and innovation are stifled if we impose piecemeal or inconsistent regulatory requirements which cause inefficiencies and higher costs.  To mitigate such an outcome, the CFTC continues to lead by example to adopt regulatory deference and support market-led activity taking place across these markets.

“Derivatives allow American agriculture producers, industrial manufacturers and financial service providers to transfer or bear exposure to the risk of variable commodity prices, foreign exchange rates, or rate of interest around the world.  Without robust and orderly global derivatives markets, American firms would bear greater risk in their international commercial activities. As a result, they would either curtail operations or be less competitive than their overseas counterparts. That would mean fewer jobs at home and diminished U.S. economic activity. This is why the CFTC seeks to ensure that global markets are salutatory and suitable for the risk transfer needs of American agriculture producers, industrial manufacturers and financial service providers, and why it is important for global regulators to take a cooperative approach to pursuing market integrity and customer protection.”

The CFTC began accepting FBOT applications for registration in accordance with Part 48 of the CFTC regulations, which became effective on February 21, 2012. With this order, the CFTC has registered 19 FBOTs from 12 countries.  ASX 24 previously offered direct access to U.S. participants in accordance with no-action relief issued to its predecessor, the Sydney Futures Exchange Limited, in CFTC Letter No. 99-37 (August 10, 1999).  According to CFTC regulation 48.6, this no-action letter is automatically withdrawn with the issuance of the ASX 24 Order.

ASX 24 submitted an application for registration that included, among other things, representations that its regulatory regime under its regulator satisfies the requirements for registration under CFTC regulations.  After reviewing the ASX 24 application, the CFTC determined that ASX 24 has demonstrated its ability to comply with the requirements of CFTC regulations.  ASX 24 must also continue to fulfill each of the representations it made in support of its registration application.

The CFTC issued the Order in accordance with Part 48 of the CFTC regulations, which provides that such an Order may be issued to an FBOT that satisfies the requirements for registration in CFTC regulation 48.7 and, among other things, possesses the attributes of an established, organized exchange and is subject to continued oversight by a regulator that provides comprehensive supervision and regulation that is comparable to the supervision and regulation exercised by the CFTC.





May 16, 2018

CFTC Staff Issues Report Assessing Market Impacts of LNG

The Report Summarizes Key Factors and How the LNG Market Outlook Has Evolved

Washington, DC — Staff of the Market Intelligence Branch of the Division of Market Oversight of the U.S. Commodity Futures Trading Commission (CFTC) today issued a report assessing the market impacts from expanding liquefied natural gas (LNG) trade and exports.  In 2016, the U.S. transitioned from being a net importer to a net exporter of LNG.  In aggregate, U.S. LNG export plants in operation and under construction have a capacity of 10 Bcf/day, which is about 13% of current U.S. dry production.  The report synthesizes public source evaluations of the impact of LNG market changes.  The report attempts to summarize key factors and how the LNG market outlook has evolved; it does not attempt to offer any views or opinions.

The three main takeaways of this report are:

  1. Global LNG trade growth is expected to continue with U.S. LNG exports having the most rapid growth rate and a competitive price advantage.
  2. U.S. LNG export growth may put upward pressure on U.S. natural gas prices and expose a heretofore relatively isolated North American market to global market dynamics.
  3. Burgeoning U.S. LNG exports are affecting global LNG market dynamics, including contracting and risk management practices in CFTC regulated markets.

“Over $30 billion in construction capital has been invested by the two firms with operational LNG plants.  Further, significant investments in support of these plants have been made in new natural gas pipeline assets.  The LNG firms and their customers use CFTC regulated futures and swaps to manage investment, commodity, and operational risks.  It is important for the CFTC and the public to understand the changing physical market dynamics.  In this regard, the CFTC must foster stable, vibrant, and liquid derivatives markets to support risk management practices,” according to Amir Zaidi, Director of the CFTC’s Office of Market Oversight.

This is the first in a series of reports from staff of the Market Intelligence Branch.  Staff of the Branch will publish additional reports on issues of current market interest, such as market liquidity and volatility.   The Market Intelligence Branch’s role is to analyze and communicate current and emerging market issues to CFTC leadership and the public and assist the CFTC in making informed policy.





May 16, 2018

CFTC Reduces Marketplace Barriers for Global Development Initiatives

Washington, DC — The Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) today granted relief to non-US counterparties who enter into swaps with International Financial Institutions (IFIs), such as development banks.

“International financial institutions like the International Monetary Fund and North American Development Bank play a vital role in the global community by promoting infrastructure projects, encouraging employment, and reducing poverty,” said DSIO Division Director Matt Kulkin. “DSIO is providing relief so that these entities can more easily access over-the-counter derivatives markets to hedge risk associated with financing projects in developing countries in order to promote global economic growth.”

In the no-action letter, released today, DSIO announced it would not recommend that the Commission take action if non-U.S. persons do not include swaps with IFIs when determining whether such non-U.S. persons meet or exceed agency-prescribed registration thresholds. The relief granted today is consistent with the Commission’s prior treatment of IFIs for purposes of foreign futures and options transactions, the swap dealer definition, and mandatory clearing.

The IFIs referenced in the no-action letter include the North American Development Bank, International Monetary Fund, International Bank for Reconstruction and Development, European Bank for Reconstruction and Development, International Development Association, International Finance Corporation, Multilateral Investment Guarantee Agency, African Development Bank, African Development Fund, Asian Development Bank, Inter-American Development Bank, Bank for Economic Cooperation and Development in the Middle East and North Africa, Inter-American Investment Corporation, Council of Europe Development Bank, Nordic Investment Bank, Caribbean Development Bank, European Investment Bank and European Investment Fund. The IFIs listed in this letter are the same international financial institutions referenced in the Commission’s Cross-Border Guidance, with the addition of the North American Development Bank.


Press Release

SEC Files Charges in International Manipulation Scheme



Washington D.C., May 15, 2018 —

The Securities and Exchange Commission today charged four individuals for their roles in a fraudulent scheme that generated nearly $34 million from unlawful stock sales and caused significant harm to retail investors.

According to the SEC’s complaint, the defendants manipulated the market for and illegally sold the stock of microcap issuer Biozoom Inc.  As part of the alleged scheme, the defendants hid their ownership and sales of Biozoom shares by using offshore bank accounts, sham legal documents, a network of nominees, anonymizing techniques, and other deceptive practices.  The defendants also allegedly directed a wide-ranging promotional campaign and employed sophisticated, manipulative trading techniques to artificially inflate Biozoom’s share price.  The alleged scheme culminated in the defendants’ illegal sales of Biozoom, which netted them nearly $34 million in unlawful proceeds.

“Manipulative and deceptive conduct undermines the integrity of our markets,” said Antonia Chion, Associate Director in the SEC’s Division of Enforcement.  “The charges announced today demonstrate our commitment to unraveling even the most sophisticated international schemes that exploit retail investors.”

The SEC’s complaint, which was filed in federal district court in the Southern District of New York, charges Francisco Abellan Villena, Guillermo Ciupiak, James B. Panther Jr., and attorney Faiyaz Dean with violating antifraud and registration provisions of the federal securities laws and seeks monetary and equitable relief.  The SEC previously obtained a judgment against Abellan for his role in another market manipulation scheme. In separate actions, the SEC charged two registered representatives for their roles in the unregistered sales of Biozoom stock and a brokerage firm for supervisory and recordkeeping failures.

The SEC obtained a court order in 2013 freezing proceeds from the unlawful Biozoom sales.  It subsequently obtained a default judgment and established a fair fund, which has returned more than $14 million to harmed investors.  The SEC also previously charged a lawyer and officer of Biozoom’s predecessor entity.

The SEC’s continuing investigation is being conducted by Marc E. Johnson and Jennie B. Krasner with the assistance of the Enforcement Division’s Information Technology Forensics Group, and under the supervision of Deborah A. Tarasevich and Ms. Chion.  The litigation is being conducted by Duane K. Thompson and Daniel Maher, and supervised by Cheryl Crumpton.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority, the British Columbia Securities Commission, the Comision Nacional del Mercado de Valores of Spain, the Cyprus Securities and Exchange Commission, the Hong Kong Securities and Futures Commission, the Ontario Securities Commission, and the Supertendencia del Mercado de Valores of Panama.



Press Release

SEC Names James Reese Chief Risk and Strategy Officer of the Office of Compliance Inspections and Examinations



Washington D.C., May 15, 2018 —

The Securities and Exchange Commission today announced that James Reese has been named the Chief Risk and Strategy Officer of the agency’s Office of Compliance Inspections and Examinations (OCIE). Mr. Reese has served as Acting Chief since February 2017.

The Chief Risk and Strategy Officer leads the Office of Risk and Strategy (ORS), which was established in 2016 to consolidate OCIE’s risk assessment, market surveillance, large firm monitoring and quantitative analysis teams, and provide operational risk management and organizational strategy for the National Exam Program. ORS is responsible for supporting the NEP’s risk-based and data driven processes through the identification of risks and emerging issues in the financial markets, exam targeting and selection efforts, resource allocation, and investment in quantitative-based examination initiatives.

“Jim is a strong, talented leader with a depth of experience, background, and expertise that is a valuable asset to the Commission and to OCIE,” said Peter B. Driscoll, Director of the Office of Compliance Inspections and Examinations. “I’m excited Jim will serve as OCIE’s Chief Risk and Strategy Officer and lead our Office of Risk and Strategy.”

Mr. Reese added, “I am truly honored and excited to have been given the opportunity to serve as the Chief Risk and Strategy Officer for OCIE.  It continues to be a great privilege to work alongside of the dedicated and talented examiners and senior staff in OCIE and across the agency.”

Mr. Reese joined the SEC in 1999 as an examiner in the Investment Adviser/Investment Company program area.  He later served as a branch chief, senior staff accountant, and Assistant Director in OCIE’s Office of Risk Analysis and Surveillance.  Mr. Reese has participated in more than 500 examinations and assisted on numerous rulemaking efforts, including Investment Company and Investment Adviser Reporting; Use of Derivatives by Funds; Dodd-Frank Act Amendments to the Investment Advisers Act; and Private Fund Systemic Risk Reporting.  Mr. Reese was also part of the Commission’s Aberrational Performance Inquiry team, which was comprised of staff from across the agency.

Mr. Reese graduated from Virginia Wesleyan University, where he received a Bachelor of Arts in Accounting and Finance.  He holds the Certified Fraud Examiner (CFE) designation and is a frequent speaker for the SEC’s Technical Assistance Programs with the Office of International Affairs.



NR 2018-45

May 7, 2018


Contact: Stephanie Collins
(202) 649-6870

OCC Hosts Operational Risk Workshop in Pennsylvania

WASHINGTON — The Office of the Comptroller of the Currency (OCC) will host a workshop in Harrisburg, Pa., at the Crowne Plaza Harrisburg-Hershey, June 20, for directors of national community banks and federal savings associations supervised by the OCC.

The Operational Risk workshop focuses on the key components of operational risk—people, processes, and systems. The workshop also covers governance, third-party risk, vendor management, internal fraud, and cybersecurity.

The workshop fee is $99. Participants receive course materials and assorted supervisory publications. The workshop is limited to the first 35 registrants.

The workshops are taught by experienced OCC staff and are offered nationwide to enhance and expand the skills of national community bank and federal savings association directors. To register for this workshop, visit www.occ.gov/occworkshops.

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Keynote Address at the New York City Bar Association’s 7th Annual White Collar Crime Institute


Steven Peikin
Co-Director, Division of Enforcement

New York, New York

May 9, 2018

Good afternoon and thank you for that overly-generous introduction. Before I begin, let me give the required disclaimer that the views I express today are my own and do not necessarily represent the views of the Commission or its staff.


I’m delighted to be here today among so many friends and colleagues, and I extend my thanks to the New York City Bar for hosting this important event. Because New York plays such a pivotal role in our financial system, members of the New York City Bar have long taken a leading role in many of the most significant securities and white collar matters. And the City Bar has been a key forum for education and dialogue about these important issues. I am honored to join today’s distinguished group of speakers, panelists, and attendees.

This afternoon, I would like to address a practical topic that I hope will be useful for many in this audience: techniques for productive and effective communication with SEC staff during Wells meetings.

I have spent nearly 20 years focused on the criminal and civil enforcement of the federal securities laws, first as an Assistant U.S. Attorney, then in private practice, and now as Co-Director of the SEC’s Division of Enforcement. Those of us who work on securities and white collar matters often take for granted how fortunate we are to be able to practice in a bar that is populated by some of the best lawyers in the country. The opportunity to be part of such a bar is one of the things that attracted me to work on securities matters in the first place, and I know that I am a much better lawyer for having had the chance to do so.

Over the course of my career, I have had many opportunities to interact with opposing counsel – both on behalf of the government and while representing private clients. Experience has taught me that open, effective, and productive dialogue between the government and defense counsel is critical for both sides in handling a complex securities matter. As a prosecutor, I found that frank communication with opposing counsel helped me understand complicated facts, focus an investigation, and – ultimately – reach the right result. In private practice, I think my clients were best served when the government was open to frank dialogue.

My time at the Commission has reinforced these conclusions.

At the SEC, we frequently confront issues that are novel, complex, or both. For the staff, productive communication with defense counsel can often provide a better understanding of complicated businesses, markets, and financial products. Effective communication allows us to tailor our theories, focus our inquiries and get to the end of our investigations efficiently.

I believe that the benefits of this communication flow in both directions. That is, effective dialogue can also yield significant benefits for defense counsel and their clients. In some instances, defense counsel will persuade us that we have gotten something wrong, leading us to abandon a charge, recommend different relief, or decline to pursue a matter entirely. Even where that isn’t the case, effective communication often helps defense counsel to better understand our thinking, which in turn allows them to provide better advice to their clients.

An SEC investigation provides many opportunities for dialogue – from the time of the first contact with the staff through discussions about possible settlement or litigation. As many of you know, one of the most significant opportunities for communication is the Wells process.

The Wells process takes its name from an advisory committee, headed by the distinguished corporate lawyer John A. Wells, which was convened in 1972 to review and evaluate the Commission’s enforcement policies and practices. As the Commission noted in responding to the recommendations of the committee, the purpose of the Wells process is to ensure that the Commission “not only [is] informed of the findings made by its staff but also, where practicable and appropriate, [has] before it the position of persons under investigation[.]”[1] The Commission declined to adopt a formal rule or procedure requiring a prospective defendant or respondent to be given notice of the staff’s charges and proposed enforcement recommendation and an opportunity to respond, deeming such a requirement to be impractical given that the Commission is frequently required to act with exigency. Nevertheless, the Wells process is one that the Commission staff has followed in most cases where doing so would not compromise other law enforcement interests.

The Wells process has significant benefits for the Enforcement staff. It provides us with a chance to learn – and understand – the “position of persons under investigation.”[2] This, in turn, allows us to ensure that we make appropriate recommendations to the Commission, and that the Commission has a full and accurate picture of the positions of both sides when it reviews our recommendations.

While some may consider Enforcement staff and defense counsel to be adversaries in the Wells process, I think our interests are often aligned. A Wells notice is an invitation for defense counsel to respond to the Enforcement staff’s preliminary conclusions and try to persuade us we are mistaken. We are focused on getting it right, not bringing cases for the sake of bringing cases. So if we are on the wrong track, we want to know that before we proceed further. That benefits everyone.

For these reasons, my Co-Director, Stephanie Avakian, and I place great importance on the Wells process – and Wells meetings in particular. I believe all of our Regional Directors and other Senior Officers are on the same page. We view these meetings as among the most important parts of our jobs, and we devote substantial time and care to preparing for them. I know they are viewed as milestone events by defense counsel and their clients, and they too devote substantial resources to preparing and making these presentations.

As I approach one year on the job, overall I have been extremely impressed by the quality, sophistication, and effectiveness of the advocacy in the Wells process. Nevertheless, I’ve found that some Wells meetings have been more productive than others. Drawing on that experience, I’d like to share some observations about what I have found makes for effective Wells meetings.

Before I do that, however, let me pause to make clear that I am not telling defense counsel how to do their jobs. At the SEC, we expect that counsel will zealously represent their clients. And nothing I say should dissuade counsel from doing what they think is in their client’s best interest. The arguments presented in a Wells meeting are – ultimately – up to the lawyer and the client. So I hope you will take the following in the spirit in which it is offered – which is an attempt to share my personal observations about what I have found does – and does not – tend to foster the most constructive, effective, and productive dialogue between Enforcement staff and defense counsel during a Wells meeting.


My first observation is an obvious one: Wells meetings tend to be the most productive when defense counsel focuses on the most important arguments and issues in the case, as opposed to taking a blunderbuss approach that attempts to address every possible argument, fact, element, and issue.

In most of our mature investigations, the true issues in dispute have been distilled, and there is typically one or a small number of live issues. In a fraud case, for example, perhaps it is a question of whether a statement was false or misleading? Or whether an omission was material? Or whether a person acted with scienter? Rarely, it seems to me, are all possible issues in serious dispute.

We view Wells meetings as counsel’s opportunity to educate us on their positions on the key facts and issues before we make a decision about a charging recommendation. The time is yours, and you should use it how you see fit. But meetings can only last so long – typically about an hour. When counsel attempt to make every argument and address every issue, it distracts. And in certain circumstances, contesting facts and issues that are not subject to reasonable dispute adversely impacts credibility.

In my experience, the most effective advocates pick their battles and focus on the central issues and arguments. This may mean foregoing discussion of every argument made in a written Wells submission. In my view, that is fine. We read Wells submissions carefully, and we take them into account when preparing our charging recommendations.

I have also found that the best advocates listen carefully to us during a Wells meeting and adapt accordingly. If the discussion makes clear that we are not receptive to a particular argument, they move on. And if we suggest that counsel address a particular issue, they pivot to address it. Simply marching though prepared talking points is seldom the best approach.

My second observation is that while defense counsel should not try to cover all of the possible issues during a Wells meeting, the meetings tend to be most productive when the staff is aware of what defense counsel will contend are key facts before we meet.

By the time we reach a Wells meeting, the staff has concluded that the investigation is complete and that it has a sufficient record upon which to recommend charges. But the reality is that defense counsel and their client may know things that we don’t. We want to know as much as we can before we make a recommendation to the Commission. Educating the staff on what you believe are the key facts – and explaining why, in your view, those facts don’t support an enforcement action, or a particular charge or form of relief – can be effective.

But for the discussion in a Wells meeting to be productive, all of what you believe to be the operative facts need to be on the table before the meeting so that we can consider and analyze them and discuss them meaningfully at the meeting. In my experience, the parties are unlikely to make much progress during a Wells meeting if staff are surprised with new facts at the beginning of the discussion – especially if defense counsel takes the position that those facts are central to the case.

This is an issue that arises with some frequency where defense counsel has claimed privilege over supposedly key information during the investigation. I have found that it is not helpful for counsel to disclose supposedly key privileged information for the first time in a Wells meeting, and then spend the rest of the meeting arguing that the information is a defense to the proposed charges.

Likewise, it is not useful when parties submit lengthy supplemental submissions on the eve of a long-scheduled Wells meeting. Those who do this must perceive a strategic advantage in dropping in a new submission at the eleventh hour, providing staff with little time to digest it. But I think otherwise. This can make the meeting a waste of time. To be in a position to make progress at the meeting, we must know about – and have an opportunity to consider and test – information and arguments in advance.

Now, the reverse is also true. It makes no sense for defense counsel to go through the Wells process blind to key pieces of evidence that the staff has developed in its investigation. And so we have encouraged the staff to share with defense counsel key documents and information upon which our proposed case will rest. There will, of course, sometimes be reasons why we are unable to share some things. But our dialogue will be most robust, and the process most effective, when we are all talking about the same factual record.

That point is related to my third observation, which is that it is not effective to allude to an advice-of-counsel defense without disclosing the key underlying facts, including the privileged communications themselves.

Sometimes, defense counsel will claim at a Wells meeting that privileged information they are unwilling or unable to share is central to the case. For example, during a meeting, they may allude to – but not formally raise – an “advice-of-counsel” defense by noting that they have privileged information that gives them comfort about the legality of the actions taken by a particular employee, or her lack of scienter.

In my experience, alluding to privileged information in Wells meeting – but not sharing it with the staff – is not effective. To be clear, I am not encouraging anyone to waive privilege in these circumstances. The decision whether to share privileged information is one that must be made by defense counsel and the privilege holder. I simply note that we cannot ground our decision-making on documents we cannot see or testimony we cannot hear.

Fourth, I have found that it can be very effective when defense counsel grounds their arguments in case law and prior Commission actions.

It is ultimately the Commission – not the staff – that decides whether to bring an action, or to accept a settlement. We take very seriously the recommendations we make to the Commission. In every case, we think hard about what we are recommending, why we are recommending it, and – critically – how it compares to what the Commission has done in past cases. This ensures that we are both fair to the parties in the case at hand and that we are sending clear, consistent messages to the public.

When you are asking us to make a particular recommendation to the Commission, it can be very helpful to show us how and why that recommendation compares with what happened in prior cases. This is particularly true when you are asking the staff to recommend that the Commission bring certain charges and not others, or only seek or impose certain types of relief. In these circumstances, pointing to what has been done before can be helpful.

Likewise, if an analogous case has been litigated and resulted in a decision that is at odds with what the Staff has proposed, point us to those precedents as well. Showing us that we are proposing something that is inconsistent with what we would likely obtain if we were to prevail in litigation can be powerful as well.

While pointing to what the Commission or courts have done in the past can be very effective, I will offer a few caveats.

The first is that in most cases, the more recent the court decision or Commission action, the more persuasive it is likely to be. With some exceptions, cases that are superannuated do not speak as clearly about what approach the Commission should or will take today.

Second, while prior Commission actions are very important, there are certainly some matters in which – for case-specific reasons – the Commission has taken an approach that is at odds with what it tends to do in a particular type of case. Where a case appears to be an outlier, you should take that into account before relying on it too heavily at a Wells meeting.

The third caveat is that we are fully aware that we, like you, are subject to the vagaries and vicitudes of litigation. The fact that the Commission suffered an adverse result in a particular litigation may be a relevant data point, but more often will not carry significant weight.

Fourth, while prior Commission actions are important, my experience has been that it is not particularly persuasive when defense counsel argues at a Wells meeting that we won’t have the votes for a particular case, or that a particular Commissioner will not support what we propose recommending.

Stephanie and I are well attuned to the Commission as a whole, and the views of individual Commissioners. We meet regularly with each of them, and we study carefully how they approach various issues. If you don’t succeed in persuading us not to bring charges, you are of course free to take your arguments directly to the Commissioners. But, in my experience, telling us that you know the Commissioners’ views better than we do is unlikely to meet with much success.

My next observation is that the most effective advocates think carefully about whether to use visual aids at a Wells meeting. And if they do, they are judicious about the materials they use.

We spend a great deal of time preparing for Wells meetings, and we are typically well-versed in the key facts and issues. For that reason, it is often not necessary for defense counsel to march through handouts or PowerPoint slides that cover background or elementary issues, facts, and legal standards, or which summarize the Wells submission.

So what is helpful? Consider not using anything at all. Although handouts and presentations have their place, they can sometimes inhibit natural and open dialogue.

If you do decide to use some sort of handout or visual aid, I have found that succinct presentations that cover the key evidence and central issues often have the most impact. Of course, what that looks like will depend on the case. If a particular issue turns on a handful of key documents, a short PowerPoint that highlights those materials can be helpful. Or, if a specific witness is particularly important, it can be helpful to focus on key excerpts from her testimony. In short, I have found that presentations that are focused on the key evidence often have a greater impact.

My next observation is that I have found that it is rarely productive when defense counsel uses a Wells meeting to threaten to take us to trial. For me, saber-rattling is a rhetorical dead-end.

The SEC staff includes experienced and talented trial attorneys. We regularly solicit their views during the investigative process. Defense counsel can safely assume that if a case has gotten to the Wells stage, we are serious about the case and we have come to the preliminary conclusion that we can prevail if the case is litigated. Simply telling us that the client will litigate achieves nothing.

That doesn’t mean you should shy away from providing your views on the risks we will face in litigation and trying to explain to us why we are unlikely to prevail. I have found that it can be very effective if defense counsel summarizes how they might try a case. That could mean previewing anticipated trial themes, or summarizing how you plan to use or diffuse key evidence or witnesses.

I have also found that Wells meetings are least productive when defense counsel raise what I call “non-starters.” By “non-starters,” I mean issues of programmatic importance on which counsel knows that the Commission and the Division have taken clear and consistent positions, and on which we simply don’t have any ability to compromise.

For example, defense counsel will not make much progress if they ask us during a Wells meeting to forego an injunction in a settled district court action due to possible Kokesh statute of limitations issues.[3] Our district court settlements uniformly include injunctive relief, and the Commission has consistently taken the position that the Supreme Court’s Kokesh decision does not apply to injunctive relief.[4] You are welcome to try to persuade a court to extend Kokesh in a litigated case, but that is not something we are likely able to agree to in a settled context or to forgo based on litigation risks.

My next-to-last recommendation relates to cooperation credit. The SEC has a robust program that is intended to encourage cooperation in SEC investigations and enforcement actions. The program provides incentives to those who come forward and provide valuable information to SEC staff.

As many of you know, we use a framework to evaluate whether, how much, and in what manner to credit cooperation by individuals and entities. The factors we consider are well known and have been set out in a number of public documents, including the Seaboard Report[5] and other Commission policy statements.[6]

When arguing in a Wells meeting that a client should receive cooperation credit, I have seen defense counsel take a number of approaches. Some are more effective than others.

Some, for example, simply run down a laundry list of actions their client has taken during the course of an investigation – such as producing a certain number of documents, or making a certain number of witnesses available for a certain number of days of testimony – and claim that they should receive cooperation credit. In my view, this is not effective.

For one, doing something that your client is already required to do – such as producing documents in response to a subpoena – is not what we consider “cooperation.”

Second, simply listing out what actions your client has taken, without more, does not explain the significance of the cooperation. In my view, the more effective approach is to carefully and specifically explain at a Wells meeting how each action your client took aided the staff’s investigation in a material way. How did you help the staff to tailor its investigation, discover new witnesses, or uncover material facts they otherwise would not have known about? In short, explain to the staff – with specificity – how each action your client took materially aided our investigation. Doing so will assist us in explaining to the Commission why your client should receive credit for its cooperation.

My final observation is simple and straightforward: a Wells meeting is not the place to re-hash battles fought with the staff during the investigation.

Long-running SEC investigations – like any high-stakes litigation – can be contentious and hard fought. We strive to keep the scope of our work reasonable and proportionate, but our investigations can take time, and they can often require your clients to expend considerable resources.

While I understand the temptation, a Wells meeting is simply not the place to air grievances about the length of the investigation or shifting theories of the case, or positions the staff took on things like subpoenas, search terms, privilege logs, production deadlines, or testimony schedules.

Stephanie and I expect the Staff to conduct themselves professionally at all times. But just as your clients expect you to be aggressive in representing them, we also expect our staff to be appropriately aggressive as they work to support the Commission’s mission of policing the markets and protecting investors.

Ultimately, the Wells meeting is your client’s opportunity to educate us on your positions about the key issues. I have found that it is rarely a productive for defense counsel to rehash old disagreements with the staff about the way the investigation was conducted. Those disagreements won’t have a bearing on what we decide to recommend to the Commission. We will make more progress when everyone sticks to the facts and the law.


In conclusion, I’ll say that, as I mentioned at the outset, my thoughts today are not grounded in some presumption that we can or should tell you how to do your jobs. How you represent your clients is up to you. But I do hope that you will find my observations about what we find to be effective helpful as you prepare for your next Wells meeting.

Thank you again to the City Bar for giving me the chance to spend time with you this afternoon, and I hope you enjoy the rest of the conference.

[1] Securities Act of 1933 Release No. 5310, “Procedures Relating to the Commencement of Enforcement Proceedings and Termination of Staff Investigations.”

[2] Id.

[3] See Kokesh v. SEC, 137 S. Ct. 1635 (2017).

[4] See SEC Enforcement Manual § 3.1.2 (2017) (“[C]ertain claims are not subject to the five-year statute of limitations under Section 2462, including claims for injunctive relief.”)

[5] See Report of Investigation Pursuant to § 21(a) of the Securities Exchange Act of 1934 and Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions, SEC Rel. No. 34-44969 (Oct. 23, 2001), available at https://www.sec.gov/litigation/investreport/34-44969.htm#P54_10936.

[6] Policy Statement Concerning Cooperation by Individuals in its Investigations and Related Enforcement Actions, SEC Rel. No. 34-61340 (Jan. 19, 2010), available at https://www.sec.gov/rules/policy/2010/34-61340.pdf.


Press Release

SEC Names Jessica Kane Director of Office of Credit Ratings



Washington D.C., May 7, 2018 —

The Securities and Exchange Commission today announced that Jessica Kane has been named the Director of the agency’s Office of Credit Ratings, where she has served as Acting Director since September 2017.

The Office of Credit Ratings is responsible for oversight of nationally recognized statistical rating organizations (NRSROs).  The office conducts annual examinations of NRSROs and works to ensure that credit ratings are not unduly influenced by conflicts of interest and that NRSROs provide greater transparency and disclosure to investors.

“Jessica’s strong leadership, dedication, and diverse experience at the SEC will serve her well in this role,” said Chairman Jay Clayton.  “The Office of Credit Ratings is integral to the SEC’s mission and plays an important role in ensuring that NRSROs meet their obligations, investors are well informed, and our markets function effectively.”

“I am honored to continue leading the Office of Credit Ratings and working with the talented and dedicated staff in this office and across the agency,” said Ms. Kane.  “I look forward to continuing to work with Chairman Clayton, the Commissioners, and the staff to ensure effective oversight of NRSROs.”

Before joining the Office of Credit Ratings, Ms. Kane was Director of the SEC’s Office of Municipal Securities, which administers SEC rules on participants in the municipal securities market and coordinates with the Municipal Securities Rulemaking Board (MSRB) on rulemaking and enforcement.  Key initiatives advanced under Ms. Kane’s leadership include the implementation of SEC municipal advisor registration rules and a new regulatory regime for municipal advisors; Commission approval of MSRB rules on best execution and mark-up disclosure; and a Commission proposal to improve municipal securities disclosure regarding certain financial obligations incurred by issuers and obligated persons.

Ms. Kane joined the SEC in 2007 and spent five years in the Division of Corporation Finance before moving to the Office of Legislative and Intergovernmental Affairs.  She later served as Deputy Director and Senior Special Counsel to the Director of the Office of Municipal Securities.

Ms. Kane graduated with honors from Georgetown University, where she received her B.A. degree in English, with a minor in Economics.

She holds a J.D. degree from George Mason University School of Law, where she was Executive Editor of the Civil Rights Law Journal.



Public Statement

Statement on Potentially Unlawful Online Platforms for Trading Digital Assets

Divisions of Enforcement and Trading and Markets


March 7, 2018

Online trading platforms have become a popular way investors can buy and sell digital assets, including coins and tokens offered and sold in so-called Initial Coin Offerings (“ICOs”).  The platforms often claim to give investors the ability to quickly buy and sell digital assets.  Many of these platforms bring buyers and sellers together in one place and offer investors access to automated systems that display priced orders, execute trades, and provide transaction data.

A number of these platforms provide a mechanism for trading assets that meet the definition of a “security” under the federal securities laws.  If a platform offers trading of digital assets that are securities and operates as an “exchange,” as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.  The federal regulatory framework governing registered national securities exchanges and exempt markets is designed to protect investors and prevent against fraudulent and manipulative trading practices.

Considerations for Investors Using Online Trading Platforms

To get the protections offered by the federal securities laws and SEC oversight when trading digital assets that are securities, investors should use a platform or entity registered with the SEC, such as a national securities exchange, alternative trading system (“ATS”), or broker-dealer.

The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not.  Many platforms refer to themselves as “exchanges,” which can give the misimpression to investors that they are regulated or meet the regulatory standards of a national securities exchange.  Although some of these platforms claim to use strict standards to pick only high-quality digital assets to trade, the SEC does not review these standards or the digital assets that the platforms select, and the so-called standards should not be equated to the listing standards of national securities exchanges.  Likewise, the SEC does not review the trading protocols used by these platforms, which determine how orders interact and execute, and access to a platform’s trading services may not be the same for all users.  Again, investors should not assume the trading protocols meet the standards of an SEC-registered national securities exchange.  Lastly, many of these platforms give the impression that they perform exchange-like functions by offering order books with updated bid and ask pricing and data about executions on the system, but there is no reason to believe that such information has the same integrity as that provided by national securities exchanges.

In light of the foregoing, here are some questions investors should ask before they decide to trade digital assets on an online trading platform:

  • Do you trade securities on this platform?  If so, is the platform registered as a national securities exchange (see our link to the list below)?
  • Does the platform operate as an ATS?  If so, is the ATS registered as a broker-dealer and has it filed a Form ATS with the SEC (see our link to the list below)?
  • Is there information in FINRA’s BrokerCheck ® about any individuals or firms operating the platform?
  • How does the platform select digital assets for trading?
  • Who can trade on the platform?
  • What are the trading protocols?
  • How are prices set on the platform?
  • Are platform users treated equally?
  • What are the platform’s fees?
  • How does the platform safeguard users’ trading and personally identifying information?
  • What are the platform’s protections against cybersecurity threats, such as hacking or intrusions?
  • What other services does the platform provide?  Is the platform registered with the SEC for these services?
  • Does the platform hold users’ assets?  If so, how are these assets safeguarded?

Resources for Investors

Investor.gov Spotlight on Initial Coin Offerings and Digital Assets

Chairman Jay Clayton Statement on Cryptocurrencies and Initial Coin Offerings

Chairman Jay Clayton’s Testimony on Virtual Currencies: The Roles of the SEC and CFTC

Report of Investigation Pursuant to Section 21(a) of the Securities and Exchange Act of 1934:  The DAO

Investors can find a list of SEC-registered national securities exchanges here:  List of Active National Securities Exchanges

Investors can find a list of ATSs that have filed a Form ATS with the SEC here:  List of Active Alternative Trading Systems

Considerations for Market Participants Operating Online Trading Platforms

A platform that trades securities and operates as an “exchange,” as defined by the federal securities laws, must register as a national securities exchange or operate under an exemption from registration, such as the exemption provided for ATSs under SEC Regulation ATS.  An SEC-registered national securities exchange must, among other things, have rules designed to prevent fraudulent and manipulative acts and practices.  Additionally, as a self-regulatory organization (“SRO”), an SEC-registered national securities exchange must have rules and procedures governing the discipline of its members and persons associated with its members, and enforce compliance by its members and persons associated with its members with the federal securities laws and the rules of the exchange.  Further, a national securities exchange must itself comply with the federal securities laws and must file its rules with the Commission.

An entity seeking to operate as an ATS is also subject to regulatory requirements, including registering with the SEC as a broker-dealer and becoming a member of an SRO.  Registration as a broker-dealer subjects the ATS to a host of regulatory requirements, such as the requirement to have reasonable policies and procedures to prevent the misuse of material non-public information, books and records requirements, and financial responsibility rules, including, as applicable, requirements concerning the safeguarding and custody of customer funds and securities.  The overlay of SRO membership imposes further regulatory requirements and oversight.  An ATS must comply with the federal securities laws and its SRO’s rules, and file a Form ATS with the SEC.

Some online trading platforms may not meet the definition of an exchange under the federal securities laws, but directly or indirectly offer trading or other services related to digital assets that are securities.  For example, some platforms offer digital wallet services (to hold or store digital assets) or transact in digital assets that are securities.  These and other services offered by platforms may trigger other registration requirements under the federal securities laws, including broker-dealer, transfer agent, or clearing agency registration, among other things.  In addition, a platform that offers digital assets that are securities may be participating in the unregistered offer and sale of securities if those securities are not registered or exempt from registration.

In advancing the SEC’s mission to protect investors, the SEC staff will continue to focus on platforms that offer trading of digital assets and their compliance with the federal securities laws.

Consultation with Securities Counsel and the SEC Staff

We encourage market participants who are employing new technologies to develop trading platforms to consult with legal counsel to aid in their analysis of federal securities law issues and to contact SEC staff, as needed, for assistance in analyzing the application of the federal securities laws. In particular, staff providing assistance on these matters can be reached at FinTech@sec.gov.

Resources for Market Participants

Regulation of Exchanges and Alternative Trading Systems

Select Commission Enforcement Actions

SEC v. Jon E. Montroll and Bitfunder

In re BTC Trading, Corp. and Ethan Burnside.

SEC v. REcoin Group Foundation, LLC et al.

SEC v. PlexCorps et al.


SEC Charges Attorney for Role in Fraudulent IPO Scheme


Litigation Release No. 24132 / May 2, 2018

Securities and Exchange Commission v. Adam Tracy and Securities Compliance Group, Ltd., Case No. 1:18-cv-01891-TCB (N.D.Ga.)

The Securities and Exchange Commission today announced charges against a Wheaton, Illinois-based securities lawyer and his law firm for their roles in a fraudulent scheme to conceal the identity of a company’s principal control person, a convicted felon who had been previously incarcerated for securities fraud.

According to the SEC’s complaint filed in the U.S. District Court for the Northern District of Georgia, Adam Tracy and his law firm, Securities Compliance Group, Ltd., were retained by a convicted felon and his company, Sonant Communications Corp., to file a registration statement with the SEC for an initial public offering of 10 million shares of common stock. The SEC alleges, however, that the felon asked Tracy to conceal his role with the company such that his involvement would be hidden from the SEC and the investing public. As alleged in the complaint, Tracy agreed to participate in the ruse by drafting and filing with the SEC two registration statements that omitted the felon’s name, and, instead, named others, without their knowledge or consent, as being the principal officers and control persons of Sonant.

The SEC’s complaint charges Tracy and Securities Compliance with aiding and abetting violations of Sections 17(a)(1) and (3) of the Securities Act of 1933. To settle the SEC’s charges, the defendants agreed, without admitting or denying the allegations, to the entry of permanent injunctions, disgorgement of all legal fees received in connection with the scheme with prejudgment interest in the amount of $2,655.71, a civil monetary penalty of $25,000, and a penny stock bar against Tracy. Subject to court approval of the settlements, Tracy also has consented to the entry of an order suspending him from appearing or practicing before the SEC as an attorney.

The investigation was conducted in the SEC’s Atlanta Regional Office by Edward H. Saunders and supervised by Justin C. Jeffries.


SEC Obtains Preliminary Injunction Continuing Freeze of $27 Million in Stock Sales of Purported Cryptocurrency Company Longfin


Litigation Release No. 24130 / May 2, 2018

Securities and Exchange Commission v. Longfin Corp., et al., Case No. 18-cv-2977 (DLC) (S.D.N.Y., filed April 4, 2018)

On May 1, 2018, a federal district court in Manhattan granted the Securities and Exchange Commission’s motion for a preliminary injunction, extending until the conclusion of the case the emergency order previously entered by the court freezing more than $27 million in trading proceeds from allegedly illegal distributions and sales of restricted shares of Longfin Corp. stock involving the company, its Chief Executive Officer, Venkata S. Meenavalli, and three affiliated individuals, Andy Altahawi, Dorababu Penumarthi, and Suresh Tammineedi.

The Court’s order enjoins Defendants Altahawi, Penumarthi, and Tammineedi from dissipating assets pending final disposition of the case, and states, “[t]he SEC has carried its burden of showing a likelihood of success of proving at trial that the three defendants violated Section 5 in selling their shares.”

The SEC’s litigation against Longfin, Meenavalli, Altahawi, Penumarthi, and Tammineedi is ongoing.  The complaint charges the Defendants with violating Section 5 of the Securities Act of 1933 and seeks injunctive relief, disgorgement of ill-gotten gains, and penalties, among other relief.  According to the complaint, Longfin’s CEO and controlling shareholder, Meenavalli, caused the company to issue more than two million unregistered, restricted shares to Altahawi, who was the corporate secretary and a director of Longfin, and tens of thousands of restricted shares to two other affiliated individuals, Penumarthi and Tammineedi.  Shortly after Longfin began trading on NASDAQ and announced the acquisition of a purported cryptocurrency business, Altahawi, Penumarthi, and Tammineedi illegally sold large blocks of restricted Longfin shares to the public while the stock price was highly elevated, for profits in excess of $27 million.

The litigation is being led by Kevin Lombardi and Sarah Heaton Concannon and supervised by Stephan Schlegelmilch.  The SEC’s continuing investigation is being conducted by Ernesto Amparo, Robert Nesbitt, and Adam B. Gottlieb and supervised by Anita B. Bandy and Robert A. Cohen, Chief of the SEC’s Cyber Unit.

For further information, see Press Release No. 2018-61, Apr. 6, 2018; Litigation Release No. 24106, Apr. 9, 2018; and Complaint, Apr. 4, 2018.  Anyone with information about potential securities law violations involving Longfin may contact us by emailing longfin-info@sec.gov.


SEC Charges Two Pennsylvania Residents with Insider Trading


Litigation Release No. 24134/ May 4, 2018

Securities and Exchange Commission v. David A. Zimliki and Russel P. Schiefer, No. 18-civ-1:18-cv-00947-SHR (M.D. Pa. filed May 4, 2018)

The Securities and Exchange Commission today charged two York, Pennsylvania residents with insider trading on confidential information about the impending merger of two potato chip manufacturers.

The SEC alleges that David A. Zimliki learned from a close personal friend that potato chip manufacturer Golden Enterprises Inc. was going to merge with privately-held Utz Quality Foods, LLC. The SEC further alleges that before the merger was announced Zimliki bought shares of Golden Enterprises and tipped his friend, Russell P. Schiefer, who also bought shares. Shortly after the merger was announced, Zimliki and Schiefer each sold their Golden Enterprises shares, realizing profits of $9,319 and $5,877 respectively.

The SEC’s complaint, filed in the U.S. District Court for the Middle District of Pennsylvania, charges Zimliki and Schiefer with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Zimliki and Schiefer agreed to settle the charges by consenting to permanent injunctions, disgorgement of ill-gotten gains plus interest, and penalties equal to the amount of their respective profits.

The SEC acknowledges the significant assistance of the Financial Industry Regulatory Authority in this matter.


Press Release

SEC Enforcement Division Issues FAQs for Share Class Selection Disclosure Initiative



Washington D.C., May 1, 2018 —

The Securities and Exchange Commission’s Division of Enforcement today issued answers to frequently asked questions (FAQs) on the Share Class Selection Disclosure Initiative, providing additional information about adviser eligibility, disgorgement, and the distribution of funds to clients.

The Share Class Selection Disclosure (SCSD) Initiative, announced on February 12, seeks to protect advisory clients from and return money to those affected by undisclosed conflicts of interest.

“It appears that many investment advisers are working diligently to evaluate whether they can take advantage of the initiative and we believe that providing these FAQs will help them make that determination,” said C. Dabney O’Riordan, Co-Chief of the Division of Enforcement’s Asset Management Unit.  “The initiative provides a framework to quickly and efficiently resolve these issues with self-reporting advisers and return money to their clients.”

Under the SCSD Initiative, the Enforcement Division will recommend standardized, favorable settlement terms to investment advisers who self-report that they failed to disclose conflicts of interest associated with the receipt of 12b-1 fees by the adviser, its affiliates, or its supervised persons for investing advisory clients in a 12b-1 fee paying share class when a lower-cost share class of the same mutual fund was available for the advisory clients.  In such cases the Enforcement Division will recommend settlements that do not impose a civil monetary penalty while requiring participating advisers to return ill-gotten gains to harmed advisory clients.

The cut-off date for self-reporting under the initiative is June 12.

Please direct questions regarding the initiative to SCSDInitiative@sec.gov .


Press Release

SEC Launches Additional Investor Protection Search Tool

The SEC’s “SALI” Tool Will Allow Investors to Identify Individuals Subject to Judgments or Orders in Enforcement Actions



Washington D.C., May 2, 2018 —

The Securities and Exchange Commission today announced the launch of an additional online search feature that enables investors to research whether the person trying to sell them investments has a judgment or order entered against them in an enforcement action. The new tool is intended to assist the public in making informed investment decisions and avoiding financial fraud.

The SEC Action Lookup for Individuals – or SALI– will help identify registered and unregistered individuals who have been parties to past SEC enforcement actions and against whom federal courts have entered judgments or the SEC has issued orders.

“Our Main Street Investors themselves are a key line of defense in detecting and preventing fraud. One of the SEC’s most important tasks is to arm our investors with the tools necessary to identify potential fraudsters. An important risk factor is whether the person you are dealing with has a disciplinary history with the SEC or other regulators,” said SEC Chairman Jay Clayton. “SALI provides Main Street investors with an additional tool they can use to protect themselves from being victims of fraud and other misconduct.”

The new tool’s results are not limited to registered investment professionals, as with many existing online search functions. Instead, SALI allows the public to identify individuals who have settled, defaulted, or contested an enforcement action brought by the SEC, provided that a final judgment or order was entered against them in a federal court or an administrative proceeding.

SALI supplements existing SEC-provided investor education resources available on Investor.gov, including a free investment professional search tool, that provides access to information on investment adviser representatives as well as individuals listed in FINRA’s BrokerCheck system. Investors are encouraged to take advantage of the considerable resources, such as Investor Alerts and Bulletins, planning tools and answers to frequently asked questions, provided by the Office of Investor Education and Advocacy on Investor.gov.

Currently, SALI search results include parties from SEC actions filed between October 1, 2014 and March 31, 2018. The SEC will update the search feature periodically to add parties from newly-filed actions and actions filed prior to October 1, 2014.


Additional information about SALI can be found on sec.gov. For more information about SEC federal court actions and administrative proceedings, select the Enforcement tab on sec.gov. There, you can search for documents related to SEC actions by using the “Search Litigation Materials” feature located at the bottom of that page. For other resources and tools, see information for the individual investor or visit Investor.gov.






May 2, 2018

CFTC Staff Issues Interpretive Guidance Regarding Exemption from Aggregation

Washington, DC — The Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight today issued interpretive guidance regarding CFTC Regulation 150.4(b)(1), which is an exemption from position aggregation requirements for certain commodity pool investors.

In response to a request for interpretation, the staff letter confirms that, for purposes of applying the position limits set forth in CFTC Regulation 150.2, when an institutional investor qualifies for the Regulation 150.4(b)(1) exemption from position aggregation with respect to their investment in a fund, the institutional investor is not required to look through its investment in a fund to aggregate commodity interest positions of an underlying portfolio company in which the institutional investor may hold a 10 percent or greater indirect interest (via its investment in the fund).




Keynote of Commissioner Rostin Behnam at the FIA 40th Annual Law & Compliance Division Conference on the Regulation of Futures, Derivatives and OTC Products, Washington, DC

Our Charming Ways

May 3, 2018



Good morning.  It’s great to be with you today.  Before I begin, I want to extend my thanks to Walt Lukken and the entire FIA team for inviting me to share my thoughts.  Also, let me say that the views I express are my own and do not represent the views of the Commission.  As many of you know I worked on Capitol Hill between 2011 and 2017.  As far as I can remember, FIA usually held its annual Law & Compliance (L&C) meeting in Baltimore.  Despite the relatively short distance between Washington, D.C. and Baltimore, I sadly never attended the conference.  My job rarely afforded an opportunity to stray far from the congressional campus — even for a few hours, particularly when the Senate was in session.


Now a CFTC Commissioner, and more importantly, a proud, and relatively new resident of Baltimore, having left the District with my wife and newborn in November, 2016, Law & Compliance has conveniently settled, I think, in D.C.; and Walt— also conveniently — offered me the 8:15 a.m. speaking slot.  I could not have planned my L&C debut any worse.


Honestly, though, I love early mornings, and I am thrilled to be here to share my thoughts on policy and current events at the CFTC.  But, not before I make a pitch for Charm City.  Baltimore is a scrappy city, and has for over 100 years been one of our nation’s great hubs for the financial services industry, and would welcome Law and Compliance back with open arms.


The FIA L&C conference has a strong reputation as the premier legal conference for the derivatives industry.  While it may not offer the sweet salty air of Boca, the views of Dana Point, or the historic charm of the Brewery on Chiswell Street, every year since 1978, regardless of its location, L&C has served as a hive of activity for legal and compliance professionals to share, learn, and explore the legal and regulatory issues of the day.


This year marks L&C’s 40th anniversary, having grown from a gathering of few dozen in the early years to nearly 900 attendees annually.  As I learned from the FIA website, in the beginning, industry professionals were “grappling with a new regulator, a new regulatory environment and understanding how newly adopted and proposed regulations would affect commodities futures contracts.”[1]  In many respects, the same could be said for where we are today.  We just need to use that trick where we add “and swaps” to the end clause of the statement.  If only regulatory reform were that simple.  Joking aside, while the CFTC isn’t a new regulator per se, it is a new regulator for many (new) industry practitioners and participants, and it is becoming a relevant regulator in some newer, emerging areas.  And, as I will touch upon in a little bit, we are eight years into implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act,[2] and we are still evaluating and refining the “new” regulatory environment.  I also suppose “grappling” still fairly describes where we are, at least with respect to some of the more challenging issues of our time.


Chairman Giancarlo graciously swore me in as a Commissioner nearly eight months ago to the day.  Pretty remarkable to think it has already been eight months.  If these first eight months are an indication of how quickly my term will come and go, then I’ve got to keep moving if we are going to meet the Chairman’s agenda.  I might need to learn to love my mornings even earlier.


As I thought about my remarks, and reflected on the first eight months of my time at the CFTC, a few events came to mind: (i) my maiden speech at Georgetown University; (ii) the listing of bitcoin futures and the increasingly rapid proliferation of financial technology; (iii) participating in the FIA/SIFMA AMG Annual Asset Management Derivatives Forum; (iv) convening the Market Risk Advisory Committee (MRAC); and (v) the first Project KISS and Reg Reform 2.0 initiatives.  As I continue to refine my approach as a Commissioner and formulate strategies in support of goals and priorities, these first events will serve as both developmental milestones and guideposts for tackling our agenda in the months and years to come.  The derivatives industry is vast and diverse, and yet through its ecosystem of industry groups, trade associations, self-regulatory organizations (SROs), and the National Futures Association (NFA), it provides meaningful collaboration, education, and feedback as we continually grow and re-evaluate efforts towards ensuring the safety and integrity of our markets, customer protections, and the professionalism of our market participants.


It’s this last point that segues into my actual remarks.  To be blunt, there is a lot going on right now.  It’s important that we continue to collaborate, focus on transparency, and act responsibly.   The Commission and industry must move in tandem as we move forward on the ambitious timetable before us.  While I am optimistic and supportive of our leadership, I will continue to insist that we listen to our constituents and the broader markets and general public in determining how best to serve our purpose and achieve our mission.  We cannot eschew and ignore process and progress in a rush to indulge in initiatives that respond to the rhetoric of the moment.  Doing so could undermine sound policy, create greater uncertainty and impracticability regarding our rules, and leave us vulnerable to creating regulation by enforcement.


Last month, during my “Washington Outlook” at FIA Boca, I made clear that we are all in this together.[3]  We’ve been waiting for deliverables in terms of Project KISS, Reg Reform 2.0, and CFTC and SEC harmonization, and anticipating resolution of unfinished business in terms of the de Minimis exception, position limits, capital, and Regulation Automated Trading (Reg AT).  Since that time, we’ve received the Chairman’s white paper on “Swaps Regulation Version 2.0,” which purports to set the agenda for Reg Reform 2.0.[4]  While I appreciate the Chairman’s transparency in setting forth his vision and, in his words, starting a dialogue, I can’t help but note that there is already a process for dialogue with market participants regarding potential rule changes – the notice and comment process for proposed rules under the Administrative Procedure Act.  Adding another white paper just pushes back the timeline for getting to actual deliverables.  It adds another step to the process.  It also takes a lot of staff time when budgets are tight.


I know that the natural information asymmetries are at work and that you are all working to solidify what the path forward for the balance of 2018 may look like for you and those you represent.  I am here today to let you know that I continue to believe we must focus on reform and be wary of huge and potentially premature policy shifts; strive for accountability, and continue to have productive dialogs aimed at ensuring that the Commission serves its purpose and remains true to its mission.  With that in mind, I will use the remainder of my remarks to elaborate using my milestone markers.


The Maiden Speech


Admittedly, I tend to share my views directly with market participants, end-users, and the public instead of making prepared public remarks.  However, I realize that in terms of broader messaging, I may need to provide a little more background.


I gave my first public remarks at Georgetown University in November, 2017.[5] Briefly, I observed that the CFTC is at an inflection point.  I suggested that the CFTC, having largely completed its rulemaking requirements under Title VII of the Dodd-Frank Act, is settling in to its new post-crisis role as a world class regulator of futures, options, and swaps (see how I did that there?).  The CFTC — despite rhetoric of regulatory rollbacks here in D.C. and economic tailwinds — should primarily focus its limited resources on moving forward and not backward.  Of course, I recognize that detours are necessary to address emerging issues and advancements in our markets.


I also stated that the inflection point must include careful reflection on what has been done since 2010.  Any outcome should be a careful, limited fine-tuning and adjustment to reforms that have resulted in unintended consequences or do not further congressional intent or the CFTC’s core mission.  I’ll augment those sentiments today by adding that, as we engage in these exercises, we must be mindful that our rules and policies interconnect in various places, and that each adjustment must be accompanied by sound analysis to ensure that we don’t create misalignments and new uncertainty.  I’ll also add that we must also consider the rules of our fellow domestic regulators, the Securities and Exchange Commission (SEC) and the prudential regulators, and our foreign counterparts.  Our newest registrants operate across jurisdictional lines and we ought not to assume that our rules should trump all others, or that their purposes cannot be met absent the strictest interpretation of compliance.  In adjusting our rules, we should leverage existing regulatory structures and identify synergies that support our goals and meet the highest standards of global regulatory cross-border harmonization.




The last quarter of 2017 gave many of us a hard and fast introduction to Bitcoin and its underlying technology.  Although I had a base understanding of the technology and its potential uses, the rapid rise in crypto-asset prices, and the introduction of Bitcoin futures on two CFTC registered designated contract markets forced a much deeper understanding.  There were many lessons from those weeks and months leading up to the launch of the contracts in December, 2017, and then after when I convened a meeting of the Market Risk Advisory Committee to discuss the self-certification process and crypto-assets in January.  But, one of the most important lessons is that policymakers, including myself, need to prioritize the discussions and policy roadmap for the oversight and regulation of FinTech.


The experience of overseeing the introduction of the first Bitcoin futures contracts epitomized how regulators and policymakers can end up on the tail of technological advancement, scurrying to keep pace with swift innovations that capture market efficiencies, open the markets to new products and participants, and often reward those willing to take risk.  We’ve been assured by the G20 that financial stability is not yet implicated by the transformative technology underlying crypto-assets, and that any urgency to create new laws and regulations must be tempered by our lack of a full understanding of the promise and perils of this FinTech phenomenon.[6]  However, to make sure we firmly catch the tail, I’ve proposed that the U.S., through the multi-member Financial Stability Oversight Council (FSOC), lead the collaborative, interdisciplinary effort to identify and craft an appropriate path forward for ensuring that legal issues resulting from these technologies are identifiable and solvable before they cross the horizon.[7]


In 2010, the Dodd-Frank Act created the FSOC as a tool for identifying risks and responding to emerging threats to financial stability.[8]  Accountable to Congress and the American public, the FSOC, Chaired by the Treasury Secretary, includes in its membership representatives from each of the federal financial regulators.  FSOC must play a more direct, inclusive role in the broader FinTech economy to effectively capture its breadth and global market impact.  Critically, discussions must move beyond the role of crypto-assets as currency; FinTech presents advancement in financial commerce, including payment systems, distributed ledger, artificial intelligence, and identity verification.


Given its mandate, the FSOC has authority to (i) convene all key U.S. financial regulators; (ii) establish a mutually agreed lexicon for discussing crypto-assets and related FinTech; (iii) convene public hearings; and (iv) propose policy direction and guide jurisdictional responsibility based on input from regulators, stakeholders, academics, and the public.


The interests of regulators, the markets, and market participants should be aligned when it comes to building legal certainty.  Anything less than decisive action by policymakers in the short term will leave us all scratching heads, pointing fingers, and asking who, what, when, and how.  The task certainly will not be easy, but complacency by policymakers could lead to industry-led policies and practices that ultimately provide short-term solutions of limited application without including impacted stakeholders and appropriate consumer protections.


Those who support the creation of an industry-led self-regulatory organization in the crypto-asset markets clearly recognize the need to fill the regulatory vacuum, but their motives may be too focused on supporting industry growth without being stifled by the perceived bureaucratic stall that regulation may bring.  Nevertheless, their movement towards development of industry standards signals support of the concept of regulation.  Industry buy-in will be critical in achieving the engagement with policymakers needed to ensure that any recommendations and decisions reflect an understanding of FinTech and address the concerns and needs of all stakeholders.




I took a breather from FinTech and headed across the country to meet with–well, actually, first with members of the Federal Reserve Bank of San Francisco and several crypto-asset and FinTech pioneers.  But then, I continued down the coast to participate in the annual FIA/SIFMA Asset Management Derivatives Forum in Dana Point, California.  Besides the obvious pleasant memories of spending a few days near the ocean, I am continually heartened by the feedback I received from my prepared remarks at the conference.[9]  In part, I spoke about my position on the CFTC and the SEC efforts to harmonize rules.  Given the large number of dually registered market participants and overlapping policy, there is a real opportunity for the CFTC and SEC to harmonize redundant rules and leave both market participants and regulators in a stronger position.


My message to market participants was clear: let’s work together, have an honest conversation, and seek solutions that focus on an inclusive regulatory landscape.  This ambitious strategy can be achieved by recognizing statutory limitations and congressional intent; leveraging expertise at each of the respective agencies; and maximizing collaboration between the two agencies to ensure each are contributing without duplication.


I believe the audience appreciated my message, and I am hopeful that with continued dialogue, results will be delivered.  I’d like to continue to be a part of the conversation and believe a bipartisan solution will not only provide a more thoughtful outcome, but also an outcome that will stand the test of time.


I mentioned this particular speech because I do believe harmonization and exhaustive collaboration is critical among regulators.  I believe it is one of our most important responsibilities.  But, I also mention this speech as a proxy for my thinking on all policy issues.  Dialogue, honesty, and transparency are key elements to any relationship, including the relationship between a regulator and its regulated market participants.


Whatever your issue, my door is open.  Whatever your concern, my door is open.  Whatever your question, my door is open.  Let’s tackle problems together, and find solutions.  I am not suggesting this is easy.  And we will probably not agree on many things, but moving forward doesn’t necessarily mean getting everything you want in short order.  Small steps count as progress towards future solutions.


Market Risk Advisory Committee


As I mentioned earlier, as sponsor of the Market Risk Advisory Committee, I convened the Committee in January to provide a public forum for an open dialogue regarding the CFTC’s regulatory self-certification process for new products, specifically those in the crypto-asset space.  Looking forward, I am in the process of renewing the MRAC’s charter, and reconstituting its membership.  I hope to convene the Committee twice more before the year ends.  The MRAC refresh will mean new membership and new issues.  Based on much feedback, the MRAC will focus on current issues involving benchmark risk (specifically the Libor transition), clearinghouse risk, operational risk and third-party service providers, and financial technology risk that can have an impact on the financial stability of our markets.


I want the MRAC to be a forum for robust dialogue of wide ranging issues, including those that may not be easy to discuss.  My philosophy is based in well-grounded relationships and transparent conversation.  I believe keeping these two principles in mind provide the best chance to identify problems and provide solutions.


Project Kiss & Reg Reform 2.0


Shortly after his appointment as Acting Chairman, Chairman Giancarlo announced Project KISS, or “Keep It Simple, Stupid.”[10]  Market participants and even a few law makers have broadly supported its underlying goals of reducing regulatory burdens by making our existing regulations and practices simpler, less burdensome, and less costly.  More recently, the Chairman co-authored and released Reg Reform 2.0, a white paper outlining a future vision for swaps markets.[11]


In principle, I support the Chairman’s efforts to reduce regulatory burdens.  I have said as much since becoming a Commissioner, and even earlier in these remarks.  Reflection and improvement have long been woven into the fabric of the CFTC and its entire staff.  We have wide ranging responsibilities to the general public, customers, market participants, and the Congress.  In my view, always seeking to improve and be better regulators is certainly one of those responsibilities.  The Chairman’s initiatives give new names to processes and goals that have long been part of the Commission’s approach to regulation.


However, as with any government agency, or private sector business for that matter, the CFTC must work within its means.  The CFTC must always remain focused and vigilant to its core mission and responsibilities, and only undertake significant overhauls when resources allow, or under the most necessary circumstance.  The President recently signed an omnibus spending package for the balance of fiscal year 2018.  The funding level appropriated to the CFTC is $249 million; a decrease of one million dollars from federal year 2017’s funding level of $250 million.[12]


Given the President’s request of $281.5 million,[13] the CFTC is in a time of prolonged belt tightening.  We need to utilize the limited resources we have on mission critical issues not major overhauls.  The most important and valuable resource the CFTC has is its dedicated, expert professional staff.


I am concerned that as our jurisdiction has significantly grown since 2010, and markets have become more complex and global, we will struggle to be the vigilant cop on the beat we need to be, 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.  If staff is directed to focus on reworking the broader framework for the swaps market in lieu of fine-tuning and building on the progress we’ve made since 2008, we risk creating greater uncertainty and impracticability at increased costs to market participants.


The core reforms are solid, the principles are sound, and markets are functioning well.  As Federal Reserve Board Governor Lael Brainard recently suggested, we cannot afford to begin reassessments before we’ve had the opportunity to evaluate the efficacy of those we’ve already put in place. [14]


All this said, I want to emphasize and level set a few things: (i) I want to thank all CFTC staff for their dedication, and commitment to the agency; (ii) I have long supported and will continue to support additional funding for the CFTC; and (iii) I am fully supportive of getting better, and being a better regulator.  Let’s focus on the needs of the day: operational risk, fraud and manipulation; developments in financial technology to name a few.  Project KISS and presumably Reg Reform 2.0 have set the bar high.  Let’s focus on what’s absolutely necessary, and maximize staff resources in a manner that best serves market participants.


The National Futures Association


Before I wrap things up, I’d like to acknowledge my deepest appreciation for the NFA, our designated registered futures association and the industrywide, self-regulatory organization for the U.S. derivatives industry.  I’d also like to mention two important and timely initiatives aimed at improving our understanding of and ability to oversee participation in the virtual currency markets and further protecting customers and market integrity by raising the standards of professionalism in the swaps market.


First, NFA staff is focused on understanding and obtaining information about their members’ activities in underlying/spot virtual currencies and virtual currency derivatives in order to ensure appropriate regulatory oversight of this area.  Since December 2017, NFA has required futures commission merchants (FCMs), commodity pool operators (CPOs), commodity trading advisors (CTAs) and introducing brokers (IBs) to report information relating to their virtual currency activities.[15],[16]  The NFA recently informed me that the number of Members trading these products remains relatively flat and modest.  As of March 27th, three FCMs for which NFA is the DSRO, 63 IBs, 35 CPOs and 16 CTAs have reported that their business activities currently involve virtual currency derivatives.


NFA staff is working on a proposed Interpretive Notice designed to enhance disclosure requirements for Members that trade underlying/spot virtual currencies and virtual currency derivatives.  The proposed Notice would provide guidance on customer disclosures regarding the risks of trading virtual currency products that should be included in promotional materials, disclosure documents and other offering materials.  NFA’s Executive Committee recently approved the Notice and it will be submitted to NFA’s Board later this month.  NFA continues to work with its advisory committees and CFTC staff to finalize and refine the disclosures before submission to the CFTC for final approval.


Second, the NFA is in the initial stages of developing an online learning program with an embedded test for swaps professionals.  In his 2015 White Paper, Chairman Giancarlo cited the need to raise the standards of professionalism in the swaps market by establishing requirements for product and market knowledge, professionalism and ethical behavior for swaps market personnel.[17]  NFA’s Registration Rules require that associated persons (APs) engaged in futures and forex activities must take and pass proficiency examinations that test both their market knowledge and their knowledge of regulatory requirements.  However, currently, there are no analogous requirements applicable to swaps related activity.  I support a swaps proficiency requirements program and, along with DSIO staff, have agreed to NFA’s proposed approach to develop an examination as part of an internet-based learning program for all APs engaging in swaps activities.[18]


NFA is in the initial stages of developing swaps proficiency requirements, and is forming a special advisory committee composed of industry experts from NFA Member firms and other entities that would be impacted by these requirements.  NFA will continue to work with the Commission and the industry throughout this process.




The CFTC is a unique regulatory agency.  The subject matter is puzzling to most outsiders.  The agency’s history is rich, dating back over a century to American agriculture.  The agency is also relatively small by D.C. standards; but, I think this and its other unique attributes make it rather charming and one of the best in town.  The CFTC has gone through many dramatic changes in the past decade.  Tectonic shifts, one might say.  By in large, the changes have been successful, and the market has responded positively, adjusting to the new regime and adapting to the new rules of the road.


As we move forward, let’s reflect on the past, address the unintended consequences, properly calibrate the numbers, and focus on our day-to- day responsibilities of protecting customers, preserving market integrity, and keeping markets safe.  As we move forward into new areas, innovating and evolving with our markets does not mean we must cast aside our charming ways.  Like Baltimore, part of that charm is an understated scrappiness.  We are a resourceful agency that dreams big.  We have tremendous responsibilities, and sometimes must reserve those big dreams for another day.  But, I am confident that as we continue to grapple with the issues of today—and those on the horizon, we will continue to do so responsibly and with the support and buy-in of our industry.


[1] Futures Industry Association, FIA L&C 2018, https://lc2018.fia.org/ (last visited May 2, 2018).

[2] Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010) (the “Dodd-Frank Act”).

[3] Rostin Behnam, Accountability & Moving Forward: Remarks of Commissioner Rostin Behnam at the FIA Boca 2018 International Futures Industry 43rd Annual Conference (Mar. 15, 2018), https://www.cftc.gov/PressRoom/SpeechesTestimony/opabehnam4.

[4] Press Release Number: 7719-18, CFTC, CFTC Chairman Unveils Reg Reform 2.0 Agenda (Apr. 26, 2018), https://www.cftc.gov/PressRoom/PressReleases/7719-18; J. Christopher Giancarlo, Chairman & Bruce Tuckman, Chief Economist, U.S. Commodity Futures Trading Commission, Swaps Regulation Version 2.0; An Assessment of the Current Implementation of Reform and Proposals for Next Steps (2018), https://www.cftc.gov/sites/default/files/2018-04/oce_chairman_swapregversion2whitepaper_042618.pdf.

[5] Rostin Behnam, The Dodd Frank Inflection Point: Building on Derivatives Reform: Remarks of CFTC Commissioner Rostin Behnam at the Georgetown Center for Financial Markets and Policy (Nov. 14, 2017), https://www.cftc.gov/PressRoom/SpeechesTestimony/opabehnam1.

[6] G20, Communiqué: 19-20 March 2018, Buenos Aires, Argentina (Mar. 19-20), available at https://g20.org/sites/default/files/media/communique_-_fmcbg_march_2018.pdf.

[7] See Behnam, supra note 3.

[8] Dodd-Frank Act, supra note 1 at § 112.

[9] Rostin Behnam, Remarks of Commissioner Rostin Behnam before the FIA/SIFMA Asset Management Group, Asset Management Derivatives Forum 2018, Dana Point, California (Feb. 8, 2018), https://www.cftc.gov/PressRoom/SpeechesTestimony/opabehnam2.

[10] J. Christopher Giancarlo, Transforming the CFTC: Remarks of Acting Chairman J. Christopher Giancarlo before the 11th Annual Capital Market Summit: Financing American Business, US Chamber of Commerce (Mar. 30, 2017), https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo-21; see alsoPress Release Number: 7555-17, CFTC, CFTC Requests Public Input on Simplifying Rules (May 3, 2017), https://www.cftc.gov/PressRoom/PressReleases/pr7555-17.

[11] Giancarlo & Tuckman, supra note 4.

[12] Consolidated Appropriations Act, 2018, Pub. L. No. 115-141 (2018).

[13] Office of Mgmt. & Budget, Exec. Office of the President, Budget of the United States Government, Fiscal Year 2019, 1141-1143 (2018), available athttps://www.whitehouse.gov/wp-content/uploads/2018/02/oia-fy2019.pdf.

[14] Lael Brainard, Board of Governors of the Federal Reserve System, Safeguarding Financial Resilience through the Cycle (Apr. 19, 2018), https://www.federalreserve.gov/newsevents/speech/brainard20180419a.htm.

[15] National Futures Association, Notice 1-17-27, Additional reporting requirements regarding virtual currency futures products for FCMs for which NFA is the DSRO (Dec. 6, 2017), https://www.nfa.futures.org/news/newsNotice.asp?ArticleID=4973; National Futures Association, Notice 1-17-28, Additional reporting requirements for CPOs and CTAs that trade virtual currency products (Dec. 14, 2017), https://www.nfa.futures.org/news/newsNotice.asp?ArticleID=4974; National Futures Association, Notice 1-17-29, Additional reporting requirements for IBs that solicit or accept orders in virtual currency products (Dec. 14, 2017), https://www.nfa.futures.org/news/newsNotice.asp?ArticleID=4975.

[16] On March 27th, NFA issued a Notice to Members reminding CPOs, CTAs and IBs of the ongoing obligation to update the virtual currency questions set forth in the annual questionnaire.  National Futures Association, Notice 1-18-07, Reminder to update annual questionnaire regarding virtual currencies (Mar. 27, 2018), https://www.nfa.futures.org/news/newsNotice.asp?ArticleID=4999.

[17] J. Christopher Giancarlo, Commissioner, U.S. Commodity Futures Trading Commission, Pro-Reform Reconsideration of the CFTC Swaps Trading Rules: Return to Dodd-Frank 71-74(2015), http://www.cftc.gov/idc/groups/public/@newsroom/documents/ file/sefwhitepaper012915.pdf.

[18] These individuals will include individuals designated as swaps APs at FCMs, IBs, CPOs, and CTAs; individuals who act as APs at swap dealers; and, if applicable, swap execution facility (SEF) employees that broker swaps.  The requirements will not include a grandfathering provision.


SEC Shuts Down $85 Million Ponzi Scheme and Obtains Asset Freeze



Washington D.C., May 1, 2018 —

The Securities and Exchange Commission today announced the unsealing of fraud charges against a Mississippi company and its principal who allegedly bilked at least 150 investors in an $85 million Ponzi scheme.  The defendants agreed to permanent injunctions, an asset freeze, and expedited discovery.

The SEC’s complaint alleges that Arthur Lamar Adams lied to investors by telling them that their money would be used by his company, Madison Timber Properties, LLC, to secure and harvest timber from various land owners located in Alabama, Florida, and Mississippi, and promised annual returns of 12-15%.  But Madison Timber never obtained any harvesting rights.  Instead, Adams allegedly forged deeds and cutting agreements as well as documents purportedly reflecting the value of the timber on the land.  Adams also allegedly paid early investors with later investors’ funds and convinced investors to roll over their investments.  According to the complaint, Adams used investors’ money for personal expenses and to develop an unrelated real estate project.

“Investors should be wary anytime they are promised high or consistently positive returns,” said Richard Best, Director of the SEC’s Atlanta Regional office.  “We acted quickly in this case to protect the victims of the alleged Ponzi scheme by obtaining immediate injunctive relief and an asset freeze.”

In a parallel action, the U.S. Attorney’s Office for the Southern District of Mississippi today announced criminal charges against Adams.

The SEC’s complaint, filed under seal in federal court in Jackson, Mississippi on April 20, 2018 and unsealed today, charges Adams and Madison Timber Properties with violating the antifraud provisions of the federal securities laws.  The court granted the SEC’s request for an asset freeze and permanently enjoined Madison Timber and Adams from violating the antifraud provisions of the federal securities laws and ordered Adams to surrender his passport.  Adams and Madison Timber consented to the entry of the court order.

The SEC’s continuing investigation is being conducted by Krysta Cannon and Justin Delfino in the agency’s Atlanta office and is being supervised by Peter Diskin.  The SEC’s litigation will be led by Shawn Murnahan and supervised by Graham Loomis.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of Mississippi and the Federal Bureau of Investigation.

The SEC strongly encourages investors to check the backgrounds of people selling them investments by using the agency’s Investor.gov website to quickly identify whether they are registered professionals.



Minutes of the Meeting of the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association May 1


MAY 2, 2018

The Committee convened in a closed session at the Hay-Adams Hotel at 9:30 a.m. All members were present. Counselor to the Secretary Craig Phillips, Deputy Assistant Secretary for Financial Markets Clay Berry, Deputy Assistant Secretary for Federal Finance Laura Lipscomb, Director of the Office of Debt Management Fred Pietrangeli, and Deputy Director of the Office of Debt Management Nick Steele welcomed the Committee, including the newest member to the Committee, Gagan Singh. Other members of Treasury staff present were Ayeh Bandeh-Ahmadi, Chris Cameron, Dave Chung, Stephen Clinton, Sarah Hirsch, Tom Katzenbach, Jerry Kelly, Amyn Moolji, Ken Phelan, Renee Tang, and Brandon Taylor. Federal Reserve Bank of New York staff members Nathaniel Wuerffel, Susan McLaughlin, and Ellen Correia Golay were also present.

Counselor Phillips began by announcing that Elizabeth Hammack and Daniel Dufresne will become the new Chair and Vice Chair of the Committee later this year. Phillips thanked Jason Cummins and Stuart Spodek for their leadership as Chair and Vice Chair over the past two years.

Next, the Committee turned to a charge on the potential benefits of 2-month bill issuance and an additional weekly settlement cycle for bills. The presenting member began by discussing projections for increased borrowing needs over the next several years, expectations for significant and sustainable future demand for bills, and concentrations of bill auction settlements on Thursdays.

The presenting member noted that Congressional Budget Office (CBO) estimates indicate considerable increased borrowing needs over the 10-year forecast window. As discussed at the November 2017 TBAC meeting, the Committee agreed that between one-quarter and one-third of cumulative future financing gaps should be met by bill issuance.

Next, the presenting member noted several characteristics of the market that indicate sustained demand for bills. Bill holdings by investor class indicate that foreign investors and money market funds own the largest proportion of the outstanding supply. MMFs, in particular, have increased bill holdings since regulatory changes were enacted in 2016. Moreover, the associated re-allocation from prime to government MMFs has remained durable despite an increase in yield premium for prime MMFs.

The presenting member noted recent portfolio allocations by government MMFs to repo and argued that if the yield spread between repo and bills were to narrow, it would likely drive additional flow from repo to bills. Furthermore, an analysis was presented showing the persistence of a bill issuance premium, which tends to be greatest at the short-end of the bill curve, thereby supporting the idea of increasing issuance in that sector. Lastly, the introduction of a 2-month bill would allow for smaller auction sizes in other tenors, allowing for greater flexibility in funding future projected financing gaps.

Finally, the presenting member detailed the concentration of funding on Thursdays and the potential benefits of an additional weekly settlement cycle. Specifically, the presenting member recommended that a new 2-month bill program settle on Tuesdays, and argued in favor of moving the existing 1-month bill to the same Tuesday cycle. Adding a 2-month bill on a new settlement day would both reduce concentration on Thursdays and allow for smaller bill auction sizes, all else equal. Moving the 1-month bill would support liquidity at the short-end and allow investors to ladder maturities in this segment of the market. Moreover, diversifying settlement volumes across days helps mitigate the intraday operational requirements for clearing and settling. Treasury also benefits from an additional bills settlement day by allowing for greater ability to manage the 5-day cash balance target.

The presenting member noted that the additional settlement day could also alleviate pressure in repo funding markets around the concentrated Thursday settlement days, and indicated that ample liquidity exists for investors to reinvest between settlement cycles.

The Committee then discussed current bill market dynamics and agreed that demand should remain strong, while potentially increasing among some types of investors. In addition, the Committee agreed that the amount of net bill issuance should increase, given the CBO’s projections for increased borrowing needs over the next several years. Furthermore, all Committee members agreed that a new 2-month bill could be introduced to fill that funding gap based on evidence for strong short-end demand. In addition, the Committee generally agreed that further study was warranted to assess a Tuesday settlement cycle as a means to reduce funding congestion and increase operational resiliency. The Committee recommended that Treasury evaluate ways to facilitate the introduction of a new 2-month bill, paired potentially with a 1-month bill, on a Tuesday settlement cycle.

The meeting then continued with a review of the TBAC charter and Committee guidelines by Treasury counsel.

Next, Director Pietrangeli provided an overview of the fiscal situation. Pietrangeli noted that for the first half of FY2018, receipts totaled $1,497 billion, an increase of two percent year-over-year, led by a $47 billion increase in withheld taxes and an $11 billion increase in non-withheld taxes. The gains were partially offset by a $14 billion decrease in corporate taxes. Outlays totaled $2,097 billion over the same timeframe, an increase of five percent. Notable increases include $32 billion for interest on the public debt as well as payments made to Government-Sponsored Enterprises related to valuation of Deferred Tax Assets as a result of the Tax Cuts and Jobs Act (TCJA), $19 billion for increased enrollment and increased average benefit payments for Social Security, $16 billion for Medicare, and $15 billion for the Department of Homeland Security including increased payments for disaster relief.

Pietrangeli also commented on issuance of State and Local Government Securities (SLGS) over the past quarter. Issuance was down, partly due to a suspension of SLGS issuance during the debt limit impasse, as well as lower demand for SLGS as rules for advanced refundings were modified in the TCJA.

Based on the near-term fiscal outlook, Treasury recently announced privately-held net marketable borrowing estimates of $75 billion for the April to June 2018 quarter, assuming an end-of-June cash balance of $360 billion, and $273 billion for the July to September quarter, assuming an end-of-September cash balance of $350 billion. The privately-held net marketable borrowing estimates take into account the Federal Reserve’s normalization of its System Open Market Account (SOMA) portfolio. Specifically, the estimates exclude SOMA rollovers (auction “add-ons”) and include private financing required due to SOMA redemptions. For FY2018, total privately-held net marketable borrowing is estimated at $1,118 billion. Pietrangeli noted that the Office of Management and Budget (OMB) and CBO do not provide a “privately-held” estimate of net marketable borrowing.

Pietrangeli then acknowledged that recent projections by OMB and CBO indicate borrowing needs will increase over the ten-year forecast window. As a result, these projections create a funding gap that Treasury will need to fill with increased issuance. Finally, Pietrangeli discussed demand for Treasury securities, citing stable bid-to-cover ratios and a rebound of foreign demand in FY2018 Q2.

Next, Deputy Assistant Secretary Lipscomb commented on bill issuance over the last several months. Following the resolution of the debt limit impasse, Treasury began to issue more bills to rebuild its cash balance to meet the stated policy target of a minimum of five days of future outflows, with a floor of $150 billion, and to address seasonal borrowing needs associated with tax refund payments. Between February 9 and the end of March, aggregate Treasury bill supply increased more than $300 billion. Lipscomb noted that bill supply generally fluctuates over the short-term in line with seasonal needs, thereby enabling Treasury to maintain its policy of regular and predictable coupon issuance. Given the circumstances, bill issuance increased at a faster than ordinary pace, which some market commentators have cited as one factor affecting broader money market rates over the period, particularly because bill issuance was easily quantifiable compared to other factors.

The Committee began a discussion of short-term rates and the effect of rapidly increasing bill issuance over the recent period. The Committee agreed that recent increases in broader money market rates are due to a confluence of factors, including but not limited to, the increase in bill issuance. The Committee also remarked that restoring the cash buffer is a prudent policy objective.

Closing the discussion on bills, Lipscomb noted that, in April, Treasury has paid down more than $100 billion in bills. Feedback from market participants indicate that expectations are for relatively stable net bill issuance moving forward until seasonal needs require an uptick in issuance later in the year. By the end of FY2018, however, the level of bills outstanding is expected to be below the peak observed in March 2018, given current fiscal forecasts.

Lipscomb also provided the Committee with feedback from primary dealers in response to the recent quarterly refunding agenda discussion topics. Primary dealers generally responded that foreign demand has remained robust, as the Treasury market is the deepest and most liquid in the world. Foreign official demand is expected to remain steady in the year ahead, while foreign private demand will continue to fluctuate with various factors, including investment mandates, cross-border funding costs, and exchange rate expectations.

Pietrangeli then provided the Committee with feedback from the primary dealers on the Treasury Inflation-Protected Securities (TIPS) program. In particular, primary dealers indicated expectations for strong demand moving forward and that an increase in current TIPS issuance sizes would be well received, particularly at the 5-year tenor. Many primary dealers were also supportive of the potential for a new 5-year TIPS issuance in the second half of the year. Pietrangeli noted that Treasury was pleased by the positive feedback on the current issuance calendar and will continue to study the potential introduction of a new 5-year TIPS, as well as other potential adjustments to the TIPS program to support liquidity and meet investor demand.

The Committee then turned to a discussion around financing for the upcoming quarter. The Committee agreed that a recommended financing plan should take into account several portfolio metrics. In particular, the TBAC’s debt optimization model suggests Treasury would benefit by focusing new issuance in the belly of the curve, defined by the model as the 2- to 5-year nominal coupon tenors.

The Committee adjourned at 12:30 p.m. for lunch.

The Committee reconvened at 1:30 p.m., with Committee members providing an update on the development of the debt issuance optimization model, indicating that TIPS may soon be incorporated into the optimization.

The Committee then proceeded to finalize its issuance recommendations for the upcoming quarter. Given current estimates for funding needs over the medium-term, as well as the benefits of issuing proportionally more in the belly of the yield curve, the Committee recommended that Treasury increase 2-, 3-, and 5-year nominal coupon auction sizes proportionally more than the 7-, 10-, and 30-year nominal coupon securities during the remainder of the May-July period.

The Committee adjourned at 2:30 p.m.



Laura Lipscomb
Deputy Assistant Secretary for Federal Finance
United States Department of the Treasury
May 1, 2018


Certified by:


Jason Cummins, Chairman
Treasury Borrowing Advisory Committee
Of The Securities Industry and Financial Markets Association
May 1, 2018


Stuart Spodek, Vice Chairman
Treasury Borrowing Advisory Committee
Of The Securities Industry and Financial Markets Association
May 1, 201




Taking into consideration Treasury’s short, intermediate, and long-term financing requirements, as well as the variability in financing needs from-quarter to quarter, what changes to Treasury’s coupon auctions do you recommend at this time, if any?


We would like the Committee to comment on potential demand for a 2-month bill tenor, as well as the effect a 2-month bill would have on pricing and liquidity of other T-bill tenors.  Please also comment on the potential advantages and disadvantages to having some Treasury bill tenors settle and mature outside of the typical Thursday-to-Thursday cycle.


We would like the Committee’s advice on the following:

  • The composition of Treasury notes and bonds to refund approximately $39.1 billion of privately-held notes maturing on May 15, 2018.
  • The composition of Treasury marketable financing for the remainder of the April-June 2018 quarter, including cash management bills.
  • The composition of Treasury marketable financing for the July-September 2018 quarter, including cash management bills.


Perdue Announces Florida Citrus Hurricane Recovery Details

Release & Contact Info

Press Release


Release No. 0092.18

Contact: USDA Press
Email: press@oc.usda.gov

(Washington, D.C., May 1, 2018) – Under the direction of President Donald J. Trump, U.S. Secretary of Agriculture Sonny Perdue today announced new details on eligibility for a new U.S. Department of Agriculture (USDA) disaster program, 2017 Wildfires and Hurricanes Indemnity Program (2017 WHIP). Additionally, USDA will provide $340 million through a block grant to the State of Florida for Hurricane Irma losses to citrus production expected during the 2018 through the 2020 crop year, reimbursement for the cost of buying and planting replacement trees – including resetting and grove rehabilitation, and for repair of damages to irrigation systems among other things.

In total, USDA’s Farm Service Agency (FSA) will deploy up to $2.36 billion that Congress appropriated through the Bipartisan Budget Act of 2018 to help producers with recovery of their agricultural operations in at least nine states with hurricane damage and other states impacted by wildfire. Following the announcement, Secretary Perdue, Florida Governor Rick Scott, and Florida Commissioner of Agriculture Adam H. Putnam issued the following statements:

“Last year our nation experienced some of the most significant disasters we have seen in decades, some back-to-back, at the most critical time in their production year. The Florida citrus industry was likely hit the hardest, and with such a high-value crop, they face a steeper financial burden and as a whole, have less coverage through our traditional insurance options. Under the direction of President Trump, my office has been working directly with Governor Scott and Commissioner Putnam in Florida to put a process in place that will ensure the Florida citrus industry maintains its infrastructure and can continue to be the signature crop for the state,” Secretary Sonny Perdue said. “Our team is working as quickly as possible to make this available to farmers in need and continues to provide excellent customer service, which began the day the storm hit through a successful recovery within local communities.”

Governor Scott said, “Since Hurricane Irma hit our state, I have been fighting for Florida’s citrus growers to get the relief they need to rebuild their livelihoods, including taking immediate steps to provide relief from the state. Our citrus growers have had many challenges over the last few years, including fighting citrus greening, which was compounded by the ravaging effects of Hurricane Irma. Florida prides itself on our incredible and iconic citrus industry and this funding will help ensure that Florida remains synonymous with citrus.”

“While no amount of relief can make the farmers who suffered damages from Hurricane Irma whole, this much-needed disaster relief will help Florida agriculture get back on its feet. I thank Secretary Perdue, Governor Scott, our federal leaders and the agriculture industry for their collaborative efforts to provide this relief. Florida’s $120 billion agriculture industry is a pillar of our economy, and we must continue to give our farmers and ranchers the support they need to thrive,” said Commissioner Putnam.

*NOTE: To view video statements from Secretary Perdue, Governor Scott, and Commissioner Putnam, you may view the Help For Florida Citrus Growers Following Hurricane Damage video or you may play the video below.


The Florida Department of Citrus is estimating the lowest citrus forecast in decades because of damage caused by Hurricane Irma last year. In October, the Florida Department of Agriculture and Consumer Services announced that Florida citrus sustained more than $760 million in damages because of the hurricane. The state is also dealing with the effects of disease, like citrus canker and citrus greening.


USDA is an equal opportunity provider, employer and lender.


Press Release

Office of International Affairs Director Paul A. Leder to Leave SEC



Washington D.C., April 30, 2018 —

The Securities and Exchange Commission today announced that Paul A. Leder, Director of the Office of International Affairs (OIA), will leave the agency in June. Mr. Leder rejoined the agency as OIA Director in February 2014. OIA advises the Commission on cross-border enforcement and regulatory matters and coordinates the SEC’s involvement with regulatory authorities outside the United States.

“Today’s capital markets are global and the SEC must engage on a wide range of international issues affecting U.S. markets and our investors,” said SEC Chairman Jay Clayton.  “For the past four years, Paul has led, with distinction, the SEC’s engagement with domestic and foreign regulators to address consequential cross-border challenges, always with an eye on the interests of our Main Street investors.”

“When I joined OIA just after it was created, cross-border collaboration on enforcement, supervisory and regulatory issues was the exception,” said Mr. Leder. “Today, the agency routinely addresses important international issues and the number of cross-border matters continues to grow. It has been an honor to work alongside the incredibly talented staff of OIA as we partner with other offices and divisions to tackle substantive issues of importance to U.S. investors and markets. I want to thank Chairman Clayton and the other Commissioners for their leadership and support.”

Mr. Leder’s broad portfolio has included addressing potential financial stability risks associated with the asset management industry in discussions at the Financial Stability Board and the International Organization of Securities Commissions (IOSCO); negotiating with foreign authorities to address the potential effects of legal and regulatory changes on U.S. markets and investors (e.g., with European regulators on MiFID II and MiFIR);and playing an integral role in the development of a new platform – the IOSCO ICO Network – to assist the SEC and its counterparts as they address the growth of Initial Coin Offerings (ICOs) and resulting regulatory and enforcement challenges. In the area of enforcement cooperation, Mr. Leder oversaw matters in which the SEC requested assistance from foreign counterparts on a variety of investigations, including insider trading and violations of the Foreign Corrupt Practices Act. He also participated in OECD Anti-Bribery Working Group missions to advance compliance with international anti-corruption commitments.

Prior to his return to the SEC, Mr. Leder was a partner at Richards Kibbe & Orbe LLP. Previous to that, Mr. Leder spent more than a decade at the SEC, beginning as a trial attorney in the Division of Enforcement in 1987. Soon after OIA was established in 1989, Mr. Leder joined its initial leadership team, first serving as assistant director and later as deputy director. From 1997 to 1999, he also served as senior adviser for international issues to Chairman Arthur Levitt. He began his legal career as a trial lawyer at the Public Defender Service for the District of Columbia.

Mr. Leder earned his bachelor’s degree at the University of Michigan and his law degree from the University of Michigan Law School.



USDA Supports Specialty Crop Industry with Multi-State Initiatives

Release & Contact Info

Press Release


Release No. 0091.18

Contact: USDA Press

WASHINGTON, April 30, 2018 – The U.S. Department of Agriculture (USDA) today announced the funding of $7 million to support 11 projects in six states to develop solutions to challenges affecting the specialty crop industries that cross state boundaries. The awards are managed through the Specialty Crop Multi-State Program (SCMP) administered by the Agricultural Marketing Service (AMS).

“The best way to tackle many of the biggest challenges in food safety and to promote markets is to make it easier for a lot of stakeholders to work together,” said USDA Under Secretary for Marketing and Regulatory Programs Greg Ibach. “USDA’s Specialty Crop Multi-State Program provides the grease to help them leverage state and private sector resources across state lines—especially the knowledge and experience of farmers and the agricultural industry.”

SCMP strengthens food safety; seeks new ways to address plant pests, disease, and other crop-specific issues; and increases marketing opportunities for specialty crops—fruits, vegetables, tree nuts and dried fruits to horticulture and nursery crops, including floriculture. Funding is awarded competitively to state departments of agriculture that partner with stakeholder organizations in two or more states.

The 2018 SCMP projects announced today include:

California Department of Food and Agriculture will partner with:

  • The University of California’s Western Institute for Food Safety & Security and Oregon State University for a food safety project to support food safety and honey bee health through veterinary education. Awarded $483,278.
  • The University of California and Oregon State University for a pest and plant health project to optimize phasmarhabditis nematodes for mitigating invasive gastropods in the western United States. Awarded $770,356.
  • USDA’s Agricultural Research Service, Washington State University and the University of California-Davis for a pest and plant health project to better understand esca trunk disease in multiple grape-production systems. Awarded $348,991.

Indiana State Department of Agriculture and Purdue University will partner on a project to diversify sod production with sustainable turfgrasses. Awarded $495,635.

Nebraska Department of Agriculture will partner with the University of Wisconsin and the University of Nebraska on a pest and plant health project to improve aronia berry sustainability and fruit quality. Awarded $479,751.

Pennsylvania Department of Agriculture will partner with:

  • The Pennsylvania State University; collaborating with universities in Georgia, Maryland, Wisconsin, South Carolina, Mississippi, Missouri, New York, Ohio, North Carolina, Kentucky, West Virginia, Louisiana, and Florida; on a pest and plant health project to develop a regional approach to cucurbit downy mildew prevention monitoring and management. Awarded $806,739.
  • The Pennsylvania State University, University of Maryland and the University of Florida on a pest and plant health project to develop a reliable, customized bio-control for fusarium wilt of the tomato. Awarded $770,360.
  • The U.S. Sweet Potato Council, Inc., collaborating with sweet potato commissions and councils in Alabama, California, Louisiana, Mississippi and North Carolina on a project to increase the market for sweet potatoes. Awarded $250,000.

Texas Department of Agriculture will partner with Texas A&M University and the University of California on a project to improve nitrogen use efficiency and food safety in spinach production. Awarded $743,878.

Wisconsin Department of Agriculture, Trade and Consumer Protection will partner with:

  • The University of Wisconsin-Madison and the University of Minnesota on a project to expand North American hazelnut production through the hedgerow hazelnut system. Awarded: $777,203.
  • The University of Wisconsin-Madison and Michigan State University on a pest and plant health project to optimize disease management and yield in potato via microbiome-based prediction.Awarded $999,599.

This program helps industry stakeholders work together to tackle big agricultural challenges. Two examples from prior years include teams targeting Armillaria root rot and Listeria.

Armillaria root rot threatens both forest and fruit tree crops, impacting farmers in many states. In 2016, the Pennsylvania Department of Agriculture in partnership with Clemson University, Michigan State University, University of Georgia and the University of Georgia Cooperative Extension used an SCMG to launch a project to evaluate potential solutions including an Above Ground Root Collar Excavation (AGRCE) planting system. So far in this multiyear project, they have demonstrated the system to South Carolina growers, established a test site at the Cumberland Valley Nursery to assess growth rate and sizing in Armillaria resistant rootstock, and tested in vitro Prunus spp. accessions to analyze their response to Armillaria mellea infection.

Listeria is another challenge for farmers across the country. In 2016, the New York Department of Agriculture and Markets began using an SCMG to collaborate with Cornell University and Virginia Tech-Eastern Shore to develop, implement and evaluate a produce-specific Listeria monitoring and control programs to increase food safety in produce packing houses and processing facilities. Though still in its early stages, the partnership has already organized a cohort of private sector businesses and started testing to determine trends as a step toward developing more effective industry-wide best practices for controlling this disease.

More information about this program and funded projects can be found on the SCMP page on the AMS website.


USDA is an equal opportunity provider, employer and lender.



Economy Statement for the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association


APRIL 30, 2018

Over the past four quarters, real GDP has grown by 2.9 percent, the most rapid pace since early 2015.  At nearly nine years old, the current expansion is set to become the second-longest stretch of continuous economic growth in the postwar period.  Although the pace of U.S. economic growth moderated to an annual rate of 2.3 percent in the first quarter, compared with 2.9 percent in the fourth quarter, a rebound is expected in coming months and overall strong growth is forecast for the year as a whole.

A slowdown in consumption affected economic performance in the first quarter, partly owing to a return of durable goods spending to more normal levels after the hurricane-related surge of last fall.  Business fixed investment made the largest contribution to real GDP growth, just ahead of consumption, while residential investment was roughly flat.  All together, private domestic final purchases (the sum of consumption, business fixed investment, and residential investment) advanced by 1.7 percent in the first quarter.  Other components added modestly to growth as well.  Total government spending made a solid contribution, although smaller than in the fourth quarter.  Net exports and inventory investment were also supportive of growth, after posing significant drags in the fourth quarter.  As labor markets have tightened and the unemployment rate has remained at a seventeen-year low of 4.1 percent, there have been signs of faster growth in wages and gains in personal income, too.  Measures of consumer sentiment remain at, or near, all-time highs, and household balance sheets remain robust.  For the current quarter, and the year as a whole, private forecasters are predicting a return to strong growth.


According to the advance estimate of real GDP, which was released last Friday, the U.S. economy expanded at an annual rate of 2.3 percent in the first quarter, slowing from 2.9 percent in the fourth quarter.  Private domestic final purchases – the sum of personal consumption, business fixed investment, and residential investment – grew in the first quarter at an annual rate of 1.7 percent, following a 4.8 percent jump in the fourth quarter.  Over the past four quarters, private domestic final purchases have grown at an average annual rate of 3 percent, attesting to the ongoing momentum of private demand.

Growth in real personal consumption expenditures decelerated to an annual rate of 1.1 percent in the first quarter, down from 4.0 percent in the fourth quarter when post-hurricane clean-up and motor vehicle replacement elevated spending.  In the first quarter, outlays on consumer durables fell back to a more normal level, which led to a quarterly decline of 3.3 percent that weighed on overall consumption growth.  Spending on nondurables was essentially flat, after a 4.8 percent gain in the fourth quarter.  Although spending on durable and nondurable goods slowed, consumption of services held steady.  On balance, real personal consumption expenditures added 0.7 percentage point to growth in the first quarter.

Business fixed investment grew 6.1 percent at an annual rate in the first quarter, only marginally lower than the fourth’s quarter’s 6.8 percent advance, and contributed 0.8 percentage point to overall growth.  Notably, fixed investment in structures accelerated for the second consecutive quarter, nearly doubling to 12.3 percent at an annual rate from a 6.3 percent pace in the fourth quarter.  Outlays for intellectual property products in the first quarter picked up, rising to 3.6 percent at an annual rate from 0.9 percent in the fourth quarter.  On a slightly softer note, equipment investment slowed to 4.7 percent, following a surge of 11.5 percent in the previous quarter.  The cycle of inventory accumulation turned up in the first quarter, adding 0.4 percentage point to growth, after subtracting 0.5 percentage point in the fourth quarter.  This component of GDP is a volatile factor and tends to balance out over longer periods of time.

Residential construction edged up 0.1 percent at an annual rate in the first quarter, easing after a storm-related reconstruction bump of 12.8 percent in the fourth quarter.  Consequently, it made an essentially flat contribution to growth.  Nonetheless, the housing market is generally healthy, although tight supply remains a risk.  New home sales rose in February and March and are now 8.8 percent higher over the past year.  Existing home sales also increased in each of the past two months, although they were 1.2 percent lower over the year through March.  Total housing starts rose in March, as a substantial advance in the volatile multi-family component helped offset a 3.7 percent decline in the larger single-family sector.  Total building permits also rose in March, and continued to exceed starts, suggesting additional gains in housing activity in the months ahead.  In the recent months through April, homebuilder confidence has hovered just below the eighteen-year high reached last December.  Driven by low inventories and solid demand, house price appreciation has accelerated in recent months, even in the face of rising mortgage rates.

Total government spending rose 1.2 percent at an annual rate in the first quarter, following a rapid 3.0 percent pace in the previous quarter.  After making an essentially neutral contribution to growth since early 2016, government spending has added an average 0.3 percentage point over the past three quarters.  Gains at both the federal level and the state and local level continue to drive growth.  Federal outlays grew 1.7 percent in the latest quarter, after the seven-year peak rate of 3.2 percent in the fourth quarter.  State and local government spending grew 0.8 percent at an annual rate in the first quarter, roughly two-thirds the 2.9 percent pace in the previous quarter.

After widening substantially in the fourth quarter of 2017, the U.S. trade deficit narrowed in the first quarter, as export growth slowed to an annual rate of 4.8 percent while import growth slowed even more sharply to 2.6 percent.  As a result, net exports made a 0.2 percentage point contribution to growth in the first quarter, reversing from a 1.2 percentage point drag in the fourth quarter.


During the first quarter of 2018, monthly job growth averaged 202,000, up from the 182,000 average for 2017 as a whole.  In March, for the sixth consecutive month, the unemployment rate held steady at 4.1 percent, a seventeen-year low and 1.2 percentage points below the 2002-2007 average of 5.3 percent.  Headline unemployment remains at a level that is historically consistent with full employment.  At the same time, the most comprehensive measure of labor market slack, which includes those marginally attached to the labor force and those working part-time for economic reasons, has dropped to 8.0 percent, a touch above the eleven-year low reached last October but more than a full percentage point below the pre-recession average of 9.1 percent.  Initial unemployment claims have remained below 300,000 for more than three years, approaching the record stretch seen between 1967 and 1970, when total employment was less than half of current levels. Furthermore, more workers are entering the labor force, attracted by tightening labor market conditions.  In March 2018, the overall labor force participation rate stood a tick below the three-year high reached last September, while that for prime-aged workers advanced to 82.1. percent, a gain of 0.4 percentage point relative to the year-earlier level.  The April employment report will be released this coming Friday.

In the past few months, the pace of nominal wage growth has risen above year-ago levels.  Nominal average hourly earnings for private-sector production and nonsupervisory employees rose 2.4 percent over the year ending in March, accelerating from the 2.2 percent pace in March 2017.  Real average hourly earnings were flat over the same twelve months, a modest improvement over the 0.1 percent decline of a year earlier.  Other measures exhibit an even stronger pick-up in earned income growth: over the year through March 2018, the Employment Cost Index for wages, salaries, and benefits in private industry showed the fastest growth since 2008.  Private worker compensation grew 2.8 percent over the year through March 2018, the quickest pace since early 2008, and private industry wages and salaries rose 2.9 percent over the same period, marking the most rapid growth since early 2008.


A moderate pullback in oil prices caused a deceleration in inflation starting in spring 2017, which continued for much of last year.  More recently, inflation has begun to accelerate a bit.  Over the twelve months through March 2018, the consumer price index (CPI) for all items rose 2.4 percent, matching the rate seen over the year through March 2017.  Energy price inflation has slowed relative to year-ago levels, but food price inflation continues to run well above last year’s rates.  Excluding food and energy, the CPI edged up to 2.1 percent over the year through March 2018, above the 2.0 percent rate seen in March 2017.

The headline Personal Consumption Expenditures (PCE) price index slowed after hitting a high of 2.2 percent in February 2017, bottoming out over the summer and moving gradually higher in subsequent months.  As of March 2018, headline PCE was up 2.0 percent over the past year, slightly above the 1.8 percent pace observed a year earlier, but well above the 1.4 percent pace observed in last summer. Similarly, core PCE price inflation decelerated through most of 2017 and remained in a lower range during the first two months of the year.  In the latest March data, core PCE inflation picked up to 1.9 percent, returning to the rates observed in early 2017.


Similar to the pattern seen in recent years, U.S. economic growth slowed in the first quarter for idiosyncratic reasons but remains poised to accelerate in subsequent quarters, propelled by very strong underlying private demand.  On a four-quarter basis, the economy’s growth rate has strengthened in each of the past three quarters, suggesting that the long but relatively slow recovery following the crisis has shifted into a higher gear.  Favorable economic conditions are in place, including lofty consumer optimism, healthy labor markets, faster growth in wages and household income, and positive business sentiment.  The benefits of the first major tax reform in thirty years are also poised to underpin near-term consumption and investment.  In short, the stage is set for a pick-up in growth over the near term.  Private forecasters are currently projecting a growth rate of 3.1 percent in the second quarter of 2018, and of 2.8 percent on a fourth-quarter over fourth-quarter basis for the whole year.






April 30, 2018

CFTC Charges Charles H. McAllister of Alabama with Engaging in a Fraudulent Precious Metals Scheme

McAllister Charged with Two Counts of Wire Fraud and One Count of Money Laundering in a Related Criminal Action

Washington, DC – The Commodity Futures Trading Commission (CFTC) filed a federal civil enforcement action in the U.S. District Court for the Western District of Texas against Defendant Charles H. McAllister, of Auburn, Alabama, charging him with fraud and misappropriation in connection with contracts of sale of precious metals through his company, BullionDirect, Inc. (BDI).  McAllister has never been registered with the CFTC in any capacity.

McAllister & BDI Allegedly Defrauded Thousands of Customers throughout the United States

The CFTC Complaint alleges that from August 15, 2011 through July 20, 2015, McAllister and BDI defrauded thousands of customers throughout the United States who purchased precious metals from or through BDI.  McAllister’s and BDI’s fraud allegedly resulted in customer losses of more than $16 million.

Specifically, according to the Complaint, McAllister and BDI fraudulently solicited and induced customers, through BDI’s website, to send money to BDI for the purported purchase of gold, silver, palladium, and platinum from or through BDI.  Customers purportedly could take immediate delivery of or store the precious metals with BDI.  However, as alleged, McAllister and BDI failed to procure all the metal they were obligated to purchase for customers.  Instead, McAllister and BDI misappropriated millions of dollars from thousands of customers in the fraudulent scheme to pay back other customers (in Ponzi scheme fashion), cover BDI business expenses, and invest in other businesses.

As further alleged, McAllister and BDI made material misrepresentations and omissions to customers in the course of their fraudulent precious metals scheme, and they issued false account statements to customers.

In its continuing litigation, the CFTC seeks, among other relief, restitution to defrauded customers, disgorgement of ill-gotten gains, trading bans, a civil monetary penalty, and a permanent injunction against future violations of federal commodities laws, as charged.

Related Criminal Charges

On January 18, 2018, the U.S. Attorney’s Office for the Western District of Texas filed a related criminal action charging McAllister with two counts of wire fraud and one count of money laundering in the U.S. District Court for the Western District of Texas for conduct spanning back to 2009.  In conjunction with that action, McAllister was taken into custody on January 23, 2018 and later conditionally released.

The CFTC appreciates the cooperation and assistance of the U.S. Attorney’s Office for the Western District of Texas, the Federal Bureau of Investigation, and the Internal Revenue Service, all located in Austin, Texas.

CFTC Division of Enforcement staff members responsible for this matter are Jo Mettenburg, J. Alison Auxter, Stephen Turley, Joyce Brandt, Christopher Reed, and Charles Marvine.

* * * * * * * * * * *

CFTC’s Precious Metals Customer Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Precious Metals Fraud Advisory, which alerts customers to precious metals fraud and lists simple ways to spot precious metals 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.


News Release

For Release: 


Tuesday, April 24, 2018


Jessica McCormick (212) 858-5145
Donna Hemans (202) 728-6982

FINRA Progress Report on FINRA360 Highlights Significant Changes

One-year Report Lays out Changes through the Organizational Review

WASHINGTON — The Financial Industry Regulatory Authority (FINRA) today released a comprehensive progress report summarizing the significant operational and regulatory changes FINRA has made in the first year of its ongoing FINRA360 organizational review.

“The first year of FINRA360 is already resulting in significant change across the organization,” FINRA CEO Robert Cook wrote in the report. “We have placed particular emphasis on changes that benefit investors, promote compliance, address duplicate operations, enhance transparency, foster engagement, or improve our day-to-day supervisory interactions with firms.”

Major actions to date include:

  • integrating two Enforcement programs into a single unified structure;
  • releasing an Examinations Findings Reportdetailing FINRA’s observations from the prior year’s examinations;
  • publishing a summary of FINRA’s 2018 budget and financial guiding principles;
  • launching a Small Firm Helplineto address routine questions about FINRA;
  • creating an Innovation Outreach Initiativeto address the growing activity in FinTech, cryptocurrencies and related issues;
  • increasing funding for training of examiners and regulatory coordinators;
  • updating the activities of FINRA’s advisoryand governance committees and enhancing transparency regarding what they do and how interested parties can get involved; and
  • further advancing FINRA’s risk-based approach to examinations and implementing certain process improvements in how FINRA interacts with member firms in the exam context.

As part of this ongoing initiative, FINRA continues to make organizational changes that will impact FINRA’s day-to-day interactions with member firms and investors, Cook noted in the report.

“A year into what I have often emphasized is a multi-year initiative, we have accomplished a great deal, but we still have much more work ahead of us,” Cook wrote in the report. “We are turning our attention in the coming year to our Examination program and a number of other areas where we think we can achieve additional meaningful change. These may include larger organizational changes as well as smaller improvements that collectively will have significant impacts on our day-to-day interactions with the firms we regulate and the investing public we protect. Expect more to come.”

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.



Remarks of Commissioner Brian Quintenz before the Eurofi High Level Seminar 2018


April 26, 2018


Good morning.  This is the first Eurofi Seminar that I have had the privilege to attend and I am delighted to be able to participate in this remarkable conference.  Before I begin, let me quickly say that the views I express are my own and do not represent the views of the Commission.

In addition to being my first Eurofi conference, this is also my first trip to Sofia.  I have been struck by the city’s beauty and its embodiment of living history.  Sofia has been inhabited for over 8,500 years, but perhaps its closest modern day precursor was the Thracian settlement Serdica built by the Roman Emperor Trajan in the second century BC.  Reminders of antiquity are scattered amongst modernity in this bustling city.  Indeed, I have only to look out the window of my hotel to see St. George’s Church – built in the 4th century AD – safely ensconced in the courtyard. I discovered that the very parking lot of my hotel was once rumored to sit on top of Constantine the Great’s palace.[1]  However, recent excavations of St. Nedeylya square unearthed not a palace, but the ruins of an enormous building containing various artefacts, including a ceramic vessel containing 3,000 silver Roman coins inside, with the owner’s name, Selvius Calistus, scratched on the outside.[2]

Sofia is a city where the ancient past and present converge. In many ways, we are living through that same convergence now with respect to technology and innovation. Once novel inventions – like the home phone, film cameras, VHS tapes – have become obsolete.  And yet, the underlying functions and needs they addressed remain with us, persisting into the future to be solved by new, once unthinkable, but quickly taken for granted, innovations. Although our world would certainly be unrecognizable to Selvius Calistus if he were here with us – we do know there would be some shared understanding – the need for money as a medium of exchange, the desire for shared society and recreation.  The question emerges, how do we harness creativity and technological innovation so that they work to better meet the needs and desires of all of us today, so that they have a lasting positive impact in our daily lives, on our cultures, and, in light of the focus of this conference, on our financial markets.

Supporting Responsible Financial Innovation

In the midst of the technological renaissance we are living through, what then is the proper role of the regulator?  I believe it starts with leadership, clarity, cooperation, and open-mindedness.  I think it is incumbent upon regulators to create a workable and appropriate regulatory framework that facilitates market-enhancing innovation.  This means adopting regulation that is fair, technology-neutral, and does not stifle positive innovations.  It means actively engaging with the financial technology (FinTech) community and other regulators to provide the regulatory certainty necessary to support innovation that promotes competition, vibrancy, and growth in our financial markets.  It also means developing thoughtful, balanced regulation that allows nascent markets to develop while also protecting investors and preserving market integrity.

In order to further these objectives, the CFTC is engaging with industry to learn more about FinTech, through the LabCFTC initiative and the Technology Advisory Committee (TAC).  Chairman Giancarlo and the agency launched LabCFTC in the spring of 2017.  Through early engagement during the development process, LabCFTC hopes to offer clarity and guidance about the CFTC’s regulatory framework.  Since its launch less than a year ago, LabCFTC has met with over 150 market participants.

LabCFTC also assists staff in identifying where potential changes to the existing regulatory framework may be beneficial.  For example, if an innovation achieves the desired outcome of a regulation, but does not fit within the letter of the rule, LabCFTC advises on whether regulatory relief should be provided or if it may be appropriate to consider rule revisions.  LabCFTC’s knowledge and expertise also promote technology-neutral regulations—ones which mandate a particular result but not the means by which the result is achieved.

LabCFTC also coordinates with other U.S. and international regulatory authorities.  Through formal and informal relationships, LabCFTC seeks to collaborate with, and learn from, the experience of fellow regulators to develop best practices and recognize emerging trends.  Most recently, the CFTC entered into an arrangement to collaborate on financial innovation with the United Kingdom’s Financial Conduct Authority (FCA).  LabCFTC and Project Innovate, the FCA’s FinTech initiative, will share information regarding market trends and developments, as well as insights derived from innovation competitions, sandboxes, or other similar endeavors.

In addition to LabCFTC, the agency also has five advisory committees which solicit the input of outside experts on different topics to advise on developments, risks, and regulatory issues.  I have the privilege of sponsoring the TAC, which explores the potential application of new technologies to the derivatives markets.  For example, at our inaugural meeting this past February, the TAC discussed several areas where rapid technological innovation was creating both challenges and opportunities in our markets, including blockchain and distributed ledger technology, cryptocurrencies, machine learning and artificial intelligence, automated trading technologies, and cybersecurity best practices.  Over the course of the next year, the TAC will explore each of these issues in greater detail, with the ultimate goal of providing the CFTC with actionable, practicable advice.


One area of technological innovation that has captured the world’s attention is the cryptocurrency space.  Since Satoshi Nakamoto first published his groundbreaking paper on a cryptocurrency called Bitcoin almost a decade ago, we have witnessed the proliferation of many new cryptocurrency concepts and tokenized products.[3]

In fact, I believe it is important to separate the idea of cryptocurrencies, whose main purpose is only to serve as a medium of exchange or a store of value, from the proliferation of “tokens” generally.  As I postulated two days ago at the City Week conference in London, I see three main motivations for the broader tokenization revolution. One motivation for a company or entity to tokenize a product is purely as a marketing ploy – to take advantage of the popular and speculative mania surrounding all things “token.”  However, just because a product is tokenized does not change its underlying qualities.  For example, if Disney World were to tokenize the admissions to its theme parks, those tokens would still be tickets. Tokenizing the tickets does not make them currencies and it does not make them securities. It makes them tickets.  Similarly, tokenizing a security does not change the fact that it is a security.

A second motivation to create a token is to enable and realize the efficiency of the blockchain construct in assigning and tracking ownership. This is having, and will continue to have, an impact on title transfer and settlement processes.  Think of this as the back office tokenization revolution.

Lastly, a third motivation is to utilize the transferability of tokens to create a secondary market for any and all non-tangible things – the eBay of Intangibles so to speak – for rights, services, permissions, etc., that the seller allows to be transferred between parties.  Empowering a secondary market’s price discovery and valuation functions for products that were previously untransferable – such as extra storage space on a home computer – is a fascinating development.

Certainly, not all tokens are cryptocurrencies – in fact, very few are.  And even those best representing a currency-focused concept have yet to truly attain that functionality.  Yet it would be a mistake, in my view, to dismiss those products because of that fact.  Sure, some of these cryptocurrencies have not yet, and may never, achieve the acceptance and stability of a true reserve currency, like the dollar or the euro.  But, there may also be instances where an established cryptocurrency’s volatility and transferability could compare favorably against a sovereign currency.

In fact, it is quite possible, that just as the cryptocurrency trading market evolved from the bottom-up, starting at the retail level and slowly reaching the institutional level, so may the global driver of cryptocurrency acceptance come not from places like Washington, London, Frankfurt, or Tokyo, but rather through a bottom-up process as well.  That may ultimately prove wrong, but it is worth pondering.

Indeed, the intense, ongoing debate about cryptocurrency’s intrinsic value has caused regulators around the globe to grapple with how best to respond.  Some nations have banned cryptocurrency mining and trading.[4]  Others permit cryptocurrency trading, but restrict anonymous trading or require spot platforms to register with regulators.[5]  Many others are vigilantly monitoring developments to determine if additional regulatory oversight is necessary and, if so, what form it should take.[6]  Most recently the G20 called for the Financial Stability Board, in consultation with other standard-setting bodies, including the Committee on Payments and Market Infrastructure (CPMI) and International Organization of Securities Commissions (IOSCO), to report in July 2018 on their work to develop global standards for what they label as crypto-assets.[7]

Given that there are many participants on those boards and groups who are here today, I would like to take a few minutes now to discuss the regulatory framework for cryptocurrencies in the United States as it stands today.

Regulatory Framework in the United States

At the outset, I would note that the regulatory landscape for cryptocurrencies, including so-called tokens, within the United States is an evolving one.  Regulators in the United States, including the CFTC, are monitoring cryptocurrencies and working collaboratively to develop effective regulatory approaches for this new asset class.  The Treasury Department has established a crypto-asset working group which includes the CFTC, Securities and Exchange Commission, and banking regulators.  Ongoing communication among regulators is critical because oversight jurisdiction over cryptocurrencies is shared across multiple agencies in the United States.

For example, state regulators and the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) regulate cryptocurrency platforms as money service businesses, thereby subjecting those “exchanges” to anti-money laundering and know-your-customer requirements.[8]  The Internal Revenue Service views cryptocurrencies as property and subjects sales to capital gains tax without a de minimis threshold.[9]

The CFTC and SEC also have jurisdiction over cryptocurrencies depending on their status as a commodity or as a security.  From our own perspective, the CFTC has both oversight and enforcement authority over derivatives on commodity cryptocurrencies, but only enforcement authority over the spot transactions of commodity cryptocurrencies.  This means that the CFTC’s role is broad and far reaching with respect to derivatives trading on cryptocurrencies – such as futures contracts on Bitcoin – including setting requirements for registration of trading platforms or firms, trade execution, orderly trading, data reporting, and recordkeeping.  However, in the spot markets, or the platforms where cryptocurrencies themselves are actually bought and sold, the CFTC has onlyenforcement authority – the CFTC can only police fraud and manipulation in the actual trading of cryptocurrencies, but has no ability to make platforms register with the Commission or set any customer protection policies.

On the other hand, if the cryptocurrency or digital asset is a security, it must be traded on a platform that is registered with the SEC or is specifically exempt from registration.[10]  In addition, the SEC has stated that many initial coin offerings (ICOs) used to raise capital for business projects may be securities, thereby triggering the fully panoply of registration and investment protection requirements under American securities laws.[11]

From my perspective as a CFTC Commissioner, I think the area with the greatest need for enhanced regulatory certainty and oversight is the spot market.  In that regard, the CFTC has undertaken an educational campaign to provide customers with information about cryptocurrencies and to warn about potential fraud in these markets.  The CFTC’s Division of Enforcement has aggressively targeted deception and manipulation to ensure that innocent customers are not exploited by fraudsters.  And with respect to jurisdictional considerations, the CFTC has been, and continues to be, in close communication with the SEC.

In light of the patchwork of state and federal regulation that currently exists in the United States, and until such time as Congress might choose to add spot commodity markets to a regulator’s jurisdiction, I have also encouraged cryptocurrency spot platforms to come together and form an SRO-like entity that could develop and enforce customer protection rules to strengthen the integrity of these growing markets. I think an independent, self-regulating body for spot platforms in the United States could significantly contribute to ongoing efforts to rationalize and formalize cryptocurrency regulation.  I am not now suggesting, nor have I ever suggested, that this potential body should be a substitute for federal oversight in this area; rather, I believe this potential organization’s efforts can fill a current void and could eventually complement federal oversight efforts.

I think it is the role of the CFTC, along with other regulators, to support the integrity of these developing markets so that individuals have the information and transparency they need to make informed choices.  Indeed, when Congress amended the CFTC’s governing statute to give exchanges the ability to list new contracts through a self-certification process, as opposed to requesting the CFTC’s approval, I believe Congress did so intentionally to limit the CFTC’s power to make value judgements on new contracts.  I also think that is appropriate – the markets, investors, and consumers need to decide for themselves which new products and innovations are worthwhile and which are not, and what value truly is.


I am optimistic about the future of financial technology and its potential to improve all of our lives.  Gatherings like this help us to build the partnerships and trust, and attain the expertise and wisdom, to recognize and support those innovations that are genuinely innovative, that have the power to enhance our societies.  I look forward to working with all of you to develop thoughtful regulatory frameworks that allow our markets to flourish and our innovators to innovate.  Thank you.

[1]       Ivan Dikov, Archaeologists Start Search For Roman Forum of Ancient Serdica in Bulgaria’s Capital Sofia, Archaeology in Bulgaria (April 22, 2018), http://archaeologyinbulgaria.com/2015/07/06/archaeologists-start-search-for-roman-forum-of-ancient-serdica-in-bulgarias-capital-sofia/.

[2]       Leon de Leeuw, Serdica (April 22, 2018), https://www.leondeleeuw.net/travel-bulgaria-sofia-serdica.

[3]       Cryptocurrency Market Capitalizations, CoinMarketCap, https://coinmarketcap.com/all/views/all/.

[4]       Chao Deng, China Quietly Orders Closing of Bitcoin Mining Operations, Wall St. J., Jan. 11, 2018, https://www.wsj.com/articles/china-quietly-orders-closing-of-bitcoin-mining-operations-1515594021.

[5]       Eun-Young Jeong and Steven Russolillo, Got ID? South Korea Tightens Noose on Anonymous Cryptocurrency Trading, Wall St. J., Jan. 24, 2018, https://www.wsj.com/articles/noose-tightens-on-anonymous-cryptocurrency-trading-in-south-korea-1516699321; Garrett Keirns, Japan’s Bitcoin Law Goes Into Effect Tomorrow, Coindesk, April 2017, https://www.coindesk.com/japan-bitcoin-law-effect-tomorrow/.

[6]       Communique, G20, Finance Ministers and Central Bank Governors (March 19-20, 2018), https://g20.org/sites/default/files/media/communique_-_fmcbg_march_2018.pdf.

[7]       Id.  The IMF has also recently urged international standard-setters to work together to develop a consensus on the definition of crypto-assets and their potential role in the financial system.  IMF, 2018 Global Financial Stability Report 24-26 (April 18, 2018), http://www.imf.org/~/media/Files/Publications/GFSR/2018/April/ch1/doc/text.ashx?la=en.

[8]       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.

[9]       Internal Revenue Service, Notice 2014-21 (March 25, 2014), https://www.irs.gov/newsroom/irs-virtual-currency-guidance.

[10]     Statement on Potentially Unlawful Online Platforms for Trading Digital Assets, Divisions of Enforcement and Trading and Markets, Securities and Exchange Commission (March 7, 2018), https://www.sec.gov/news/public-statement/enforcement-tm-statement-potentially-unlawful-online-platforms-trading.

[11]     Statement on Potentially Unlawful Online Platforms for Trading Digital Assets, Divisions of Enforcement and Trading and Markets, Securities and Exchange Commission (March 7, 2018), https://www.sec.gov/news/public-statement/enforcement-tm-statement-potentially-unlawful-online-platforms-trading; Statement on Cryptocurrencies and Initial Coin Offerings, SEC Chairman Jay  Clayton (Dec. 11, 2017).





April 26, 2018

CFTC Chairman Unveils Reg Reform 2.0 Agenda

Washington, DC — The Commodity Futures Trade Commission (CFTC) Chairman J. Christopher Giancarlo today released a white paper, Swaps Regulation Version 2.0: An Assessment of the Current Implementation of Reform and Proposals for Next Steps, co-authored with CFTC Chief Economist Bruce Tuckman.

Giancarlo unveiled the white paper at the International Swaps and Derivatives Association (ISDA) annual meeting, in an interview with ISDA CEO Scott O’Malia.

“This white paper is economy-focused,” said Giancarlo. “And our role at the CFTC is to bring a market-focused approach. Our focus is what’s in the best interest of the markets. Our mission is market integrity and market health.”

In response questions about the timeline of implementation of the ideas in the paper, Giancarlo said, “I’m committed to a process in rule writing which is ‘ready, aim, fire.’ I think sometimes, regulators can use the ‘ready, fire, aim’ approach. I’m committed to a deliberative process and getting back to regular order at the agency. We’re not in the wake of a crisis right now – we need to take the time to get this right. We have an ambitious timetable, and we will get this done, but we will do this right. We will move forward in regular order and in good order – we will get this done.”

The white paper utilizes a range of academic research, market activity and the agency’s regulatory experience with implementing current swaps reform, to assess the agency’s implementation of swaps reform, determine its strengths and deficiencies and recommend improvements to the current swaps market reform framework.

In this paper, Giancarlo and Tuckman seek to optimize the CFTC’s implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) so as to strike a balance between systemic safety and stability and market vibrancy and economic growth. Giancarlo and Tuckman explain that financial regulators have a duty to apply the policy prescriptions in ways that enhance markets and their underlying vibrancy, diversity and resiliency. That duty also includes the responsibility to review past policy applications continuously to confirm they remain improved for the purposes intended. It further includes anticipating changing market dynamics and the impact of technological innovation.

The paper takes a comprehensive look at five key areas:

Swaps Central Counterparties (CCPs)

  • Swaps clearing is probably the most far-reaching and consequential of the swaps reforms adopted under Title VII of Dodd-Frank.
  • CFTC implementation of Dodd-Frank’s clearing mandate has been highly successful, significantly increasing the volume of swaps cleared by CCPs.
  • CCPs and the CFTC have made substantial progress to ensure that CCPs are safe and sound under extreme but plausible scenarios and have credible recovery plans to remain viable without government assistance.
  • Continued vigilance and improvement are essential with respect to ensuring the liquidity of prefunded resources; understanding network effects; estimating the liquidation costs of defaulted positions; and enhancing the transparency and predictability of recovery plans.
  • The FDIC and CFTC have much to do in formulating resolution plans, which would guide government intervention in the most dire of eventualities.

Swaps Reporting Rules

  • Swaps data reporting was an important mandate to assist regulators in measuring the counterparty credit risk of swaps by large financial institutions.
  • Yet, ten years after the crisis, the reporting structure is still incomplete.
  • The initial implementation was flawed and ineffective, providing insufficient technical specificity.
  • Since then, CFTC has laid out a more detailed and clear path forward under its July 2017 “Roadmap to Achieve High Quality Swaps Data.”
  • Meanwhile, the CFTC continues global leadership in swaps reporting by co-chairing CPMI-IOSCO Harmonization Group that issued final guidance regarding unique transaction identifiers (UTIs) and unique product identifiers (UPIs)
  • Real-time reporting requirements should be tailored to the liquidity profiles of the associated swaps products in order to yield value of transparency to market (e.g. price discovery, confidence) without introducing trading risk
  • The CFTC should look to collaborate with other authorities to cultivate the development of “regulator nodes” on distributed ledgers

Swaps Execution Rules

  • Congress enacted the G-20 swaps execution reforms by requiring that swaps transactions be traded on regulated platforms called swap execution facilities (SEFs) and executed by “any means of interstate commerce.”
  • The CFTC incorrectly implemented the execution mandate by arbitrarily confining swaps execution to two methodologies and adopting trading rules from highly liquid futures markets, the wrong model for swaps that trade in more episodically liquid markets.
  • The adverse consequences of restrictive execution methods has been global fragmentation of swaps markets and pushing swaps liquidity formation and price discovery away from the SEF platforms, contrary to Congressional intent.
  • The CFTC could encourage a greater amount of swaps trades to take place on regulated SEFs by making the “Made Available to Trade” requirement synonymous with the clearing requirement.
  • Instead of trying to determine SEFs’ swaps execution business model, the CFTC should focus on raising standards of conduct for swaps trading.

Swap Dealer Capital

  • Several components of today’s bank capital regime overestimate the risks of swaps.
  • The conceptual problems are relying on swap notional amount to measure risk; failing to sufficiently recognize offsetting swap positions; and failing to sufficiently acknowledge the risk mitigation of posted margin.
  • These problems can be addressed by iterating, and likely complicating, prescriptive models. Alternatively, regulators might focus on how to rely more heavily but confidently on the internal risk models used by banks and their swap affiliates.

End User Exception

  • Dodd-Frank intended a robust end user exception from clearing and margin requirements and did not intend margin rules to favor cleared products.
  • To reduce the burdens on end users that are not sources of systemic risk, and, in some cases, to reduce their liquidity risk, material swaps exposure thresholds should be established, below which entities would be excepted from clearing and margin requirements.
  • Rules governing uncleared initial margin should be reworked to be less prescriptive and to be unbiased with respect to cleared and uncleared products.




April 25, 2018


CFTC Charges Pennsylvania Resident Michael Salerno and his Entities with Solicitation Fraud and Misappropriation in Connection with Retail Forex Transactions in Violation of the Commodity Exchange Act

Federal Court Order Freezes Assets and Protects Books and Records of Defendants and Relief Defendants

Washington DC – The Commodity Futures Trading Commission (CFTC) filed a civil enforcement action charging Defendants Michael Salerno of Chadds Ford, Pennsylvania, and his companies Black Diamond Forex LP and BDF Trading LP, both Pennsylvania limited partnerships, and Advanta FX, a Pennsylvania corporation, with fraudulently soliciting members of the public to become foreign currency (forex) proprietary traders and with misappropriating the traders’ funds for purposes other than forex trading.

Relief Defendants

The Complaint, filed on April 17, 2018, in the U.S. District Court for the Eastern District of Pennsylvania, also charges Black Diamond Investment Group, a Pennsylvania limited liability corporation, and Advanta Capital Markets Ltd., a Saint Vincent and the Grenadines company, as Relief Defendants for holding funds belonging to proprietary traders.  As alleged, the Relief Defendants were funneled funds that Defendants had received from proprietary traders and used the funds for purposes for other than forex trading.

On April 17, 2018, U.S. District Court Judge Cynthia M. Rufe signed a Statutory Restraining Order freezing the assets of all the Defendants and Relief Defendants, and prohibiting the destruction of their books and records.  The court has scheduled a hearing for May 1, 2018, on the CFTC’s motion seeking a preliminary injunction against the Defendants and Relief Defendants.

The Scheme’s Fraudulent Hiring Process

The CFTC’s Complaint alleges that beginning in at least January 2017 and continuing through at least March 2018, Salerno and his companies fraudulently solicited individuals to become forex traders by making false statements on online websites such as LinkedIn and Indeed.com and their own websites, in violation of the Commodity Exchange Act.  As alleged, the Defendants required prospective traders to pay a “risk deposit” or “risk capital deposit” of varying amounts, usually ranging from $1,200 to $1,900, with a promise that Defendants would match these risk deposits with some multiple of company funds in proprietary trading accounts, and then share a portion of the profits from trading with the traders and to pay bonuses tied to certain performance milestones.  Defendants’ job postings and solicitations enticed at least 150 prospective traders to deposit at least $310,000 in risk deposits, the Complaint alleges.

Fraudulent Misrepresentations and Misuse of Trader Funds

In soliciting prospective traders, the Complaint alleges that Salerno and his companies falsely represented that Salerno had amassed a comfortable income in the forex market, possessed an overseas bank account holding $9.5 million, and that Salerno had sold off $10 million in real estate in 2015.  According to the Complaint, Salerno claimed that he was using these funds to start up his proprietary trading companies, from which Salerno promised to establish live trading accounts for traders at an overseas trading company and to split the profits from those trading accounts 70/30 in favor of the trader.  However, Salerno allegedly has not traded successfully in the forex markets for at least five years.

In addition, the Complaint states that in 2015, the same year he claimed to have made $10 million in real estate sales, Salerno actually filed for bankruptcy and was discharged from debts totally over $250,000.  He failed to tell prospective traders that he had been convicted of a felony and sentenced to 21 months in prison in 2005.  Moreover, the Complaint alleges Defendants never established live trading accounts for anyone, but used risk deposits for purposes other than trading and have refused to return traders’ funds.  For instance, on one occasion, Salerno told another employee that the “payroll needs to be covered by the deposits …,” according to the Complaint.

In its continuing civil litigation, the CFTC seeks restitution to defrauded investors, 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.

The CFTC appreciates the assistance of the Cyprus Securities and Exchange Commission and the St. Vincent and the Grenadines Financial Services Authority.

CFTC Division of Enforcement staff members responsible for this action are Elizabeth M. Streit, Barry Blankfield, Joy McCormack, Scott Williamson, and Rosemary Hollinger.

* * * *

CFTC’s Foreign Currency (Forex) Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Foreign Currency Trading (Forex) Fraud Advisory, which states that the CFTC has witnessed a sharp rise in Forex trading scams in recent years and helps customers identify this potential fraud.

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.


Complaint: Michael J. Salerno, et al.

Statutory Restraining Order: Michael J. Salerno, et al.


News Release

For Release: 


Tuesday, April 24, 2018


Jessica McCormick (212) 858-5145
Donna Hemans (202) 728-6982

FINRA Progress Report on FINRA360 Highlights Significant Changes

One-year Report Lays out Changes through the Organizational Review

WASHINGTON — The Financial Industry Regulatory Authority (FINRA) today released a comprehensive progress report summarizing the significant operational and regulatory changes FINRA has made in the first year of its ongoing FINRA360 organizational review.

“The first year of FINRA360 is already resulting in significant change across the organization,” FINRA CEO Robert Cook wrote in the report. “We have placed particular emphasis on changes that benefit investors, promote compliance, address duplicate operations, enhance transparency, foster engagement, or improve our day-to-day supervisory interactions with firms.”

Major actions to date include:

  • integrating two Enforcement programs into a single unified structure;
  • releasing an Examinations Findings Reportdetailing FINRA’s observations from the prior year’s examinations;
  • publishing a summary of FINRA’s 2018 budget and financial guiding principles;
  • launching a Small Firm Helplineto address routine questions about FINRA;
  • creating an Innovation Outreach Initiativeto address the growing activity in FinTech, cryptocurrencies and related issues;
  • increasing funding for training of examiners and regulatory coordinators;
  • updating the activities of FINRA’s advisoryand governance committees and enhancing transparency regarding what they do and how interested parties can get involved; and
  • further advancing FINRA’s risk-based approach to examinations and implementing certain process improvements in how FINRA interacts with member firms in the exam context.

As part of this ongoing initiative, FINRA continues to make organizational changes that will impact FINRA’s day-to-day interactions with member firms and investors, Cook noted in the report.

“A year into what I have often emphasized is a multi-year initiative, we have accomplished a great deal, but we still have much more work ahead of us,” Cook wrote in the report. “We are turning our attention in the coming year to our Examination program and a number of other areas where we think we can achieve additional meaningful change. These may include larger organizational changes as well as smaller improvements that collectively will have significant impacts on our day-to-day interactions with the firms we regulate and the investing public we protect. Expect more to come.”

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.



Statement on Manufactured Credit Events by CFTC Divisions of Clearing and Risk, Market Oversight, and Swap Dealer and Intermediary Oversight


April 24, 2018

Washington, DC — The Commodity Futures Trading Commission (CFTC) Divisions of Clearing and Risk, Market Oversight, and Swap Dealer and Intermediary Oversight today issued the following statement regarding manufactured credit events in connection with credit default swaps (CDS):

“The CDS market functions based on the premise that firms referenced in CDS contracts seek to avoid defaults, and as a result, the instruments are priced based on the financial health of the reference entity.  However, recent arrangements appear to involve intentional, or ‘manufactured,’ credit events that could call that premise into question. In a public statement dated April 11, 2018, the International Swaps and Derivatives Association’s (ISDA) board of directors criticized manufactured credit events, writing that they ‘could negatively impact the efficiency, reliability, and fairness of the overall CDS market,’ and ISDA’s board indicated that it advised its staff ‘to consult with market participants and advise the Board on whether…amendments to the ISDA Credit Derivatives Definitions should be considered’ to address manufactured credit events.

“Manufactured credit events may constitute market manipulation and may severely damage the integrity of the CDS markets, including markets for CDS index products, and the financial industry’s use of CDS valuations to assess the health of CDS reference entities.  This would affect entities that the  CFTC is responsible for overseeing, including dealers, traders, trading platforms, clearing houses, and market participants who rely on CDS to hedge risk. Market participants and their advisors are advised that in instances of manufactured credit events, the Divisions will carefully consider all available actions to help ensure market integrity and combat manipulation or fraud involving CDS, in coordination with our regulatory counterparts, when appropriate.”


Three-year Anniversary of FINRA Securities Helpline for Seniors Marked by Investor Success


On April 20, 2015, FINRA launched the Securities Helpline for Seniors to provide senior investors a source of trustworthy information and assistance. Since its inception, Helpline staff has taken more than 13,000 calls and brokerage firms have voluntarily returned more than $5.3 million to brokerage customers because of information and help provided by the Helpline.

Many callers are simply seeking information, while others need additional help navigating more complex investment problems. One of those stories came to FINRA’s attention following a call to the Helpline in the fall of 2017 by Meggie. We went out to Seattle to learn more about her story.

Securities Helpline for Seniors
Toll free Call 844-57-HELPS (844-574-3577)
Monday – Friday
9 a.m. – 5 p.m. Eastern Time





April 24, 2018

CFTC Asks Innovators for Competition Ideas to Advance FinTech Solutions

LabCFTC looking to “crowdsource” ideas for using the Science Prize Competition Act

Washington, DC — LabCFTC, the Commodity Futures Trading Commission’s (CFTC) FinTech initiative, announced today that it is requesting public input to gather ideas and topics for innovation competitions to advance the agency’s FinTech goals. All comments must be received within 90 days of publication of the request in the Federal Register.

“We launched the LabCFTC initiative to stimulate and promote market-enhancing FinTech solutions,” said CFTC Chairman J. Christopher Giancarlo. “By soliciting feedback from innovators on how the CFTC can best encourage innovation and leverage FinTech and RegTech solutions for the marketplace, we are not only fulfilling the mission of this initiative, we are moving the CFTC closer to my ultimate goal of making the agency a 21st Century regulator.”

“Innovation competitions and our effort to crowdsource priority RegTech topics are exciting regulatory tools that can unleash creativity, ingenuity, and new technologies that can solve challenges that benefit the American public,” said LabCFTC Director Daniel Gorfine. “Our ultimate goal is to focus the energy of America’s innovators on ways to improve our agency and our markets so that we can keep pace with a rapidly digitizing world.”

The Request for Input (RFI), to be published in the Federal Register, is LabCFTC’s effort to gather feedback on how innovation competitions can stimulate innovation and make the CFTC more effective and efficient in satisfying its mission to foster open, transparent, competitive, and financially sound markets.

The CFTC is soliciting public feedback on: (1) focus areas for potential innovation competitions, as well as (2) how competitions could best be structured and administered to maximize their impact. While the RFI raises the possibility of competitions focused on data visualization tools, machine-readable regulatory rulebooks, and “smart” notice and comment systems, it seeks to crowdsource what may be the most promising topics directly from the innovator community.

Under the Science Prize Competition Act (2015), the CFTC may hold a competition and award prizes, such as including non-monetary prizes and prizes in partnership with external organizations, in order to stimulate innovation designed to advance the goals of LabCFTC, More information on innovation competitions may be found at Challenge.gov.

About LabCFTC

Launched in May 2017, LabCFTC is dedicated to facilitating market-enhancing financial technology (FinTech) innovation, fair market competition, and proactive regulatory excellence and understanding of emerging technologies. LabCFTC is designed to make the CFTC more accessible to FinTech innovators, and serves as a platform to inform the Commission’s understanding of emerging technologies. LabCFTC will enable the CFTC to be proactive and forward-thinking as FinTech applications continue to develop, and to help identify related regulatory opportunities, challenges, and, risks. More information can be found at LabCFTC.


Press Release

SEC Charges Additional Defendant in Fraudulent ICO Scheme



Washington D.C., April 20, 2018 —

The Securities and Exchange Commission today announced additional fraud charges stemming from an investigation of Centra Tech Inc.’s $32 million initial coin offering.

In an amended complaint filed today, the SEC charged one of Centra’s co-founders, Raymond Trapani, in a fraudulent scheme related to Centra’s 2017 ICO, in which the company issued “CTR Tokens” to investors.  Earlier this month, the SEC and criminal authorities charged Centra’s two other co-founders, Sohrab “Sam” Sharma and Robert Farkas, for their roles in the scheme.

“We allege that the Centra co-founders went to great lengths to create the false impression that they had developed a viable, cutting-edge technology,” said Robert A. Cohen, Chief of the SEC Enforcement Division’s Cyber Unit.  “Investors should exercise caution about investments in digital assets, especially when they are marketed with claims that seem too good to be true.”

The SEC’s amended complaint alleges that Trapani was a mastermind of Centra’s fraudulent ICO, which Centra marketed with claims about nonexistent business relationships with major credit card companies, fictional executive bios, and misrepresentations about the viability of the company’s core financial services products.  The amended complaint further alleges that Trapani and Sharma manipulated trading in the CTR Tokens to generate interest in the company and prop up the price of the tokens.

Text messages among the defendants reveal their fraudulent intent.  After receiving a cease-and-desist letter from a major bank directing him to remove any reference to the bank from Centra’s marketing materials, Sharma texted to Farkas and Trapani: “[w]e gotta get that s[***] removed everywhere and blame freelancers lol.”  And, while trying to get the CTR Tokens listed on an exchange using phony credentials, Trapani texted Sharma to “cook me up” a false document, prompting Sharma to reply, “Don’t text me that s[***] lol.  Delete.”

The SEC’s amended complaint, filed in federal court in Manhattan, charges Trapani with violating the anti-fraud and registration provisions of the federal securities laws.  The amended complaint seeks permanent injunctions, the return of allegedly ill-gotten gains plus interest and penalties, as well as bars against Trapani prohibiting him from serving as a public company officer or director and from participating in any offering of digital or other securities.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Trapani.

The Commission’s investigation, which is continuing, is being conducted by Jon A. Daniels, Luke M. Fitzgerald, and Alison R. Levine of the Cyber Unit and New York Regional Office. The case is being supervised by Valerie A. Szczepanik and Mr. Cohen.  The litigation is being conducted by Mr. Daniels, Mr. Fitzgerald, and Ms. Levine, and supervised by Ms. Szczepanik.

The Commission wishes to acknowledge the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Manhattan District Attorney’s Office.  The Commission also acknowledges the assistance of the Conference of State Bank Supervisors, which maintains a database of state-licensed financial companies that investors can access before deciding to invest in a company claiming to have state licenses.





April 18, 2018

CFTC Charges Multiple Individuals and Companies with Operating a Fraudulent Scheme Involving Binary Options and a Virtual Currency Known as ATM Coin

U.S. District Court for the Eastern District of New York Issues Emergency Order Freezing Defendants’ Assets and Granting the CFTC Immediate Access to Defendants’ Books and Records

Washington DC – The Commodity Futures Trading Commission (CFTC) announced the filing of a Complaint in the U.S. District Court for the Eastern District of New York charging Defendants Blake Harrison Kantor, who frequently uses the alias Bill Gordon, and Nathan Mullins, both of New York, and the entities Blue Bit Banc, located in the United Kingdom, Blue Bit Analytics, Ltd.(Analytics) located in Nevis, Turks, and Caicos, and Mercury Cove, Inc. and G. Thomas Client Services (G. Thomas), both New York corporations, with operating a  fraudulent scheme involving binary options and a virtual currency known as ATM Coin.

The CFTC’s Complaint, filed on April 16, 2018, also charges Blue Wolf Sales Consultants, a New York company owned by Kantor, as a Relief Defendant for receiving customer funds.  In addition, the CFTC’s Complaint charges Kantor, Blue Bit Analytics, and G. Thomas Client Services with accepting customer funds and illegally acting as Futures Commission Merchants without being registered with the CFTC.  The Complaint also alleges that the Defendants acted as a common enterprise in carrying out their fraudulent scheme.

U.S. District Court Judge Sandra J Feuerstein on April 17, 2018, entered a Statutory Restraining Order freezing the Defendants’ and Relief Defendant’s assets, prohibiting them from destroying their books and records, and granting the CFTC immediate access to those records.  The Court has scheduled a hearing for April 26, 2018, to determine, among other things, whether to enter an order for preliminary injunction against the Defendants and continue the freeze on Defendants’ assets.  On April 16, 2018, the United States Attorney for the Eastern District of New York filed a parallel criminal action, which charges Kantor with fraudulent conduct, including conduct that is the subject of the CFTC’s action.  See United States v. Blake Kantor aka Bill Gordon, Case No. 18 CR 177 (E.D.N.Y.).

CFTC’s Director of Enforcement Comments

James McDonald, the CFTC’s Director of Enforcement, commented:  “As this action shows, the CFTC is continuing its efforts to root out fraud in our markets.  To achieve this goal, we will work closely and in parallel with our law enforcement partners, which is particularly important in cases like this one, where the Defendants allegedly sought to make their fraudulent scheme more difficult to detect by stretching it across multiple markets, including a virtual currency known as ATM Coin.”

U.S. Attorney Richard Donohue Comments

“As alleged, Kantor used a computer program to generate manipulated data to cheat hundreds of investors out of their hard-earned savings,” stated U.S. Attorney Donoghue.  “To cover-up his fraudulent scheme, Kantor then lied to the FBI and ordered the alteration of documents that would assist agents in identifying his victims.  We will continue to work closely with our law enforcement partners to vigorously prosecute individuals who defraud the investing public and obstruct law enforcement’s ability to detect and prosecute financial crimes.”

Defendants’ Fraudulent Scheme

Binary options are transactions that allow customers to make predictive trades as to whether the price of a certain commodity will rise or fall by a certain date and time.  As alleged in the CFTC’s Complaint, binary options must be traded on a registered board of trade in order to be lawfully offered in the United States.  The Complaint alleges that none of the Defendants execute transactions on a registered board of trade and none has ever been registered with the CFTC in any capacity.

The Complaint alleges that since at least April 2014 and continuing to the present, the Defendants have solicited potential customers through emails, phone calls, and a website to purchase illegal off-exchange binary options.  According to the Complaint, Defendants falsely claimed customers’ accounts would generate significant profits based upon Kantor’s purported past profitable trading.  Also according to the Complaint, Defendants misappropriated a substantial amount of the customer funds for the Defendants’ own personal use.

Defendants sought to cover up their misappropriation by inviting customers to transfer their binary options account balances into a virtual currency known as ATM Coin.  According to the Complaint, some customers agreed to transfer their funds into ATM Coin, and at least one customer sent additional money to Defendants to purchase additional ATM Coin.  Defendants then allegedly misrepresented to customers that their ATM Coin holdings were worth substantial sums of money.

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 permanent injunctions from future violations of the Commodity Exchange Act and CFTC Regulations, as charged.

The CFTC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York, the FBI’s New York Field Office, and IRS-Criminal Investigation.

This case is brought in connection with the CFTC Division of Enforcement Virtual Currency Task Force, and the staff members responsible for this case are Susan Padove, Joseph Patrick, David Terrell, Scott Williamson, and Rosemary Hollinger.

*  *  *  *  *  * *

CFTC’s Recent Customer Fraud Advisories

CFTC’s Customer Fraud Advisory on Virtual Currencies and Bitcoin 

The CFTC has issued a Customer Advisory on the Risks of Virtual Currency Trading to inform the public of possible risks associated with investing or speculating in virtual currencies or recently launched Bitcoin futures and options.   See additional bitcoin information, including a warning on Pump & Dump schemes.  The CFTC has also issued several other customer protection Fraud Advisories that provide the warning signs of fraud.

CFTC’s Binary Options Customer Fraud Advisory and “RED” List

The CFTC has issued a Consumer Alert to warn about fraudulent schemes involving binary options and their trading platforms. The Alert warns customers that the perpetrators of these unlawful schemes allegedly refuse to credit customer accounts, deny fund reimbursement, commit identity theft, and manipulate software to generate losing trades.  (See the CFTC’s “RED Lists” [Registration Deficient Lists] information in the following CFTC Press Releases: 7224-15 September 9, 2015; 7363-16 April 18, 2016; 7551-17 April 25, 2017; and 7663-17 December 15, 2017.)

How to Report Suspicious Activities or Information to the CFTC

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.


Complaint: Blue Bit Banc

Order: Blue Bit Banc





April 18, 2018

New CFTC Videos Give Inside Look at Binary Options Fraud

Victims’ Stories Illustrate Why Investors Should Beware of Unregistered Exchanges

Washington, DC —The Commodity Futures Trading Commission (CFTC) today released The Truth Behind Binary Options Fraud, new videos that give viewers a first-hand look at the tactics shrewd fraudsters use to con investors out of hundreds or even thousands of dollars.

Click here to view The Truth Behind Binary Options Fraud Video Series

“Binary options can be helpful hedging tools for some traders, but there are only a few entities that can legitimately do business with individual investors in the U.S.,” said Erica Elliott Richardson, CFTC Director of Public Affairs. “These videos serve as a wake-up call to investors to check the registration of the company they are trusting with their money.”

In this two-part episode, experienced investors Nick Morrison and Lowell Enlow tell their stories of how they were swindled in a binary options scheme that ultimately stole more than $1 million from victims in the United States. Their ordeal illustrates how even seasoned investors can be fooled when fraudsters build legitimacy by promoting supposedly infallible trading platform software with convincing online advertisements and fake testimonials and reviews.

The Truth Behind Binary Options Fraud is the second installment of True Fraud Stories, a video series about real people losing their hard earned money to fraudulent financial schemes.

To watch the binary options fraud videos, visit SmartCheck.gov/Videos.

The CFTC created these videos about binary options fraud because it has a global reach – most of the fraudulent operations are based in other countries with no physical location or people in the United States. These fraudsters use the Web, social media, mobile apps, and telephone pitches from so called “brokers” to lure victims into the scams and then drain the investors’ credit card accounts.

It is common for these fraudsters to create professional looking websites that resemble legitimate trading platforms. On these fraudulent sites, investors can quickly and easily open accounts, fund the accounts with their credit cards, place trades, and manage gains and losses. However, not all binary options trading is fraudulent. Binary options can be legally traded on regulated exchanges in the United States. Registered exchanges and brokers must agree to uphold requirements put in place by the CFTC and other regulators. Although registration is no guarantee against fraud or mismanagement, it does bring a higher level of security and accountability to the public.

The CFTC launched SmartCheck.gov in 2014 to make it easy for investors to conduct background checks of financial professionals and firms to ensure they are registered. CFTC also publishes the Registration Deficient List (RED List) that identifies unregistered foreign entities that the CFTC has reason to believe are soliciting and accepting funds from U.S. residents at a retail level for, among other things, trading in binary options or foreign currency and are required to register with the CFTC, but are not registered.

“We strongly encourage investors to take the simple first step of checking the registration status of their broker on SmartCheck.gov or the RED List before trading,” said Dan Rutherford, Deputy Director of CFTC’s Office of Customer Education and Outreach. “In addition to the videos, the SmartCheck website offers resources and tools to help traders and investors spot other warning signs of fraud and a direct way to report suspicious activity.”

About CFTC SmartCheck

CFTC SmartCheck is an educational initiative of the CFTC’s Office of Customer Education and Outreach. SmartCheck.gov provides the public with tools that help them research the credentials of financial professionals, uncover past disciplinary histories, and stay ahead of scam artists with news and alerts. The campaign is central to CFTC’s commitment to help protect the public through robust fraud prevention and investor education. Learn more about CFTC SmartCheck on Facebook at facebook.com/CFTCSmartCheck or Twitter at twitter.com/CFTCSmartCheck.



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