NY Metro Hedgefund Law & News

Margin Accounts: Rules for Calculating Margins on Leveraged ETF's and Impact on Day Trading Buying Power

Part I - A Quick Primer on Margin

Introduction

Margin means a person borrows money from the person's broker to purchase securities.

Buying with borrowed money can be extremely risky because both gains and losses are amplified. That is, while the potential for greater profit exists, this comes at  price - the potential for greater losses. However, properly used, margin can be a very valuable tool in the arsenal of a sophisticated investor.

Margin is not static. Margin is based on an investor's equity in a position. So as a position moves against an investor the amount of capital the investor must have available in the account to meet the margin requirement increases. Conversely, as a position moves in favor of an investor, capital the investor has available in the account to meet the margin requirement increases freeing it for investment in other positions.

Margin Example 1 - Decrease in Value

Assuming a 50% margin (this is not the rate for ETF's) a person would have $50,000 equity and $50,000 debit in a $100,000 long position. If the value of the position declined to $90,000 the person's equity would be only $40,000 and the person would have to put up, or have available in the account, an additional $5,000 to maintain the position. This is essentially known as a margin call. If this margin call was not timely met then the broker would sell from the position to the extent needed to raise the additional $5,000.

Margin Example 2 - Increase in Value

Assume the same facts except the value of the position increases to $110,000. Now the person has $60,000 of equity which is $5,000 in excess of what the person needs to maintain the position. The $5,000 excess is available to invest in other positions.

Interest on Margin Accounts

In addition, the broker will charge interest on the debit amount in a margin account. At the date of posting of this article  starting effective margin rates on smaller retail debit balances were around 8.5% to 9%,

Part II - ETF Margin Requirements (Basic)

ETFs are typically registered unit investment trusts (UITs) or open-end investment companies whose shares represent an interest in a portfolio of  securities that track an underlying benchmark or index. However, some ETFs that invest in commodities, currencies, or commodity—or currency—based instruments are not registered as investment companies. Unlike traditional UITs or mutual funds, shares of ETFs typically trade throughout the day on an exchange at prices established by the market.

A few years ago margin calculation for most  ETF positions in margin accounts was straightforward: 25% maintenance margin requirement on long ETF's and 30% on short ETF's was the standard.

However, effective December 1, 2009, on leveraged ETF's, the calculation became more complex.

Because ETF leverage means 2 times or 3 times the move of the underlying, the margin on leverged ETF is now (since 2009) based on the degree of leverage. The maintenance level of 25% for longs grows by the 2x or 3x mutiples. The same for shorts except the "base" level is 30%. Nonetheless, the margin requirement will not exceed 100% of the value of the ETF in any circumstances.

Here are the current rules:

2x Long
If a person buys shares of a 2x ETF on margin, the  old maintenance requirement was 25%. Under current rules, this went up to 50%, or twice the old level (25% x 2).

2x Long Example

Long 100 shares ABC ETF@28.00 (200% leverage)
Market Value: 2,800
Maintenance Requirement: 2 x .25 = .50
2,800 x .50 = 1,400

3x Long
Maintenance on 3x leverage margin purchase changed from the previous level of 25% to the current level of 75% (25% x 3).

2x Short
When a person shorts shares in a 2x, the previous level of 30% for short positions doubles to 60% (30% x 2).

3x Short
The same rule is applied to 3x leverage. The previous level of 30% grows to a maintenance requirement of 90% (30% x 3).

3X Short Example

Short 100 shares DEF ETF@26.00 (300% leverage)
Market Value: 2,600
Maintenance Requirement: 3 x .30 = .90
2,600 x .90 = 2,340

The action increasing the margin requirement,  was a response to the greater exposure associated with leverage. The Financial Industry Regulatory Authority (FINRA) explained, "FINRA believes higher margin levels are necessary.”

The FINRA rules also deal with margins on options on leveraged ETF's as well as the impact of leveraged ET's on day trading power of an account.

Part III - Margin on Options on ETF's

FINRA also increased the maintenance margin requirements for listed and over-the- counter uncovered options on leveraged ETFs in a similar fashion. Prior to December 1, 2009, the maintenancemargin requirement for a listed, uncovered option overlying an ETF on a broad-based index or benchmark was:

• 100% of the option premium;
• plus 15% of the ETF market value;
• minus any out-of-the-money amount;

subject to a minimumrequirement of:

• 100% of the option premiumplus 10% of the ETF market value for call options; and
• 100% of the option premiumplus 10% of the exercise amount for put options.

For a listed, uncovered option overlying an ETF on a narrow-based index or benchmark,
the percentage of the ETF market value was 20%.

For a listed, uncovered option on a leveraged ETF, the formula above continued to
apply; however, the percentages of the underlying ETFmarket value were to be determined
using the same methodology as the underlying ETF. Thus, instead of using 15% of the
ETF market value for a broad-based ETF and 20% for a narrow-based ETF, a leveraged
ETF at 200% had  to and has to now use 30% (two times 15%,or 40% for narrow-based) of the market
value, and a leveraged ETF at 300% had to and has to now use 45% (three times 15%, or 60% for
narrow-based).

Part IV - Efect of Leveraged ETF's on Day Trading Buying Power

For day-trading purposes, the calculations to determine day-trading buying power
and day-trade calls also became based on the amount of leverage on the ETF with effect at December 1, 2009. Thus, the day-trading buying power on a leveraged ETF needed to and need to include the higher margin requirements described above.

The following example should help demonstrate the calculation of day-trading buying
power as it relates to a leveraged ETF:
    Customer A has a total, long market value, based on the previous nights’ close of
    business, of $100,000. The market value is composed entirely of long positions in a
    300% leveraged ETF. The customer is carrying a margin debit balance of $20,000.
    The day-trading buying power is computed as follows:

    TotalMarket Value:                      $100,000
    Debit Balance:                             $20,000
    Account Equity:                            $80,000
    FINRA Maintenance Requirement:  $75,000 (3 times the normal $25,000
                                                        maintenance requirement)
    FINRA Excess Equity:                     $5,000
    Day-Trading Buying Power:             $6,665

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A full explanation of the ETF margin rules appears at FINRA Regulatory Notice 09-53

 

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Robert Kiggins, Esq. of McCarthy Fingar LLP, is editor of the blog, and may be reached at (914) 385-1024 or rkiggins@mccarthyfingar.com.

Nothing is this blog is intended to be or may be relied upon as specific legal advice. Securities and related laws are complex and facts are different from case to case. Competent counsel should be consulted. Views expressed by the author in this article are his own and not those of any other person.

Implementation of Dodd-Frank Poses Concerns for Derivatives Industry Customers

THE FOLLOWING ARTICLE WAS CONTRIBUTED BY MY GOOD FRIEND AND COLLEAGUE AMIT CHHABRA

The Dodd-Frank Wall Street Reform and Consumer Protection Act continues to pose uncertainty and documentation challenges for derivatives end-user with little clarity in sight. Currently, we can expect much of Dodd-Frank to become effective within 60 days of final regulatory approval, and no later than December 31, 2011.

Some of the more pressing concerns include, but are not limited to, the following:

1. Under the current plan, dealers still need to notify uncleared swaps counter-parties of their right to have collateral held in a segregated account with an independent third-party custodian. The CFTC did not issue a no-action letter with respect to certain municipal entities and individuals prior to the July 16 deadline, so that concern has already been phased in. The International Swaps Dealers Association (ISDA) did not produce a protocol to ease compliance with the notice requirement, so end-users should not rely on that happening in the future either.

2. As in the futures context, dealers will need to have a custodian relationship in place for customer funds. Collateral teams will need to work with custodians and end-users to have these functional by the time this requirement kicks in. Moreover, the industry continues to await further clarity about which party - the dealer or the end-user - has the power to decide which third-party custodian may hold funds.

3. End-users and dealers need to ensure that Credit Support Annexes are in place or amended for uncleared swaps, and Wall Street still need clarity on which of these trades (if any) would be “grandfathered” under pre-Dodd Frank rules.

4. Dealers need to determine which US entity should enter uncleared swap trades and securities-based swap (SBS) trades, in light of proposed margin and capital requirements.

5. Futures contracts require a separate customer pooled account for foreign and domestic customers. Questions abound as to whether US futures commission merchants (FCMs) should clear for foreign customers and the form such an agreement might take, as well as what role these entities should play where a non-US clearinghouse does not even mandate that the broker be registered as an FCM.

6. End-users need to work with their dealers to determine how they can fund their accounts for routine debits, whether margin financing will be offered, and what form such an agreement would take, i.e., how to link the security interest under the margin financing with the OTC and cleared exposure. Where does the futures security interest fit into this picture?

7. We can expect securities-based swaps to be regulated like securities. For cleared SBS, we should expect to see specific requirements pertaining to the handling of collateral.

8. The playing field for these undertakings will be leveled, with custom-tailored negotiation guidelines required by end-users. These must account for the customer clearing relationship, the concerns of the execution agreement that ISDA/FIA have proposed, and relationships undertaken in the name of affiliates.

9. A few recent developments: The CFTC has published final whistleblower rules, though there is concern that the SEC’s rules undermine efforts to protect employees that wish to expose fraud. The CFTC does not consider it appropriate for an employee to report misconduct internally.

Additionally, CFTC Chair Gary Gensler has indicated that in September he will look at clarifying the proposed swap phase-in rules, position limits, clearinghouse core principles, business conduct and entity definitions, trading, data reporting, and end-user exemptions.

Much more needs to be monitored and many open questions remain that only final rules can be expected to answer.

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Robert Kiggins, Esq. of McCarthy Fingar LLP, is editor of the blog, and may be reached at (914) 385-1024 or rkiggins@mccarthyfingar.com.

Nothing is this blog is intended to be or may be relied upon as specific legal advice. Securities and related laws are complex and facts are different from case to case. Competent counsel should be consulted. Views expressed by the author in this article are his own and not those of any other person.

Amit Chhabra is a Member of TCG Advisory, LLC and can be contacted at amit@tcadvisory.net.

 

An SRO for Investment Advisers??

House Financial Services Committee Chairman Spencer Bachus (R-Ala)  has introduced a bill for The Investment Adviser Oversight Act of 2011 to the Congress.

The essence of the legislation would be to create a special self regulatory organization (SRO) strictly for investment advisers. Apparently, the theory is that the SEC and the state regulators don't have the resources to adequately oversee the industry.

The idea is that the investment advisers, instead of the taxpayers, will foot the bill for their own regulation and oversight.

The current draft of the bill would exclude the following from oversight by a “registered national investment adviser association”:

• Investment companies (mutual fund advisors)
• Non-U.S. persons
• Clients that in aggregate own at least $25 million in investments
• Various religious, education or charitable entities
• Stock pension plans and collective trusts
• Private equity funds
• Venture capital fund

As you can imagine the bill has produced some strong reactions from the industry. Stay tuned.

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Robert Kiggins, Esq. of McCarthy Fingar LLP, is author of the blog, and may be reached at (914) 385-1024 or rkiggins@mccarthyfingar.com.

Nothing is this blog is intended to be or may be relied upon as specific legal advice. Securities and related laws are complex and facts are different from case to case. Competent counsel should be consulted. Views expressed by the author in this article are his own and not those of any other person.

NY Based Mid Sized Investment Advisers Must Continue to Register with the SEC

The mine-run of  mid-sized ($25 Million to $100 Million in Assets Under Management) SEC registered investment advisers will not be permitted to maintain SEC registration  when Dodd-Frank is fully implemented. Rather they will be subject to state registration.

However, recent SEC interpretive guidance on mid-sized adviser registration provdes that a mid-sized adviser with its principal office and place of business in New York is not “subject to examination” by the state securities authority (the NY Attorney General's Office)  and, accordingly, would continue to have to be registered with the SEC.

Apperently this position came about because in response to an SEC survey, regulators in Minnesota, New York and Wyoming did not advise the SEC staff that advisers registered with them are subject to examination; therefore, mid-sized advisers in these states were to continue to register with the SEC. Minnesota has since reported an examination requirement so New York and Wyoming remain the only states where mid-sized investment advisers will remain required to be SEC registered.

Based on recent figures, this will affect almost 300 mid-sized investment advisers in New York.  The figures showed only 1 Wyoming mid-sized investment adviser.

I did get oral confirmation, from a spokesperson from the New York Attorney General's Office, that New York does not in fact have compliance examinations, at least regular ones, of its registered investment advisers.  The individual I spoke to could not comment on whether this would change in the future.

It would seem the outlook in New York is cloudy but that for the time being mid-sized NY based investment advisers will be SEC registered and not NY registered.  

Finally, even the use of the word "examination" is a little tricky. Many states including NY have examination requirements in the sense that indviduals affiliated with  investment advisers need to have taken and passed qualifying examinations  to demonstate competence to act as investment advisers. However, what the SEC is referring is an actual compliance "examinations" to ascertain that an investment adviser is operating in compliance with applicable laws and regulationg governing registered investment advisers.

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Robert Kiggins, Esq. of McCarthy Fingar LLP, is author of the blog, and may be reached at (914) 385-1024 or rkiggins@mccarthyfingar.com.

Nothing is this blog is intended to be or may be relied upon as specific legal advice. Securities and related laws are complex and facts are different from case to case. Competent counsel should be consulted. Views expressed by the author in this article are his own and not those of any other person.

 

Investment Advisers with Between $25 Million to $100 Million in Assets under Mangement are Expected to Get Additional Time to Transition From SEC to State Registration

MId-sized investment advisors (advisors with between $25 million and $100 million in assets under mangagement) will be required to withdraw from SEC registration and become state registered. In view of this,  all advisers registered with the SEC as of July 21, 2011 were going to be required to report their eligibility for SEC registration by August 20, 2011. In turn, advisers who reported mid-sized adviser status would have been required to be state registered by October 19, 2011.

However, an April 8, 2011 letter (cited in my article immediately below) from an associate SEC director indicates that the SEC is now expected to consider  extending the date by which mid-sized advisers will be required to report their eligibility for SEC registration until the 1st quarter of 2012. Additionally, those no longer eligible for SEC registration would have  a grace period giving  them time to register with the appropriate state(s) before withdrawing their SEC registration.

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Robert Kiggins, Esq. of McCarthy Fingar LLP, is author of the blog, and may be reached at (914) 385-1024 or rkiggins@mccarthyfingar.com.

Nothing is this blog is intended to be or may be relied upon as specific legal advice. Securities and related laws are complex and facts are different from case to case. Competent counsel should be consulted. Views expressed by the author in this article are his own and not those of any other person.

Extension of Time for SEC Registration of Hedge and Private Equity Funds is Anticipated

Private equity and hedge funds with over $150 million in assets under mangagement were slated to be required to register with the SEC by July 21, 2011.

However, an April 8, 2011 letter from Robert. E. Plaze, an Associate Director of the SEC, stated that it was expected that  SEC would consider extending the deadline for registration  until the 1st quarter of 2012.  Mr. Plaze also stated in his letter that the SEC will isue final rules regarding exemptions from registration for venture capital funds and funds with less than $150 million under management in advance of July 21, 2011.

 

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Robert Kiggins, Esq. of McCarthy Fingar LLP, is author of the blog, and may be reached at (914) 385-1024 or rkiggins@mccarthyfingar.com.

Nothing is this blog is intended to be or may be relied upon as specific legal advice. Securities and related laws are complex and facts are different from case to case. Competent counsel should be consulted. Views expressed by the author in this article are his own and not those of any other person.

FINRA Outlines Due Diligence Responsibilities for Broker-Dealers in Private Placements

A number of lawsuits, some in the form of class actions,  have recently been brought against broker-dealers ("BD's") for allegedly  failing to properly conduct due diligence on private placement securities.  When a firm loses one of these cases, damages can be substantial and in some instances enough to bring down the entire firm.

Perhaps it is time to review BD due diligence obligations and specifically  FINRA's (the acronymn stands for the Financial Industry Regulatory Authority) view of the same. In Regulatory Notice 10-22 FINRA reminded BD's of  their obligation to conduct a reasonable investigation of the issuer and securities they recommend in private placement (Regulation D) offerings.

The Notice cited instances of BD fraud and sales practice abuse such as provision of private placement memoranda and sales materials to investors that contained inaccurate statements or omitted material information needed for investors to make informed investment decisions.

Noting that failure to conduct reasonable due diligence could be a violation of anti-fraud provisions of  the securities laws[1] as well as FINRA rules[2], the Notice referred to the courts having found that the amount and nature of the investigation required depended, on among other factors, the role of the BD in the transaction, its knowledge of and relationship to the issuer, (a BD affiliated with an issuer has to ensure that its affiliation does not compromise its independence in its investigation) and the size and stability of the issuer.  For example,  a newer, smaller issuer, which  would include many issuers in private placements , would require a more thorough investigation. 

Also,  the Notice  pointed out that the presence of “red flags” [3] in an offering should alert a BD to conduct further inquiry.  Interestingly enough,  although acknowledging that private placement memoranda were not  required for private placements to  “accredited investors” in Rule 505 or 506 offerings under Regulation D,  the Notice questioned, in view of the fact that such private placement memoranda were commonly used in Regulation D offerings, whether the absence of such a memorandum might be a red flag.

Many BD retain counsel or outside experts to assist the firm in due diligence.  However, the Notice makes it dear that a BD needs to carefully screen the qualifications and competence of such persons, ensure that all gaps or omissions in such third party investigation are addressed by the BD, and that the BD itself is responsible to conduct such further investigation as a review of the counsel’s or expert’s report might  indicate.

A BD which is only  a member of a selling group or a syndicate may rely upon the due diligence of the syndicate manager if the BD has reason to believe that the syndicate manager has the needed expertise and absence of conflicts to conduct a proper investigation,  and that in fact the syndicate manager did perform such inquiry. The BD should meet with the manager, obtain a description of the due diligence activities of the manager,  and ask questions of the manager with regard to the manager’s independence and the thoroughness of the manager’s investigation.  Also the BD maintains responsibility to  conduct its own due diligence on issues not covered by the  manager.

The Notice also reminded broker-dealers that securities offered in private placements  had to meet the suitability requirements of NASD Rule 2310 and comply with  FINRA and SEC advertising and suitability rules.  Moreover,  the Notice detailed the records a BD should keep to document that it undertook a reasonable investigation.

While noting that no single checklist would suffice for every due diligence investigation, the Notice did give the following list of practices that some firms have used to help them in carrying out their due diligence responsibilities:

A. Issuer and Management

Reasonable investigations of the issuer and its management concerning the issuer’s history and management’s background and qualifications to conduct the business might include:

 Examining the issuer’s governing documents, including any charter, bylaws and partnership agreement, noting particularly the amount of its authorized stock and any restriction on its activities. If the issuer is a corporation, a BD might determine whether it has perpetual existence.

Examining historical financial statements of the issuer and its affiliates, with particular focus, if available, on financial statements that have been audited by an independent certified public accountant and auditor letters to management.

 Looking for any trends indicated by the financial statements.

 Inquiring about the business of affiliates of the issuer and the extent to which any cash needs or other expectations for the affiliate might affect the business prospects of the issuer.

Inquiring about internal audit controls of the issuer.

 Contacting customers and suppliers regarding their dealing with the issuer.

 Reviewing the issuer’s contracts, leases, mortgages, financing arrangements, contractual arrangements between the issuer and its management, employment agreements and stock option plans.

Inquiring about past securities offerings by the issuer and the degree of their success while keeping in mind that simply because a certain product or sponsor historically met obligations to investors, there are no guarantees that it will continue to do so, particularly if the issuer has been dependent on continuously raising new capital. This inquiry could be especially important for any blind pool or blank-check offering.

 Inquiring about pending litigation of the issuer or its affiliates.

Inquiring about previous or potential regulatory or disciplinary problems of the issuer. A BD might make a credit check of the issuer.

 Making reasonable inquiries concerning the issuer’s management. A BD might inquire about such issues as the expertise of management for the issuer’s business and the extent to which management has changed or is expected to change. For example, a BD might inquire about any regulatory or disciplinary history on the part of management and any loans or other transactions between the issuer or its affiliates and members of management that might be inappropriate or might otherwise affect the issuer’s business.

Inquiring about the forms and amount of management compensation, who determines the compensation and the extent to which the forms of compensation could present serious conflicts of interest. A BD might make similar inquiries concerning the qualifications and integrity of any board of directors or similar body of the issuer.

 Inquiring about the length of time that the issuer has been in business and whether the focus of its business is expected to change.

B. Issuer’s Business Prospects

Reasonable investigations of the issuer’s business prospects, and the relationship of those prospects to the proposed price of the securities being offered, might include:

Inquiring about the viability of any patent or other intellectual property rights held by the issuer.

 Inquiring about the industry in which the issuer conducts its business, the prospects for that industry, any existing or potential regulatory restrictions on that business and the competitive position of the issuer.

Requesting any business plan, business model or other description of the business intentions of the issuer and its management and their expectations for the business, and analyzing management’s assumptions upon which any business forecast is based. A BD might test models with information from representative assets to validate projected returns, break-even points and similar information provided to investors.

Requesting financial models used to generate projections or targeted returns.

 Maintaining in the BD’s files a summary of the analysis that was performed on financial models provided by the issuer that detail the results of any stress tests performed on the issuer’s assumptions and projections.

C. Issuer’s Assets

Reasonable investigations of the quality of the assets and facilities of the issuer might include:

Visiting and inspecting a sample of the issuer’s assets and facilities to determine whether the value of assets reflected in the financial statements is reasonable and that management’s assertions concerning the condition of the issuer’s physical plants and the adequacy of its equipment are accurate.

Carefully examining any geological, land use, engineering or other reports by third-party experts that may raise red flags.

 Obtaining, with respect to energy development and exploration programs, expert opinions from engineers, geologists and others are necessary as a basis for determining the suitability of the investment prior to recommending the security to investors.

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Robert Kiggins, Esq. of McCarthy Fingar LLP, is author of the blog, and may be reached at (914) 385-1024 or rkiggins@mccarthyfingar.com.

Nothing is this blog is intended to be or may be relied upon as specific legal advice. Securities and related laws are complex and facts are different from case to case. Competent counsel should be consulted. Views expressed by the author in this article are his own and not those of any other person.

 

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[1] E.g. Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereof.

[2]  See FINRA Rule 2010 and FINRA Rule 2020.

[3] The Notice cited a federal case where the court held that the duty to investigate is greater “where promotional materials are in some way questionable, for example by promising unusually high returns”; the Notice citing another federal case also referred  to  inability to rely on audited financial statements where there were “red flags” that indicated the financial statements were inaccurate; also an issuer's refusal to provide information was cited as another red flag

NASAA Proposed Rules on Custody - Relief for Private Investment Fund Managers from Having to Furnish Custodial Statements?

As a consequence of  the Dodd-Frank Financial Reform Act, starting later this year,  currently by  October 19, 2011, about 4,000 investment advisers with assets under management of over $30 Million but under $100 Million  who are SEC registered will be required to terminate their SEC registration and become state registered.

This will expose these investment advisers to primary regulation under state laws. In turn, states tend to look to the North American Securities Administrators Association (NASAA) in adopting rules for regulation of investment advisers. This has possibilities for disparate federal-state treatment of a significant portion of the investment adviser industry and the first of these (post Dodd-Frank) has manifested itself in the area of custody.

Under federal rules private investment fund managers registered with the SEC as investment advisers are required to comply with the SEC custody rules. These rules can be quite onerous. Nonetheless, most private investment fund managers can comply with the SEC rules by furnishing copies of annual audited financial statements of the fund to their investors. As virtually all of these funds are audited, this imposes no special hardship on them.

However, last month,  NASAA  proposed rules for custody which would also have required, as to fund managers who are state registered as investment advisers, that these fund managers, in addition to annual audited statements, furnish their investors with quarterly statements ("custodial statements") showing all the transactions in the fund, cash balance, and positions at the end of the quarter.  That may sound like an innocuous addition but comment letters to NASAA from the industry argued strenuously that such disclosure would undermine the confidentiality of proprietary trading strategies and put smaller funds at a competitive disadvantage to larger SEC regulated ones that did not have to make these disclosures.

The custody rule proposal and comment letters can be viewed on the NASAA website at:  http://www.nasaa.org/issues___answers/regulatory_activity/14085.cfm

 It appears that NASAA is working on a revision of the requirements for advisers to private funds regarding the quarterly custodial statement requirements which will likely be rereleased for comment soon.

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Robert Kiggins, Esq. of McCarthy Fingar LLP, is author of the blog, and may be reached at (914) 385-1024 or rkiggins@mccarthyfingar.com.

Nothing is this blog is intended to be or may be relied upon as specific legal advice. Securities and related laws are complex and competent counsel should be consulted. Views expressed by the author in this article are his own and not those of any other person.

 

List of Dodd Frank Rules Proposed by the CFTC in 2011

As anticipated the Commodities Futures Trading Commission has been extremely active in 2011 in rule making proposals to implement Dodd-Frank. Here is a list of the 2011 proposals to date with links to the actual proposals and comment files.

1/6/2011

76 FR 722 // PDF Version
17 CFR Parts 1, 37, 38, 39, and 40 Governance Requirements for Derivatives Clearing Organizations, Designated Contract Markets, and Swap Execution Facilities; Additional Requirements Regarding the Mitigation of Conflicts of Interest
Comment File - Closing Date: 3/7/2011
Regarding Rulemaking: IX. Governance & Possible Limits

1/7/2011

76 FR 1214 // PDF Version
17 CFR Part 37 Core Principles and Other Requirements for Swap Execution Facilities
Comment File - Closing Date: 3/8/2011
Regarding Rulemaking: XIII. SEF Registration

1/20/2011

76 FR 3698 // PDF Version
17 CFR Part 39 Risk Management Requirements for Derivatives Clearing Organizations
Comment File - Closing Date: 3/21/2011
Regarding Rulemaking: VII. DCO Core Principles

2/3/2011

76 FR 6095 // PDF Version
17 CFR Parts 3, 32, 33, and 35 Commodity Options and Agricultural Swaps
Comment File - Closing Date: 4/4/2011
Regarding Rulemaking: XIX. Agricultural Swaps

2/8/2011

76 FR 6715 // PDF Version
17 CFR Part 23 Swap Trading Relationship Documentation Requirements for Swap Dealers and Major Swap Participants
Comment File - Closing Date: 4/11/2011
Regarding Rulemaking: IV. Business Conduct Standards - Internal

2/8/2011

76 FR 6708 // PDF Version
17 CFR Part 23 Orderly Liquidation Termination Provision in Swap Trading Relationship Documentation for Swap Dealers and Major Swap Participants
Comment File - Closing Date: 4/11/2011
Regarding Rulemaking: IV. Business Conduct Standards - Internal

2/11/2011

76 FR 7976 // PDF Version
17 CFR Parts 4, 145, and 147 Commodity Pool Operators and Commodity Trading Advisors: Amendments to Compliance Obligations
Comment FIle - Closing Date: 4/12/2011
Regarding Rulemaking: XXVII. Investment Adviser Reporting

2/11/2011

76 FR 8068 // PDF Version
Commodity Futures Trading Commission 17 CFR Part 4 Securities and Exchange Commission 17 CFR Parts 275 and 279 Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF
Comment File - Closing Date: 4/12/2011
Regarding Rulemaking: XXVII. Investment Adviser Reporting

3/3/2011

76 FR 11701 // PDF Version
17 CFR Part 4 Amendments to Commodity Pool Operator and Commodity Trading Advisor Regulations Resulting From the Dodd-Frank Act
Comment File - Closing Date: 5/2/2011
Regarding Rulemaking: XXXI. Conforming Amendments

3/9/2011

76 FR 12888 // PDF Version
17 CFR Part 3 Registration of Intermediaries
Comment File - Closing Date: 5/2/2011
Regarding Rulemaking: XXXI. Conforming Amendments

3/10/2011

76 FR 13101 // PDF Version
17 CFR Parts 23, 37, 38, and 39 Requirements for Processing, Clearing, and Transfer of Customer Positions
Comment File - Closing Date: 4/11/2011
Regarding Rulemaking: VII. DCO Core Principles

3/18/2011

76 FR 14943 // PDF Version
Antidisruptive Practices Authority (Proposed Interpretive Order)
Comment File - Closing Date: 5/17/2011
Regarding Rulemaking: XXIV. Disruptive Trading Practices

3/18/2011

76 FR 14826 // PDF Version
Notice: 17 CFR Chapter I Antidisruptive Practices Authority (Advance Notice of Proposed Rulemaking; Notice of Termination)

Regarding Rulemaking: XXIV. Disruptive Trading Practices

3/18/2011

76 FR 14825 // PDF Version
Comments Extension: 17 CFR Parts 1, 16, and 38 Core Principles and Other Requirements for Designated Contact Markets
Comment File - Closing Date: 4/18/2011
Regarding Rulemaking: XII. DCM Core Principles

 

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Robert Kiggins, Esq. of McCarthy Fingar LLP, is author of the blog, and may be reached at (914) 385-1024 or rkiggins@mccarthyfingar.com.

Nothing is this blog is intended to be or may be relied upon as specific legal advice. Securities and related laws are complex and competent counsel should be consulted. Views expressed by the author in this article are his own and not those of any other person.

 

The Rumor Mill - Treasury to Exempt Forex Forwards from Regulation as "Swaps"?

Rumors are abundant that Treasury will  soon adopt rules exempting foreign exchange forwards from treatment as "swaps" and hence from Dodd-Frank provisions which would otherwise require them to become exchange traded instead of via private over-the-counter transactions as at present.

There is a swirl of controversy over this. See for example: Quelle Surprise! Geithner Gutting Dodd-Frank which is a good introduction to the issues involved in the polemic.

One important thing to note is that Dodd-Frank was not meant to regulate the cash forex market. So that vast market should continue to function as in the past.

Other than that, since the comment period on the rules is long over, my own attitude is to await the issuance of the final Treasury rules. As always, the devil will be  (or won't be) in the details.

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Robert Kiggins, Esq. of McCarthy Fingar LLP, is author of the blog, and may be reached at (914) 385-1024 or rkiggins@mccarthyfingar.com.

Nothing is this blog is intended to be or may be relied upon as specific legal advice. Securities and related laws are complex and competent counsel should be consulted. Views expressed by the author in this article are his own and not those of any other person.