CFTC ACTING CHAIRMAN WETJEN ANNOUNCES 3 ACTIONS TO IMPROVE MARKETS

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

May 22, 2014

Acting Chairman Mark Wetjen Announces Three Actions to Protect Liquidity for Certain End-Users, Further Consider Certain Hedging Practices, and Promote Trading on SEFs and DCMs

Washington, DC — The Commodity Futures Trading Commission (Commission) Acting Chairman Mark Wetjen and Commissioner Scott O’Malia announced three actions to benefit utility special entities, further consider certain hedging practices for commercial market participants, and promote end-user trading on swap execution facilities (SEFs) and designated contract markets (DCMs).

Acting Chairman Mark Wetjen said, “I am pleased the Commission is acting to address the impact the special entity de minimis threshold is having on utility special entities and the markets in which they operate and to further consider the appropriate treatment of hedging practices in the marketplace today.”

“I am equally pleased,” continued Acting Chairman Wetjen, “that the Divisions are acting to promote trading on SEFs and DCMs and give certain members of these important exchanges and platforms additional time to come into compliance with Regulation 1.35(a).”

“These proposals collectively reflect our continuing efforts to ensure that market regulations accomplish their intended function without creating negative, unintended consequences, in particular for commercial end-users,” said Acting Chairman Wetjen.

”Today marks a significant victory for the end-user community and for the Commission’s rulemaking process. End-users will win today, with the proposal fixing the Special Entity rule and further relief from rule 1.35, which applied unworkable and costly recording requirements. The relief will remain effective until the Commission revisits the rule to appropriately tailor the rule’s requirements to the relevant entities and more carefully consider the costs and technological feasibility of compliance with the rule. I am pleased that the Commission has chosen to confront the shortcomings in its rules by using the proper process that is consistent with the Administrative Procedure Act,” said Commissioner O’Malia.

CFTC Issues Proposal to Amend its Regulations for Entities Entering into Swaps with Utility Special Entities

The Commission issued today a proposed rule amendment to adjust the de minimis threshold for determining if an entity that enters into swaps with utility special entities must register as a swap dealer.

The proposal would amend the Commission’s swap dealer definition to permit a person dealing in “utility operations-related swaps” with “utility special entities” to exclude those swaps in determining whether that person has exceeded the de minimis threshold specific to dealing with special entities. Under the proposal, however, such swaps would be counted for determining whether the general dealing de minimis threshold applies.

The Commission is seeking comments from the public on the proposal. The comment period will close 30 days after the proposal is published in the Federal Register.

CFTC Publishes Notice to Open Comment Period to Further Consider Certain Issues Related to Hedging of Physical Commodities

Acting Chairman Wetjen, with the support of Commissioner O’Malia, previously directed the staff to hold a public roundtable on June 19, 2014 to consider certain hedging issues relating to market practices in physical commodity derivatives.

In order to provide interested parties with an opportunity to comment on the issues to be discussed at that roundtable, the Commission is opening comment periods for two previous proposals, the Position Limits Proposal and the Aggregation Proposal, for a three-week period starting June 12, 2014 (one week before the roundtable) and ending July 3, 2014 (two weeks following the roundtable).

The Commission specifically asked market participants to comment on the following issues: hedges of a physical commodity by a commercial enterprise, including gross hedging, cross-commodity hedging, anticipatory hedging, and the process for obtaining a non-enumerated exemption; the setting of spot month limits in physical-delivery and cash-settled contracts and a conditional spot-month limit exemption; the setting of non-spot limits for wheat contracts; the aggregation exemption for certain ownership interests of greater than 50 percent in an owned entity; and aggregation based on substantially identical trading strategies.

CFTC Staff Issues No-Action Relief from Compliance with Certain Requirements under Regulation 1.35(a) for Certain Members of Designated Contract Markets or Swap Execution Facilities

To incentivize trading on SEFs and DCMs, the Commission’s Division of Swap Dealer and Intermediary Oversight and Division of Market Oversight also today issued a no-action letter that provides relief with respect to compliance with certain recordkeeping provisions of Regulation 1.35(a) to members of designated contract markets or swap execution facilities that are not registered or required to be registered with the Commission (Covered Members).

The letter provides relief, pending further Commission action, to Covered Members with respect to complying with the requirements under Regulation 1.35(a) to keep electronic text messages and to keep records in a form and manner identifiable and searchable by transaction.

CFTC ACTING CHAIRMAN WETJEN STATEMENT ON END-USERS AND DODD-FRANK

FROM:  COMMODITY FUTURES TRADING COMMISSION 
Statement of Acting Chairman Mark Wetjen at Roundtable on Dodd-Frank End-User Issues

April 3, 2014

Washington, DC—Commodity Futures Trading Commission Acting Chairman Mark Wetjen made the following statement at the public roundtable on end-users and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

“I am pleased the staff has convened today’s roundtable focusing on end-user issues and the Dodd-Frank Wall Street Reform and Consumer Protection Act. Congress was crystal clear that commercial end-users, which make up the overwhelming majority of companies in America, did not cause the crisis. Further, Congress was equally clear that in putting in place the significant derivatives reforms contained in Dodd-Frank, the derivative markets needed to remain accessible to end-users who rely on these markets for hedging and price-discovery needs.

“Looking ahead, the Commission must continue to remain open to revisiting certain rules and making adjustments as necessary. For example, the de minimis exception in the swap dealer definition for Special Entities – defined in the Dodd Frank Act to include federal, state, and municipal entities – was making it difficult for government-owned electric utilities to hedge key operational risks. In response, Commission staff recently issued temporary no-action relief that allows counterparties to exclude utility operations-related swaps from the 25 million dollar threshold.”

“Today, I am pleased to announce that I am putting into circulation a Notice of Proposed Rulemaking (NPRM) that would amend the de minimis exception to address this issue. Once the Commission issues the proposal, I look forward to receiving comment from the public and interested parties on this issue. I would like to thank the hardworking staff of the CFTC for convening this roundtable. I am looking forward to hearing the thoughts of everyone participating in the roundtable.”