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Covington offers cross-border regulatory and market expertise on the full range of issues implicated by the worldwide futures and derivatives markets. Covington’s Commodity Futures Trading Commission (CFTC) lawyers have been at the forefront of the regulatory evolution underway while serving at the CFTC in the U.S. and the Financial Conduct Authority (FCA) in the UK, working in the industry, and representing financial institutions acting as dealers and a wide spectrum of end-users, including energy companies, asset management firms, corporates, and private equity/hedge funds.
Regulatory Advocacy and Advice
In the U.S., market participants must implement and apply new Dodd-Frank Act regulations to everyday business functions. Implementation requires specialized knowledge of the new swaps regulations and the existing futures regulations combined with expertise on how the CFTC has traditionally regulated market participants. Our experience can assist clients with CFTC registrations (including swap dealer, intermediary, clearing or trading facility registrations), regulatory analysis of swaps and futures products (including cross-border application), filings related to the end-user exception, requests to CFTC Commissioners and CFTC Staff for relief from specific CFTC regulations.
Compliance Policies and Programs
Covington can assist clients in the review of existing policies and procedures and the development of new policies and procedures in order to demonstrate compliance with CFTC regulations in the U.S. and FCA rules and regulations in the UK and consistency with industry best practices. The zero-tolerance regulatory environment worldwide means that a robust compliance program must be instituted, practiced and continually updated. Covington can provide ongoing compliance advice, including on real-time issues, and training programs tailored to a client’s needs.
Enforcement Actions and Internal Investigations
The CFTC’s new enforcement authority combined with an aggressive enforcement program means clients must be prepared when conduct is discovered internally or when an investigative request is received from the CFTC. Due to our experience working at the CFTC, we can provide a focused and rapid review of conduct, as well as perform internal investigations and represent companies and employees in CFTC investigations and litigation. Because derivatives investigations often cross multiple jurisdictional boundaries, Covington has the cross-agency capabilities to assemble a collaborative team to advise clients in related enforcement actions before the Federal Energy Regulatory Commission, the U.S. Securities and Exchange Commission, the FCA in the UK, and criminal matters before the U.S. Department of Justice.
In the European Union, the futures and derivatives markets are highly regulated and are set to become even more so. EMIR—the regulation on OTC derivative transactions, central counterparties and trade repositories—imposes a number of requirements on counterparties to derivatives contracts. In addition, the Markets in Financial Instruments Directive (MiFID), which already regulates derivatives, is set for an extensive overhaul, taking account of new trading venues and technological developments which will affect the futures and derivatives markets. Similarly, the Market Abuse Directive is being substantially updated to take new trading systems and new technology into account.
Covington can advise clients on the requirements under the Directives and Regulations, both at national and European level and internationally. With our offices in London and Brussels, we work with EU institutions and agencies and with national governments, on our clients’ behalf, to navigate political processes and to influence policy. We can advise on reviews and amendments to systems and controls to meet the new requirements. Where problems occur with the regulators, we have an experienced team who can assist.
Covington advises clients on products and transactions involving the futures, commodities, and derivatives markets. We advise clients, both domestic and offshore, on the optimal structuring of their business operations in light of the regulatory changes to these markets. In addition to advice related to International Swaps and Derivatives Association documentation, we regularly advise clients on collateral arrangements, prime brokerage agreements, derivative structuring for corporate treasury functions, insolvency issues and transactional due diligence.
Prepare multiple comment letters on behalf of several trade associations related to the treatment of segregated margin for cleared derivatives under the Basel III leverage ratio.
Prepare comment letter on behalf of SIFMA AMG related to a Joint Audit Committee policy on margining of accounts held by the same beneficial owner.
Advise a derivatives trading platform on the application of the CFTC’s core principles for swap execution facilities and designated contract markets.
Advise multiple derivatives market participants, including energy company end-users, regarding the regulatory requirements for domestic and international derivatives activities, specifically the analysis of whether financial products are “swaps” under Dodd-Frank, the analysis of whether a market participant satisfies the CFTC’s swap dealer registration requirements and the application of the CFTC’s guidance on the cross-border application of Dodd-Frank on the market participant’s derivatives activities.
Advise multiple derivatives market participants on compliance with CFTC regulations, including the development of policies and procedures related to futures and swaps trading to demonstrate compliance with CFTC rules and regulations.
Provide advice to a major custody bank related to the CFTC requirements for customer collateral, including rules related to the interactions with futures commission merchants and clearinghouses.
Conduct real-time reviews of futures and swaps trading activity to verify compliance with internal hedging policies and CFTC regulations; prepare related response to the CFTC’s Division of Market Oversight special call request.
Prepare special reports for FIA and FIA Europe related to the European Securities and Markets Authority consultation process for the implementation of Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation.
Advise a U.S. investment bank with international offices on the regulatory treatment of derivatives, including the CFTC’s guidance on the cross-border application of Dodd-Frank and the related structure of the investment bank’s operations.
Advise a coalition of foreign currency intermediaries regarding the CFTC’s external business conduct regulations in the context of foreign currency prime brokerage arrangements, including a successful request for no-action relief to the CFTC.
April 24, 2017, Covington Alert
On April 19, 2017, the House Financial Services Committee (the “Committee”) released a new “discussion draft” of the Financial CHOICE Act, its comprehensive regulatory reform bill (“CHOICE Act 2.0”). The Committee released the first version of the bill (“CHOICE Act 1.0”) in June 2016.
January 19, 2017, Covington Alert
One of the most sweeping changes brought about by the Dodd-Frank Act was the introduction of a new regulatory framework for swaps trading. In 2013, the Commodity Futures Trading Commission (“CFTC”) finalized its rules on swap execution facilities (“SEFs”) and swaps trading on SEFs. Less than four years after these rules were finalized, the change in Presidential ...
November 30, 2016, Covington Alert
The Commodity Futures Trading Commission is set to begin its trial of Donald R. Wilson and his proprietary trading firm, DRW Investments, LLC (“DRW”) on December 1, 2016. In advance of this trial, this alert provides the legal theory that will be tested during this trial and other observations related to the CFTC’s pursuit of attempted manipulation.
November 14, 2016, Covington Alert
On November 8, 2016, American voters elected Republican Donald J. Trump as President. In addition, Republicans maintained control of the House of Representatives and the Senate. As the campaign rhetoric fades into the background over the coming weeks and months, the business of transitioning to a new administration will begin in earnest. The results of the ...
October 12, 2016, Covington Alert
Insider trading is a familiar term to participants in the equities markets; however, this term now has application in the swaps, futures, and commodities markets regulated by the U.S. Commodity Futures Trading Commission (CFTC). In a time of aggressive enforcement, financial market participants should be aware that insider trading is a high priority for the CFTC ...
August 30, 2016, Covington Alert
As election season enters full swing, with political candidates at all levels actively soliciting campaign donations from individuals and companies, it is an ideal time for all companies to review the policies and procedures in place for political donations. While the SEC’s pay-to-play rules governing registered investment advisers and their “covered associates” ...
June 9, 2016, The Trade
Stephen Humenik participated in a panel discussion at the Fixed Income Leaders Summit and is quoted in this The Trade article regarding the European Securities and Markets Authority’s ability to implement the MiFID II rules on bond trading without the necessary resources. According to Humenik, “Firms should go early and go often to speak with regulators in ...
February 26, 2016, Covington Alert
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