Five years on from the G20's commitment to implement measures to increase transparency and reduce risk in the derivative markets, there have been significant changes to regulations affecting the derivatives markets in the European Union. However, many new rules are still not yet in force and some, such as the margin requirements under the European Market Infrastructure Regulation, will not be fully implemented until 2020.
The European Commission recently published the final delegated regulation on the margin requirements for derivative trades not cleared by a central counterparty. Under the European Market and Infrastructure Regulation, certain counterparties will need to exchange both initial and variation margin in respect of derivative trades not cleared by a central counterparty. These rules will have far-reaching consequences for derivatives documentation.
The National Futures Association (NFA) recently adopted an interpretive notice that requires futures commission merchants, introducing brokers, commodity pool operators and commodity trading advisers to disclose to customers certain potential risks involved when dealing with virtual currencies and virtual currency derivatives. The notice reflects the NFA's concern that, among other things, customers may not fully understand the nature of these products or the losses that could be sustained.
The Commodity Futures Trading Commission (CFTC) recently proposed amendments to certain requirements for swap dealers and major swap participants to notify counterparties of their right to segregate initial margin for uncleared swaps. The proposal addresses several concerns previously raised by market participants about the existing rules, including through the CFTC's Project KISS initiative, which was intended to lift unnecessary regulatory burdens and reduce costs for market participants.
Commodity Futures Trading Commission (CFTC) Chair J Christopher Giancarlo and Chief Economist Bruce Tuckman recently published a white paper on potential reforms to the CFTC's swaps trading rules. The white paper proposes a series of changes to rules relating to transactions on swap execution facilities. Accompanying statements note that commission staff is expected to propose a formal rulemaking in this area in Summer 2018.
The US District Court for the Eastern District of New York recently confirmed that virtual currencies are a commodity within the anti-fraud jurisdiction of the Commodity Futures Trading Commission (CFTC). The ruling marks the first time that a federal court has affirmed the CFTC's 2015 determination that virtual currencies are 'commodities' as defined by the act. This provides the CFTC with further standing to police fraud in virtual currency spot markets.
Virtual currency exchange Gemini recently released a proposal to create the first self-regulatory organisation for US virtual currency exchanges. The so-called 'Virtual Commodity Association' (VCA), as envisioned, would be a non-profit, independent regulatory organisation that would operate to foster responsible virtual commodity markets. The VCA would also encourage greater cooperation with relevant regulators in an effort to assist with the maturation of the virtual commodity industry.
The UK Financial Conduct Authority (FCA) recently published a discussion paper to gauge market participants' views on how the future development of distributed ledger technology (DLT) should be regulated by the FCA in FCA-regulated markets. As industry efforts to use DLT continue, the FCA expects that in the second half of 2017 and into 2018 there will be more movement from the 'proof of concept' stage to 'real-world' deployments.