Category Archives: OTC contracts

No New Funds Expected for SEC and CFTC

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The Wall Street Journal Online reports that the Senate voted 82-14  this morning to end debate on a continuing resolution for $250 billion to fund the government through March 4, 2011.  It is expected that, after a final vote in the Senate, the resolution will be sent to the House of Representatives for a vote prior to the expiration of the current stop-gap measure at midnight tonight.

According to a Senate Appropriations Committee summary produced late Sunday, the resolution provides a small increase of $1.16 billion over 2010 spending, but it appears that there will be no new funds to help the SEC or CFTC with regulatory reform under Dodd-Frank.  According to the Wall Street Journal Online, the proposed spending plan would give the SEC authority to set up five offices mandated by Dodd-Frank, including a whistleblower office.

A $1.1 trillion omnibus bill, supported by the Democrats and hailed by the SEC and CFTC, would have included an 18% increase in the SEC’s budget ($200 million in new funding), and a 69% increase in the CFTC’s budget ($100 million of additional money).  That bill failed to garner sufficient support and, last Thursday night,  the Dow Jones Newswire reported that  Senate Majority Leader Harry Reid (D-Nev.) had announced that the Senate would focus instead on a short-term funding measure.  At that time, it was reported that the Senate Republicans were considering only a resolution proposed by Minority Leader Mitch McConnell (R-Ky.), which would have simply maintained funding at the 2010 budget levels until February 18, 2011.  The House’s version of a new measure, released in early December, would have shifted more funds to the SEC and the CFTC while maintaining the 2010 budget.

The SEC and CFTC had expected to use the new funding under the omnibus bill to allow the agencies to more  effectively carry out their new responsibilities and implement the many new rules under the Dodd-Frank Act.  These include both agencies’ supervision of the over-the-counter derivatives markets and the SEC’s new power to regulate and examine certain private fund advisers and municipal advisers.   Now, it appears that, despite these  new duties, which both SEC Chairman Mary Schapiro and CFTC Chairman Gary Gensler have said require hiring hundreds of new staff members and significant upgrades in technology, the SEC and CFTC will  be forced to operate within their 2010 budgets.

Although the Obama administration could shift money around to help the SEC and CFTC, it is likely that the Republicans, who did not support Dodd-Frank and will take control of the House of Representatives in January 2011, will attempt to block any such shifts through legislation.

The Wall Street Journal Online reports that Senate Finance Committee Chairman Max Baucus (D., Mont.) remains confident that the Democrats could still win funding battles for financial regulation.  Sen. Richard Shelby (R., Ala.), however, is quoted as  saying, “It’s going to be a big political fight. I think the odds shift toward Republicans.”

Senate Spending Bill would Increase SEC and CFTC Budgets; SEC and CFTC Meetings this Week

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Senate Spending Bill

Reuters is reporting that a Senate spending bill released today will give an increase of 18% in the SEC’s 2011 budget  to $1.3 billion and an increase of 69% in the CFTC’s 2011 budget to $286 million (in excess of the funding requested by that agency).  These increases should give the agencies the monies they need to implement the many new rules being put in place pursuant to Dodd-Frank, in particular the rules governing the over-the-counter derivatives market.  Both agencies had warned of delays resulting from lack of funds and the SEC (whose fiscal year began October 1) recently announced that, because of budget uncertainty, it was deferring setting up new offices, including the whistleblower office and those overseeing credit rating agencies and municipal securities.

In order for the agencies to receive their funds, the Senate must now pass the bill and then merge its bill with the House spending bill which has already been passed and includes large increases for these agencies.

SEC Open Meeting

Among the items to be discussed at tomorrow’s Open Meeting at the SEC:

  • Rule and form amendments to establish a process for the submission for review of security-based swaps for mandatory clearing and notice filing requirements for clearing agencies; and
  • An end-user exception to mandatory clearing of security-based swaps for certain counterparties.

CFTC Public Meeting

The CFTC will hold a public meeting on Thursday, December 16, to consider rules whose effect will be to limit speculation in the commodity derivatives markets.  The CFTC plans to propose rules that will set:

  • “Position limits” on how many physical commodity derivative contracts a single speculator can hold;
  • Confirmation, portfolio reconciliation and portfolio compression requirements for swap dealers and major swap participants;
  • Risk management requirements for derivatives clearing organizations;  and
  • Core principles and other requirements for swap execution facilities.

The CFTC is expected to produce new rules by late January.

SEC December Activities Implementing Dodd-Frank

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The SEC staff continues to carry out the rulemaking and proceed with the studies mandated by the Dodd-Frank Act.

The SEC’s  “Implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act” web page consolidates links to all of the SEC’s related accomplishments to date, includes a calendar of its planned activities implementing the Dodd-Frank Act through July 2011 and provides a link to comments the SEC has received on both rulemaking and planned studies.

In November, the SEC proposed the following: an anti-manipulation rule for security-based swaps, a Whistleblower Incentives and Protection Program, rules regarding the registration and regulation of security-based swap repositories and security-based swap reporting and, most recently, exemptions from investment adviser registration for venture capital firm advisers and certain private fund advisers, as well as rules and changes to forms to implement the transition of mid-sized investment advisers from SEC to State regulation.

Highlights of the December, 2010 calendar most relevant to hedge funds and investment advisers include: Continue reading →

SEC November Activities Implementing Dodd-Frank

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The SEC staff continues its hard work on the rulemaking and studies mandated by the Dodd-Frank Act, signed into law by President Obama on July 21, 2010.

The SEC’s webpage captioned “Implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act” consolidates links to all of the SEC’s related accomplishments to date, and includes a calendar of its planned activities implementing the Dodd-Frank Act through July 2011.

Highlights of the November, 2010 calendar relevant to hedge funds and investment advisers include:

  • §§407 and 408: Propose rules implementing the exemptions from registration for advisers to venture capital firms and for certain advisers to private funds
  • §410: Propose rules and changes to forms to implement the transition of mid-sized investment advisers (between $25 and $100 million in assets under management) from SEC to State regulation, as provided in the Act

    • Continue reading →

SEC, CFTC Seeking Public Comment on Definitions and Regulation of Mixed Swaps

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On August 13, 2010, the Securities and Exchange Commission and the Commodity Futures Trading Commission announced that they had published an advance joint notice of proposed rulemaking that requests public comment to assist the agencies in further defining certain key terms and prescribing regulations regarding “mixed swaps” as required by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Title VII provides for the comprehensive regulation of swaps and security-based swaps and includes definitions of key terms relating to such regulation. It requires the CFTC and the SEC, in consultation with the Board of Governors of the Federal Reserve System, to jointly further define the terms “swap,” “security-based swap,” “swap dealer,” “security-based swap dealer,” “major swap participant,” “major security-based swap participant,” “eligible contract participant” and “security-based swap agreement.”

Title VII also requires the CFTC and SEC to jointly prescribe regulations regarding “mixed swaps” as necessary to carry out the purposes of Title VII.

The CFTC and SEC invite public comment with respect to all aspects of the statutory definitions of these key terms. The agencies also invite commenters to express views on the regulation of “mixed swaps.”

This request for comment is in addition to the series of email links on the CFTC’s and SEC’s websites to facilitate public comment regarding regulatory reform rulemaking under the Dodd-Frank Act.

The public comment period will remain open for 30 days following publication of the advance notice in the Federal Register. Commenters are urged to submit comments as soon as possible within the 30-day comment period.