Housekeeping, Reminders and Updates October 2016

COMMODITY FUTURES TRADING COMMISSION Swap Dealer Registration De Minimis Exception In a press release issued October 13, 2016 (Release: PR7471-16) the Commodity Futures Trading Commission (“CFTC”) announced the approval of an order establishing de minimis threshold phase-in termination date pursuant to CFTC Regulation 1.3(ggg)(4)(ii)(C)(1), (the “Order”). The Order delays the de minimis threshold phase-in termination date by one year. The Order formalized December 31, 2018 as the new swap dealer registration de minimis threshold phase-in termination date. With the approval of the Order, the de minimis threshold will remain at $8 billion until December 31, 2018 instead of decreasing to $3 billion on December 31, 2017, as originally intended. The purpose of the Order is to provide the CFTC with additional time to consider this critical issue and to provide certainty to market participants. As per this Order, and absent further action by the CFTC, the phase-in period would terminate on December 31, 2018 and the de minimis threshold will then be $3 billion. Cross-Border Application of Certain Swap Provisions As a result of a unanimous vote, the CFTC proposed rules and interpretations regarding the application of certain swap provisions of the Commodity Exchange Act (the “CEA”) and CFTC regulations to cross-border transactions. The proposed rule (“Proposed Rule”) was brought forth to define key terms for the purposes of applying the CEA’s swap provisions on a cross-border basis and addresses the cross-border application of the registration thresholds and external business conduct standards for swap dealers (“SDs”) and major swap participants (“MSPs”). External business conduct standards for SDs and MSPs include to the extent, to which they would apply to swap transactions that are arranged, negotiated or executed using personnel located in the United States (“US”). Such transactions are referred to as “ANE Transactions”. Further, the Proposed Rule sets out to define the following key terms: “US Person” and “Foreign Consolidated Subsidiary”. In response to the Proposed Rule, on October 11, 2016 the CFTC published a “Fact Sheet” which provides a summary of the key items of the Proposed Rule:

Definition of “US Person and “Foreign Consolidated Subsidiary”;
Proposed interpretation regarding the scope of ANE Transactions;
Cross-border application of the SD registration threshold;
Cross-border application of the MSP registration thresholds; and
Cross-border application of the external business conduct standards for SDs and MSPs.

The publication of the Fact Sheet coincided with CFTC Press Release: PR7468-16 announcing the approval of the Proposed Rule and a Concurring Statement from Commissioner Sharon Y. Bowen on the matter. The Proposed Rule was published in the Federal Register on October 18, 2016 (“Publication Date”). The comment period for the Proposed Rule will end 60 days after the Publication Date. The statement from Commissioner Bowen strongly encourages the public and market participant, particularly US dealer, to comment on the Proposed Rule. Clarification for FCMs that invest in MMFs The CFTC published Staff Advisory No. 16-75 on October 18, 2016, to clarify conditions of the money market funds (“MMFs”) no-action letter issued by the Division of Swap Dealer and Intermediary Oversight (“DSIO”) in August 2016. The August DSIO no-action letter No. 16-68 (the “Letter”) granted relief regarding investments in MMFs. The purpose of Advisory No. 16-75 is to address the practical application of the Letter for futures commission merchants (“FCMs”) and to provide guidance on Regulation 1.25 as well as Securities and Exchange Commission Rule 2a-7. The guidance for the FCMs is laid out as frequently asked questions covering topics, such as: residual interest; segregated assets; and asset-based and issuer-based concentration limits. Additional details regarding FCM investments in MMFs is available on the Ruddy Gregory, PLLC (“Ruddy Gregory”) website. NATIONAL FUTURES ASSOCIATION Cyber Security On October 21, 2016 the National Futures Association’s (“NFA”) website was affected by cyber attack on internet infrastructure providers that host a number of major websites. As reported on numerous media outlets, a massive cyber attack with international reach disrupted internet service across the globe. The NFA’s website was directly affected by the cyber attack. The October 21^st cyber attack serves as a reminder of the importance of well-developed and implemented information systems security program (“ISSP”). In November 2015, the CFTC approved NFA’s Interpretive Notice to NFA Compliance Rules 2-9, 2-36 and 2-49 entitled Information Systems Security Programs. The Interpretive Notice required NFA Members to adopt and enforce policies and procedures to secure customer data and access to their electronic systems. Further, a firm’s ISSP should be reviewed regularly (at least every 12 months). Last fall Ruddy Gregory provided a summary of the ISSP Interpretive Notice and the topic was also addressed in the October 2015 Housekeeping, Reminders and Updates from the NIBA Journal. As a reminder, Members of The NIBA should already have in place an ISSP and should be preparing to review and test the ISSP in the upcoming months. For further information about any of the topics covered, please feel free to contact Ruddy Gregory, PLLC (www.ruddylaw.com) or 202-797-0762.

Housekeeping, Reminders and Updates October 2016

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