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Is Regulation Causing Flash Crashes? New regulations imposed on banks since the financial crisis could be contributing to “flash crashes”, according to Christopher Giancarlo, a Commissioner at the Commodity Futures Trading Commission (CFTC). Speaking at ISDA’s Trade Execution Legal Forum, Giancarlo said that when the British pound suddenly dropped 6% against the US dollar in October, this flash crash was exacerbated by a lack of market liquidity. He continued: “In fact, there have been at least 12 major flash crashes since the passage of the Dodd-Frank Act. The growing incidence of these events shakes confidence in world financial markets.
Benchmarks Under Increased Regulatory Scrutiny In a new whitepaper issued today, Thomson Reuters claims that regulators are requiring firms that contribute to financial benchmarks to face increased scrutiny of their record-keeping and information governance policies. The paper, “Information Governance Reform for Benchmark Submitters”, focuses on the global momentum for regulatory change following the Libor and FX benchmark scandals and examines the challenges submitters now face. It notes that, because most benchmarks are global and therefore cross jurisdictions, individual benchmarks may have multiple sources of regional regulations. As a result, firms are now required to ensure compliance with an expanded scope of guidelines and relevant jurisdictions.
CFTC Hands SocGen Fine for FX Reporting Failure The US Commodity Futures Trading Commission (CFTC) has fined Société Générale $450,000 for failures in the reporting of certain FX transactions. The CFTC says that the French bank failed to properly report certain NDF transactions to a swap data repository (SDR), and failed to report to an SDR a large number of FX swap, FX forward, and NDF transactions in a timely manner, in violation of the Commodity Exchange Act (CEA) and CFTC Regulations. herefore, the CFTC announced an order today requiring Société Générale to pay a $450,000 civil monetary penalty and to cease and desist from committing further violations of the CEA and CFTC Regulations.
FCA Targets “High Risk” CFD Industry The UK’s Financial Conduct Authority (FCA) has proposed stricter rules for firms selling contract for difference (CFD) products to retail customers to improve standards across the sector and ensure consumers are appropriately protected. The FCA says that analysis of customer accounts in the CFD sector indicate that 82% of users lose money. It adds that an increase in the number of firms in the CFD market has led the FCA to air concerns that more retail customers are opening and trading CFD products that they do not adequately understand.
Massad to Customers: Days of Guaranteed Liquidity Are Over In a speech in New York last night, Timothy Massad, chair of the US Commodity Futures Trading Commission (CFTC) argued that the changing nature of liquidity is not principally caused by regulation. Discussing the various impacts of the UK decision to leave the European Union on June 23, Massad said, when discussing liquidity in derivatives markets, that during the vote and immediate aftermath prices did not disappear and market depth was good. However he added, “We must also recognise that liquidity today has changed. There is an iconic model of liquidity: traditional dealers who use their balance sheets to make a market for their customers regardless of price. Dealers who will catch the proverbial “falling knife”— that is, they stand ready to buy even if prices are rapidly falling. That is not how our markets work today.”
NFA Proposes Higher Transparency Rules for Retail Execution The National Futures Association (NFA) has submitted a proposed rule to the US Commodity Futures Trading Commission (CFTC) that will raise transparency levels for retail FX customers when executing in markets. The proposed rule change, which has the support of the five Forex Dealer Members (FDMs) under the NFA jurisdiction, will provide retail FX customers with a framework for obtaining execution information to review the quality of the execution the customer received compared to that of other customers at the FDM. Specifically, the rule states that an FDM will be required, upon the request of a customer regarding a specific executed FX transaction, to provide the customer with specified transaction data for the 15 transactions in the same currency pair that occurred immediately before and after the customer's transaction.
ISDA and IHS Markit Collaborate on VM Protocol Tool The International Swaps and Derivatives Association (ISDA) and IHS Markit have announced the launch of the ISDA 2016 Variation Margin Protocol on ISDA Amend. The protocol automates the process for amending existing collateral documents or setting up new agreements in order to comply with new variation margin requirements going into effect on March 1 2017. The ISDA Amend platform enables counterparties to electronically share specially designed questionnaires through a centralised online platform, removing the need for bilateral negotiations. Counterparties can make elections under the protocol, including which regulatory regimes apply and which method they will use to make the required changes to their documentation. The service also automates the reconciliation of questionnaires between counterparties.
FINRA Seeks Quicker Process on Disruptive Quoting The US Financial Industry Review Authority (FINRA) has filed a notice with the Securities and Exchange Commission that will enable it to clamp down on what it considers “disruptive quoting and trading activity” much quicker than is currently possible. In the filing FINRA notes that taking action against an alleged miscreant can take “several years” before it is concluded, but it points out that there are, “…certain clear cases of disruptive and manipulative behaviour or cases where the potential harm to investors is so large, that FINRA should have the authority to initiate an expedited proceeding to stop the behaviour from continuing”.
CFTC Collects $1.3 Billion from Enforcement Actions The Commodity Futures Trading Commission (CFTC) says in financial year 2016 it filed 68 enforcement actions, which addressed a sweeping range of misconduct and market harm, and obtained orders totaling approximately $1.29 billion in restitution, disgorgement, and penalties. Along with new enforcement actions, the CFTC says it aggressively pursued litigation in over 100 cases, including significant and complex cases charging manipulation, spoofing, and unlawful use of customer funds, and won liability verdicts in both jury and bench trials in US District Courts.
CFTC Extends Relief on Reporting Rules The Commodity Futures Trading Commission (CFTC) has issued a time-limited no-action letter that extends relief provided to certain CFTC-registered swap dealers (SD) and major swap participants (MSP) in CFTC Letter No. 15-61. The latest no-action letter states that the commission’s Division of Market Oversight will not recommend the CFTC take an enforcement action against a non-US SD or a non-US MSP established in Australia, Canada, the European Union, Japan or Switzerland, that is not part of an affiliated group in which the ultimate parent entity is a US SD, US MSP, US bank, US financial holding company, or US bank holding company, for failure to comply with the swap data reporting requirements of Part 45 and Part 46 of the CFTC’s regulations (SDR Reporting Rules), with respect to its swaps with non-US counterparties that are not guaranteed affiliates, or conduit affiliates, of a US person.