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Regulation

Flash Crash Trader Fine Endorsed by US Court A US district court judge has entered a consent order brought by the US Commodity Futures Trading Commission (CFTC) against UK-based trader Navinder Singh Sarao. Sarao was accused by US authorities of helping to trigger the infamous flash crash in US equity markets in May 2010 and was extradited to the US recently. The order requires him to pay a $25,743.174.52 civil monetary penalty and $12,871,587.26 in disgorgement. It also permanently prohibits Sarao from further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged, and imposes permanent trading and registration bans against him.
Sexton New Head of NFA Thomas Sexton has been named as the National Futures Association’s new president and CEO, succeeding Dan Roth, who is retiring. The appointment is effective March 1 2017 and was unanimously endorsed by NFA’s board after what the association says was an “exhaustive” search process. Sexton is an existing member of NFA, which is a self-regulatory organisation for the US derivatives industry, having joined the association in 1991 as an attorney and subsequently being promoted to assistant general counsel in 1998, and to general counsel and secretary in 2001.
Will Trump Fight the US Treasury Over Currency Manipulation Claims? Donald Trump’s position on the currency manipulation provisions in US trade deals could lead him into direct conflict with US Treasury once he assumes the presidency, according Dick Cunningham, a senior international trade partner at Steptoe & Johnson’s Washington office. Speaking on a webinar examining some of the implications of this week’s US presidential election, Cunningham noted that Trump has vowed to kill the proposed Transatlantic Trade and Investment Partnership (TTIP). One reason why Trump has criticised the TTIP in the past, said Cunningham, was because although it contains a currency manipulation provision, the provision is not enforceable.
How Will the Election Change the US Regulatory Landscape? As FX markets continue to anticipate what will happen next following Donald Trump’s surprise victory in the US Presidential election, there could also be significant changes in the country’s regulatory landscape that financial services firms need to consider. For starters, the Commodity Futures Trading Commission (CFTC) could look very different. Historically, when there’s a transition of parties, the Chairman of the Commission has tendered their resignation on the inauguration day of the new President and then the remaining Commissioners vote amongst themselves for an acting chairman.
“Hound of Hounslow” Faces the Kennel In what is being seen as a surprise move, Navinder Singh Sarao, the UK-based day trader accused by US authorities of spoofing markets and contributing to the May 2010 flash crash in US equities, has pleaded guilty in a US court appearance following his extradition from the UK. Sarao, nicknamed the “hound of Hounslow” because he operated at times from a bedroom in his parents’ house in that London suburb, was extradited after being accused of making almost $40 million by entering large bids and offers against his intended trading direction on CME stock futures.
NFA Raises Margin Levels on Sterling FX Trades In a move that might be seen as a little late, the National Futures Association (NFA) has instructed FX brokers to raise their margin requirements for clients trading sterling. Under NFA rules the 10 most traded currencies have be subject to a 2% margin on the notional value of outstanding contracts, while currencies outside of that group have had a 5% requirement. Noting that its rules allow the NFA to change margin requirements “under extraordinary market conditions”, the regulator says, “Given the recent events involving the UK exiting the European Union (Brexit) the executive committee has determined to increase the minimum security deposits required to be collected and maintained by FDMs [forex dealer members] under Section 12 for currency pairs involving the British pound to a minimum of 5%. This increase is effective as of 5 p.m. (CST) on November 7, 2016 and remains in effect until further notice.”
Industry Bodies Continue Opposition to Source Code Access Following the CFTC meeting that approved the Commission’s proposed supplement to its draft rules on automated trading, the Futures Industry Association (FIA) and the FIA Principal Traders Group – which represents proprietary trading firms – expressed their “grave concerns” over the change which would grant CFTC access to proprietary source code. The change “would permit an unacceptable level of access to proprietary source code used to operate automated trading systems”, the two bodies say in a statement, adding they will submit formal feedback during the supplement’s public comment period.
CFTC Staff Clash Over Automated Trading Rules Staff at the Commodity Futures Trading Commission (CFTC) clashed over the supplemental proposal to the Automated Trading Regulation (RegAT), even though the proposals were ultimately approved today by the Commission. In a meeting in Washington today CFTC Commissioner, Christian Giancarlo, who voted against the proposal, disagreed with Chairman Timothy Massad on a number of issues relating to RegAT. The main point of contention was the access that the proposed rules would give the CFTC to automated trading firms’ source code, which has drawn some strong criticism from market participants and industry bodies throughout this year.
Malaysia to Launch Code of Conduct for FX and Money Markets Bank Negara Malaysia is issuing a policy document on a proposed Code of Conduct for Malaysian wholesale financial markets “to uphold professionalism and integrity in the financial markets”. The draft sets out principles and standards to be observed by market participants in the Malaysian wholesale financial markets, including FX and money markets. It also outlines the administrative, civil and criminal actions that may be undertaken by Bank Negara on misconduct Market participants are invited to provide written feedback on the draft, including suggestions on areas requiring further clarity and alternative proposals that Bank Negara should consider, ahead of a proposed release early in 2017.
Has ESMA Officially Incorporated FX Into MAR? Where, indeed if, spot FX sits within the European Securities and Markets Authority's Market Abuse Regime, MAR, has been the subject of speculation for some months. Earlier this year, ESMA issued an updated MAR document and again there was no mention of spot FX, however this did not stop some sounding concerns that the broader definition could mean spot FX is "in scope". In a Q&A paper issued last week, ESMA appears to have provided some clarification - by mentioning spot FX explicitly.