Syllabus. Derivatives Market Regulation Under Dodd-Frank Spring 2017 Georgetown University Law Center LAWG LAWJ969-08

Transcription

1 Syllabus Derivatives Market Regulation Under Dodd-Frank Spring 2017 Georgetown University Law Center LAWG LAWJ Course Description This course is designed as a Derivatives 101 equivalent, providing a broad overview of the regulation of derivatives from a U.S. legal perspective that will serve as a foundation for more advanced coursework and reading. Topics include the jurisdiction of the Commodity Futures Trading Commission (CFTC), analysis of the Commodity Exchange Act (CEA) and CFTC regulations, including the regulation of commodity markets, market participants and the administrative and enforcement powers of the CFTC before and after the enactment of the Dodd- Frank Act. Contact information: Dan Berkovitz Mark Higgins Meeting Times and Places: Thursdays 7:55-9:55 pm McDonough 160 Course Materials: There is no textbook for this class. We will make good use of Lexis/Westlaw, and our course s Courseware site, particularly the Announcement and Documents features. Each class will feature a PowerPoint presentation, which will be posted to Courseware by the Monday following class. Please check the site regularly. Finally, for ease of reference, a conversion of Commodity Exchange Act sections to US Code citations is available at: Course Grading: Your final grade in this 2-credit course will be based on a 15 page paper. Active participation (questions, comments, observations) is encouraged, and we will consider insightful and helpful participation when determining your final grade. For example, if you score a B+ on your paper and participated throughout the semester, you can expect a positive effect on your final grade of an increase by half a grade (in this example, an A-). Participation can only help; we do not lower grades based on it.

2 2 Class 1 (Jan 19): Introduction - No Reading Required Class 2 (Jan 26): History of the Commodity Exchange Act (CEA) / Forwards and Futures History of the CEA 1. Board of Trade of City of Chicago v. Olsen, 262 U.S. 1 (1923) 2. Browse 3. Commodity Exchange Act (CEA), 7 U.S.C. 1(a) (definitions), 2(a)(1)(A) (exclusive jurisdiction), 3 (federal interest in the regulation of derivatives) CFTC Jurisdiction 4. CEA 2(a)(1)(A), (C)(i), (C)(ii); 7 U.S.C. 2(a)(1)(A), (C)(i), (C)(ii). 5. Hunter v FERC, 711 F.3d 155 (D.C. Cir. 2013) (CFTC exclusive jurisdiction). Commodity 6. Could be anything (save onions and motion picture box office receipts) if a futures contract, CEA, 7 U.S.C. 1(a)(3). Forwards and Futures 7. In re Stovall, [ Transfer Binder], Comm. Fut. L. Rep. (CCH) Par. 20,941 (available at 8. CFTC v. Co Petro Mktg. Group, 680 F.2d 573 (1981). 9. Transnor (Bermuda) Ltd. v. BP North American Petroleum, 738 F.Supp (S.D.N.Y. 1990). Class 3 (Feb 2): Swaps (and Options) Swaps 1. CFTC, Policy Statement Concerning Swap Transactions, 54 FR (July 21, 1989). 2. CEA 1a(47) (definition of swap), 7 U.S.C. 1a(47). 3. Fact Sheet: Final Rules and Interpretations i) Further Defining Swap, Security-Based Swap, and Security-Based Swap Agreement ; ii) Regarding Mixed Swaps ; and iii) Governing Books and Records for Security-Based Swap Agreements, available at: df. 4. SCAN ONLY: Final Rule, Further Definition of Swap, Security-Based Swap, and Security-Based Swap Agreement; Mixed Swaps; Security-Based Swap Agreement, Recordkeeping, 77 FR (August 13, 2012): a. Forward exclusion (pp ). b. Consumer and Commercial Agreements, Contracts, and Transactions (pp ).

3 3 c. Foreign Exchange Products (pp ). d. Security-Based Swaps (pp ). e. Narrow-Based v. Broad-Based Indexes (pp Subsections G.1. and G.2; Subsection G.3 relating to index CDS is optional). f. Mixed Swaps (pp ). g. Anti-evasion (pp ). 5. In the Matter of Equidate Inc. (SEC, Dec. 6, 2016) (enforcement action for unlawful trading of security-based swaps), available at Options 6. Characteristics Distinguishing Cash and Forward Contracts and Trade Options, Interpretive Statement of the Office of the General Counsel, 50 FR (Sept. 30, 1985). Class 4 (Feb 9): Markets (DCMs and SEFs) 1. CEA 4(a), 5(d)(1)(A), 5(d) (Core Principles for Contract Markets) SCAN ONLY: TRADE PRACTICE RULE ENFORCEMENT REVIEW ICE FUTURES U.S., 4. Board of Trade of the City of Chicago v. CFTC, 66 F. Supp. 2d 891 (N.D. Ill. 1999) Commodity Exchange Act, Section 5h 7. SCAN ONLY: BLOOMBERG SEF LLC RULEBOOK (Dec 2015), Class 5 (Feb 16): Market Intermediaries (CPOs, CTAs, FCMs, and SDs) 1. CEA, Batra v. E.F. Hutton & Co., [ Transfer Binder] Comm. Fut. L. Rep. (CCH) 23,937 (CFTC 1987). 3. CFTC v. Savage, 611 F.2d 270 (9th Cir 1979). 4. Commodity Trend Serv. v. CFTC, 149 F.3d 679 (7th Cir. 1998). 5. SCAN ONLY: Final Rule, Commodity Pool Operators and Commodity Trading Advisors: Compliance Obligations, 77 Fed. Reg. 11,252 (Feb. 24, 2012) ( Final Rule ), as corrected due to Fed. Reg. errors in its original publication, 77 Fed. Reg. 17,328 (Mar. 26, 2012). 6. Investment Company Institute v. CFTC, 720 F.3d 370 (D.C. Cir. 2013).

4 4 7. SCAN ONLY: Further Definition of Swap Dealer, Security-Based Swap Dealer, Major Swap Participant, Major Security-Based Swap Participant and Eligible Contract Participant, 77 FR (May 23, 2012) available at: Class 6 (March 2): Guest Lecture by Gail Bernstein, Special Counsel, WilmerHale: Volcker Rule Class 7 (March 9): Clearing/Bankruptcy Clearing 1. Clearing Requirement: CEA 2(h). 2. End-User Exception to the Clearing Requirement for Swaps; Final Rule, 77 FR (July 19, 2012). 3. Bloomberg L.P. v CFTC, 2013 U.S. Dist. LEXIS 80275; 2013 WL (D.D.C. June 7, 2013) (margin requirements). 4. Craig v. Refco, Inc., 624 F. Supp. 944 (N.D. Ill 1985), affirmed 816 F.2d 347 (7 th Cir. 1987) (investment of customer funds). 5. Customer protection: CFTC v MF Global, Corzine & O Brien. a. CFTC Complaint: leading/enfmfglobalcomplaint pdf b. Corzine Response: to be provided. 6. Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR 636 (Jan. 6, 2016); fact sheet available at heet pdf. Class 8 (March 23): Market Conduct I (Disruptive Trading, EBCS) 1. Antidisruptive Trading Practices Authority; Interpretive guidance and policy statement, 78 FR (May 28, 2013). 2. In the Matter of: Panther Energy Trading LLC, available at /enfpantherorder pdf. 3. Executive Summary, Findings Regarding The Market Events of May 6, 2010 ( flash crash ), Report of the Staffs of the CFTC and SEC to the Joint Advisory Committee on Emerging Regulatory Issues, Sept. 30, 2010, available at

5 5 4. Business Conduct Standards for Swap Dealers and Major Swap Participants With Counterparties, available at: 2e.pdf. Class 9 (March 30): Market Conduct II (Fraud and Manipulation) 1. In re Indiana Farm Bureau Cooperative Assn., Inc., [ Transfer Binder] Comm. Fut. L. Rep. (CCH) 21,796 (CFTC Dec. 17, 1982) 2. United States v. Radley, 632 F.3d 177 (5th Cir. 2011) 3. Dodd-Frank Act section CFTC, Prohibition on the Employment, or Attempted Employment, of Manipulative and Deceptive Devices and Prohibition on Price Manipulation, 76 FR (July 14, 2011) available at: 5. In re Amaranth Natural Gas Commodities Litig., 587 F. Supp. 2d 513 (S.D.N.Y. Oct. 6, 2008). 6. CFTC v. Kraft Foods Grp., Inc., 2015 U.S. Dist. LEXIS (Dec. 18, 2015). Class 10 (April. 6): Foreign Exchange Markets: Past and Present 1. Introduction to FX markets, 2. FX Global Code: May 2016 Update, 3. SCAN ONLY: Fair and Effective Markets Review Final Report June 2015, 4. Banks Civil Forex Settlements Near $2 Billion: Barclays, BNP Paribas, Goldman Sachs and HSBC recently signed agreements to settle case Class 11 (April 13): Guest Lecture bv Bill Hirschberg, Managing Director, Barclays: Foreign Exchange Market Remediation 1. In the Matter of BARCLAYS BANK PLC, Order to Cease and Desist and Order of Assessment of a Civil Money Penalty Issued Upon Consent Pursuant to the Federal Deposit Insurance Act, as Amended (

6 6 2. In the Matter of BARCLAYS BANK PLC, CFTC Order, nfbarclaysborder pdf. Class 12 (April 20): Automated Trading/Excessive Speculation/Position Limits Automated Trading 1. Regulation Automated Trading, Proposed Rule, 81 FR (Nov. 25, 2016). Excessive Speculation/Position Limits 2. U.S. Senate Staff Report on Excessive Speculation in the Natural Gas Market, available at GasMarket.pdf. 3. Int l Swaps & Derivatives Ass n v. CFTC, 887 F. Supp. 2d 259 (D.D.C. 2012). 4. Position Limits for Derivatives; Proposed Rule, 81 FR (Dec. 30, 2016) (read selectively). 5. Aggregation of Positions; Final Rule, 81 FR (Dec. 16, 2016). Class 13 (April 27): Cross Border 1. Morrison v. Nat l Australia Bank, Ltd., 130 S. Ct. 2869; 177 L. Ed. 2d 535; 2010 U.S. LEXIS 5257; 78 U.S.L.W (2010). 2. Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations, 78 FR (July 26, 2013). 3. SIFMA et al. v. CFTC, 67 F.Supp.3d 373 (D.D.C. 2014). 4. Comparability Determination for the European Union, 78 FR (Dec. 27, 2013); 78 FR (Dec 27, 2013). 5. Cross-Border Application of the Registration Thresholds and External Business Conduct Standards Applicable to Swap Dealers and Major Swap Participants, Proposed Rule, 81 FR (Oct. 18, 2016). 6. ISDA, Path Forward for Centralized Execution of Swaps, available thru (advovacy paper).