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CFTC Imposes $3.2B-Plus in Sanctions in 2015

Total monetary sanctions handed down by the Commodity Futures Trading Commission (CFTC) this year totaled more than $3.2 billion, including an $800 million sanction, the largest in the commission's history, according to Chairman Timothy Massad.

"Our enforcement division has continued to do an excellent job holding entities accountable for misbehavior," Massad said at the CFTC's monthly open meeting in Washington, DC, Wednesday morning. "We brought or resolved actions related to integrity of benchmarks, improper behavior such as spoofing, traditional scams such as Ponzi schemes, and failure to comply with reporting obligations."

Energy-related fines handed down by CFTC in 2015 included a $3 million fine against Intercontinental Exchange's ICE Futures U.S. Inc. for "submitting inaccurate and incomplete reports and data" for certain energy contracts and other commodities (see Daily GPIMarch 17). More recently, CFTC imposed a $3.6 million civil penalty and sanctions including a two-year trading limit against Total Gas & Power North America and one of its West Desk traders (see Daily GPIDec. 7). The order settled charges for attempted manipulation of natural gas monthly index settlement prices during bidweeks at four major trading hubs in Texas and elsewhere in the Southwest.

CFTC achieved a series of accomplishments this year by avoiding "the obstruction and division that we see too often in this town in favor of working together constructively on behalf of the American people," Massad said. He expects CFTC to continue down that path in 2016.

This year, the agency was focused on the resiliency of clearinghouses and on automated trading, continued to implement Dodd-Frank Wall Street Reform and Consumer Protection Act reforms, took steps to improve and enhance reforms requiring the reporting of swap data, and "continued to focus on making sure commercial end-users can use these markets efficiently and effectively," he said.

"For example, we amended our rules so that publicly owned utility companies can continue to effectively hedge their risks in the energy swaps market, which helps them provide reliable, cost-effective service to their customers.

“We approved a modification to the 'residual interest' rule, which can affect when customers must post collateral with clearing members. We clarified the treatment of contracts with embedded volumetric optionality. We have also issued some proposals that I hope we can finalize soon -- these pertain to the treatment of trade options and exempting end-users from certain record keeping requirements."

CFTC actions in 2015 included a proposed supplement to a 2013 proposed rulemaking designed to clamp down on speculation in physical commodity futures and swaps, including oil and natural gas transactions (see Daily GPISept. 23). The agency approved a proposal related to aggregating accounts under the position limits rule almost two years ago (see Daily GPI, Nov. 5, 2013).

A second, related proposal adopted the same day would implement section 737 of Dodd-Frank, clamping down on speculation in 28 selected physical commodity futures and swaps. Among the 28 were four energy contracts: Nymex Henry Hub Natural Gas, Nymex Light Sweet Crude Oil, Nymex New York Harbor Gasoline Blendstock and New York Harbor Heating Oil.

In June, CFTC extended for one year a time-limited no-action relief for swap dealers and major swap participants for complying with reporting obligations (see Daily GPIJune 15).

And in June it proposed a rule that would apply its margin requirements for uncleared swaps in the context of cross-border transactions (see Daily GPIJune 29).The proposed rule would apply to Commission-registered swap dealers and major swap participants that are not subject to the margin requirements of other prudential regulators, such as the Federal Reserve Board, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation.

The CFTC on Wednesday also adopted a final rule on margin requirements for uncleared swaps entered into by swap dealers (SD) or major swap participants (MSP) with financial institutions by a 2-1 vote.

The rule would apply to SD and MSPs that are not subject to regulation by the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Farm Credit Administration or the Federal Housing Finance Agency. The final rule exempts end-users, Massad said.

"Requiring parties to collect margin will provide them with collateral to cover the risk posed by counterparties with open uncleared swap positions," CFTC said. "Requiring parties to post margin will reduce the ability of firms to take on excessive risk."

Commissioners also voted unanimously to approve two amendment proposals to existing regulations that address cybersecurity testing and safeguards for the automated systems used by critical infrastructures CFTC regulates.

The proposals would require all derivatives clearing organizations, designated contract markets, swap execution facilities, and swap data repositories to conduct five types of cybersecurity testing, as frequently as indicated by appropriate risk analysis. The proposals will be open for public comment during a 60-day comment period after their publication in the Federal Register.

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