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US Regulatory Research

US Regulatory Updates

US Regulatory Update


Donald Trump Announced Intent to Nominate Marvin Goodfriend to be Member of the Board of Governors of the Federal Reserve

On 29 November, President Donald Trump announced his intent to nominate Marvin Goodfriend, former Federal Reserve Bank of Richmond economist and current professor at Carnegie Mellon University’s Tepper School of Business, to be a member of the Board of Governors of the Federal Reserve for a 14-year term expiring 31 January 2030.

House Financial Services Subcommittee on Capital Markets, Securities, and Investment Holds Hearing on the Implementation and Cybersecurity Protocols of the Consolidated Audit Trail

On 30 November, the U.S. House Committee on Financial Services Subcommittee on Capital Markets, Securities, and Investment held a hearing titled “Implementation and Cybersecurity Protocols of the Consolidated Audit Trail [(“CAT”)].” Witnesses included: (i) the CEO of Thesys Technologies, LLC (the parent company of the “Plan Processor” designated by the CAT National Market System Plan), Mike Beller; (ii) the President and Chief Operating Officer of the Chicago Board of Options Exchange, Chris Concannon; (iii) Executive Director for the Healthy Markets Association, Tyler Gellasch; and (iv) CEO of Pershing, Lisa Dolly, who testified on behalf of the Securities Industry and Financial Markets Association. The witnesses testified on a number of issues, including: (i) the current status of the CAT’s implementation of data security and cybersecurity protections; (ii) what data security and cybersecurity protections are necessary in order to allow the CAT to begin receiving data; and (iii) a legislative proposal, titled the “American Customer and Market Information Protection Act,” which would, according to the agenda for the hearing, require the “SEC, each SRO that is a participant of the CAT National Market System Plan, and [Thesys to] develop comprehensive internal risk control mechanisms to safeguard and govern the security of information reported to, stored by, or accessed from the CAT.” Witnesses and lawmakers generally agreed on the importance of the CAT. Disagreement concerned whether the CAT currently has adequate protections in place to safeguard data and whether the implementation of the CAT should be delayed further to address such issues. Some witnesses and lawmakers argued that such issues pose legitimate concerns to the operation of the CAT, while other witnesses and lawmakers expressed their concern that the issue of data security is being used as an excuse to unjustifiably delay the implementation of the CAT even further. Additionally, participants discussed whether it was imperative for the CAT to collect personally identifiable information or whether alternative frameworks for collecting data would suffice, such as adopting the use of a “legal entity identifier” or a “large-trader ID” framework.


MetLife SIFI Designation

On 22 November, Business Insurance reported that attorneys for MetLife Inc. and the Financial Stability Oversight Council (“FSOC”) filed a motion that day to the U.S. Court of Appeals for the District of Columbia seeking approval to file a supplemental brief to the court in FSOC’s appeal of the decision by the U.S. District Court regarding MetLife’s lawsuit over its “systemically important” designation by FSOC. The brief would be due from MetLife on 18 December 2017, and a response on behalf of FSOC would be due on 18 January 2018. The Court of Appeals for the District of Columbia previously suspended FSOC’s appeal on 2 August 2017 pending publication of Treasury’s report assessing the efficacy of FSOC’s designation authority, which was published on 17 November 2017. The new motion was filed pursuant to the 2 August 2017 suspension order, which instructed MetLife and the FSOC to “file motions to govern future proceedings in this case” by 17 November 2017 or “within 30 days of the issuance of the Secretary’s report on the FSOC’s designation process, whichever first occurs.”


SEC Ratifies Appointment of Administrative Law Judges

On 30 November, the SEC issued an order ratifying its prior appointment of its chief administrative law judge and other administrative law judges in response to a brief filed by the Solicitor General in which the Solicitor General abandoned the Department of Justice’s (“DOJ”) prior stance that the SEC’s administrative law judges were “employees” rather than “inferior officers.” As noted in the order, on 29 November 2017, the “Solicitor General on behalf of the United States submitted a brief in Raymond J. Lucia and Raymond J. Lucia Companies, Inc. v. Securities and Exchange Commission … in which … the Solicitor General took the position that [SEC] administrative law judges are inferior officers for purposes of the Appointments Clause.” According to the Appointment Clause, contained in Article II, Section 2, of the U.S. Constitution, “inferior officers” may be appointed by the “President alone, in the courts of law, or in the heads of departments.” In response to the DOJ’s change in stance, the SEC stated, in its order, that “the Commission—in its capacity as head of a department—hereby ratifies the agency’s prior appointment of [the chief administrative law judge and other administrative law judges] to put to rest any claim that administrative proceedings pending before, or presided over by, Commission administrative law judges violate the Appointments Clause.”  The SEC also: (i) ordered its administrative law judges to undertake certain actions following its ratification of the appointment of the SEC’s Administrative Law Judges, such as “to determine … whether to ratify or revise in any respect all prior actions taken by an administrative law judge in [any] proceeding”; and (ii) lifted certain “stays [on proceedings] imposed by [a 22 May 2017] order and direct[ed] that those proceedings should resume.”

FINRA Requests Comment on the Effectiveness and Efficiency of Its Payments for Market Making Rule

On 28 November, FINRA issued Regulatory Notice 17-41, requesting comments on the effectiveness and efficiency of its payments for its Market Making Rule (Rule 5250). According to the regulatory notice, Rule 5250 prohibits a member of FINRA or an associated person, with exceptions, from “accepting payment or other consideration, directly or indirectly, from an issuer or its affiliates and promoters, for publishing a quotation, acting as a market maker or submitting an application in connection therewith.” FINRA is requesting comments regarding: (i) whether “the rule effectively addressed the problem(s) it was intended to mitigate”; (ii) whether “there [are] alternative ways to achieve the goals of the rule that FINRA should consider”; (iii) the experience of the commenter “with [the] implementation of the rule, including any ambiguities in the rule or challenges to comply with it”; (iv) whether there have “been [any] economic impacts, including costs and benefits, arising from [the] rule” and whether the “rule [has] led to any negative unintended consequences”; and (v) whether FINRA could “make the rule, interpretations or attendant administrative processes more efficient and effective.” The comment period will close on 29 January 2018.

 Remarks of SEC Chairman Jay Clayton at the Federal Reserve Bank of New York’s Third Annual Conference on the Evolving Structure of the U.S. Treasury Market

On 28 November, SEC Chairman Jay Clayton delivered remarks before the Federal Reserve Bank of New York’s Third Annual Conference on “The Evolving Structure of the U.S. Treasury Market.” Chairman Clayton addressed: (i) “regulatory coordination…and its importance to oversight of the global capital markets”; (ii) “Treasury market specific observations concerning the importance of trading data to regulators”; and (iii) the “SEC’s approach to the future regulation of certain other aspects of the fixed income markets.” Chairman Clayton noted that corporate and municipal bond markets will be the initial focus of the SEC’s new Fixed Income Market Structure Advisory Committee (“FIMSAC”), which will “advise the Commission on the efficiency and resiliency of these markets and help [the SEC] identify opportunities for regulatory improvements.” He also discussed other areas that he expects to be explored by FIMSAC, including: (i) bond market liquidity; (ii) “the growth and proliferation of bond funds and exchange traded products”; (iii) pre-trade transparency; and (iv) the impact of technology and “algorithmic trading strategies.” The SEC plans to hold the first public FIMSAC meeting in January 2018.

CFTC & Derivatives

CFTC Extends No-Action Relief of Swap Data Reporting Requirements for Certain Swap Dealers and Major Swap Participants in Australia, Canada, the European Union, Japan or Switzerland

On 30 November, the CFTC’s Division of Market Oversight issued a no-action letter extending no-action relief from Parts 45 and 46 of the CFTC’s Swap Data Reporting (“SDR”) requirements for certain swap dealers and major swap participants in Australia, Canada, the European Union, Japan or Switzerland, that are “not part of an affiliated group in which the ultimate parent entity is a U.S. [swap dealer, market participant, bank, financial holding company, or bank holding company].” As noted in the no-action letter, the “Commission has not yet issued comparability determinations with respect to the SDR Reporting Rules” of the jurisdictions mentioned above “because of certain outstanding issues, including lack of direct access by the Commission to foreign trade repository data and by regulators from the Enumerated Jurisdictions to U.S. [SDR] data.” The Division granted no-action relief “to provide adequate time to allow for a successful resolution to the[se] outstanding issues.” As noted by the press release, the no-action relief is provided subject to certain terms and conditions and will expire on the earlier of: (i) “30 days following the issuance of a comparability determination by the CFTC with respect to the SDR Reporting Rules for the jurisdiction in which the non-U.S. [swap dealer] or non-U.S. [major swap participant] is established”; or (ii) “December 1, 2020.” The Division also stated that it has “no current intention to provide any further extensions after the expiration of the no-action relief [currently] provided.”

Remarks of Commissioner Brian Quintenz at the Technology and Standards: Unlocking Value in Derivatives Markets Conference

On 30 November, CFTC Commissioner Brian Quintenz delivered remarks on FinTech matters before the International Swap Dealers Association’s (“ISDA”) conference titled “Technology and Standards: Unlocking Value in Derivatives Markets.” In his remarks, Commissioner Quintenz: (i) supported the application and development of distributed ledger technology for the derivatives industry; (ii) discussed the regulatory framework for FinTech, such as the launch of LabCFTC; (iii) addressed the oversight role that the CFTC would play over “bitcoin futures products”; and (iv) urged international regulators to continue working together to coordinate and harmonize standards and regulatory expectations on FinTech matters, as well as broader issues in the derivatives industry.

 CFTC Releases Annual Enforcement Results for Fiscal Year 2017

On 22 November, the CFTC released the Commission’s enforcement results for fiscal year (“FY”) 2017. As explained in the release, tasks completed by the Commission in FY 2017 include: (i) implementing “new rules and procedures…to better protect whistleblowers and to further incentivize whistleblowers to come forward”; (ii) “realign[ing] the market surveillance unit under the Division of Enforcement (“DOE”) … [where the unit] conducts market analysis to confirm market integrity and identifies areas that may warrant enforcement inquiry”; and (iii) “issu[ing] new cooperation advisories, which [brought] DOE’s cooperation program in line with other law enforcement agencies.”

Remarks of CFTC Chairman J. Christopher Giancarlo at the Federal Reserve Bank of New York Third Annual Conference on the Evolving Structure of the U.S. Treasury Market

On 28 November, CFTC Chairman J. Christopher Giancarlo delivered remarks before the Federal Reserve Bank of New York’s Third Annual Conference on “The Evolving Structure of the U.S Treasury Market.” In his remarks, Chairman Giancarlo discussed liquidity in the Treasury futures market and how liquidity is measured, and in particular focused on “one particular issue with respect to the definition and measurement of liquidity in Treasury futures contracts: large-trade size.” Chairman Giancarlo emphasized that the CFTC’s “goal must be to avoid a one-size-fits-all approach to complex trading markets for financial and derivatives products” and concluded that Treasury futures market “large-trade liquidity—measured by the average price impact and the standard deviation of the price impact of large trades—is not as abundant as what bid-ask spreads and market depth alone suggest.” Chairman Giancarlo also noted that “reported declines in corporate and foreign bond inventories … suggest[] less supply for large trades” and that “market depth and turnover provide some evidence of deteriorating trading liquidity, particularly in less liquid markets.”

 DOL Fiduciary Rule

 Delay of Applicability Date of Certain Aspects of the DOL’s Fiduciary Duty Rule

On 27 November, the Department of Labor (“DOL”) issued a final rule (published in the Federal Register on 29 November 2017) to delay the applicability date of certain aspects of the Fiduciary Duty Rule. The final rule extends the special transition period, postponing the applicability date of Sections II and IX of the Best Interest Contract Exemption and Section VII of the Class Exemption for Principal Transactions in Certain Assets between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs from 1 January 2018 to 1 July 2019. The rule also delays the applicability of certain amendments to “Prohibited Transaction Exemption 84-24.”  According to the final rule, the “primary purpose of the amendments is to give the [DOL] the time necessary to consider public comments under the criteria set forth in the Presidential Memorandum of February 3, 2017, including whether possible changes and alternatives to these exemptions would be appropriate in light of the current comment record and potential input from, and action by, the Securities and Exchange Commission and state insurance commissioners.” The DOL “grant[ed] the delay because of its concern that, without a delay in the applicability dates, consumers may face significant confusion, and regulated parties may incur undue expense to comply with conditions or requirements that the Department ultimately determines to revise or repeal.”

SEC Chairman Jay Clayton Prioritizes Fiduciary Rule

On 28 November, Investment News reported that SEC Chairman Jay Clayton, at the Managed Fund Association’s Outlook 2017 Conference, stated that the SEC is “working on a fiduciary rule and exploring it for brokers and investment advisers” and that the rule is “a priority for [him] to address this space in light of the action that the [DOL] took to step into this space” (where “action” refers to the DOL’s decision to delay the applicability date of certain aspects of the Fiduciary Duty Rule).



  • 7 December 2017: SEC Investor Advisory Committee Meeting.
  • 28 January 2018: comments on FINRA’s requests comment on the effectiveness and efficiency of its payments for market making rule are due.
Ianthe Zabel
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