July 7, 2022

Volume XII, Number 188


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July 05, 2022

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Bridging the Weeks by Gary DeWaal: May 21 to June 1 and June 4, 2018 (Self-Certifications; Virtual Currencies; Summary Suspensions; Spoofing) [VIDEO]

The Commodity Futures Trading Commission issued guidance to registered trading facilities and clearinghouses related to the listing of new derivatives contracts based on virtual currencies that contained a cryptic warning, while two ongoing federal court litigations – one of which on its face has nothing to do with crypto assets and is now headed to an appellate court – potentially will conclude with important statements about the Commission’s authority to bring anti-fraud actions against purported miscreants involved with spot cryptocurrencies. Separately, CME Group summarily suspended an apparent foreign broker from accessing any of its markets for at least 60 days for purportedly not fully cooperating with ongoing investigations and reporting positions incorrectly to carrying member futures commission merchants – potentially causing the FCMs themselves to report positions incorrectly. As a result, the following matters are covered in this week’s edition of Bridging the Weeks:

  • CFTC Staff Issues Advisory to Trading Facilities and Clearinghouses for Listing New Futures or Swaps Contracts Based on Virtual Currencies (includes My View and Random Observations);
  • CME Group Summarily Suspends Foreign Broker’s Access to All Its Markets for Not Cooperating Fully With Its Investigations and Purported Position Misreporting (includes Legal Weeds and Compliance Weeds); 
  • Programmer Moves to Dismiss Criminal Charges for Allegedly Aiding and Abetting Trader’s Spoofing Violations (includes Legal Weeds);
  • Former FCM Fined by CFTC and NFA for Processing CPO Client’s Unlawful Post-Trade Allocations Despite Red Flags (includes My View); and more.

CFTC Staff Issues Advisory to Trading Facilities and Clearinghouses for Listing New Future or Swaps Contracts Based on Virtual Currencies

On May 21, the Commodity Futures Trading Commission’s Divisions of Market Oversight and Clearing and Risk issued a staff advisory to provide guidance to existent, registered trading facilities and clearinghouses for listing new derivatives contracts based on virtual currencies. 

Although the Divisions indicated that designated contract markets, swap execution facilities, and derivatives clearing organizations could continue to self-certify new derivatives contracts based on virtual currencies (click here to access CFTC Rule 40.2), or voluntarily submit such contracts for Commission review and approval (click here to access CFTC Rule 40.3), they identified five particular areas where they would expect relevant entities to augment their ordinary procedures in light of what staff considered “[t]he significant risks associated with virtual currency markets.” These areas are market surveillance; coordination with CFTC staff; large trader reporting; stakeholders’ outreach; and risk management by DCOs.

Among other things, the Divisions expect SEFs and DCMs to monitor for and prevent manipulation, which would require them to have “adequate visibility into the underlying cash markets,” anchored by an information sharing agreement with such markets. If a registered trading facility identified a potential problem, it would be expected to make “appropriate inquiries, which may include obtaining spot market trader level data.” Over time – but apparently not necessarily today – the Divisions expect the spot markets on which DCMs’ or SEFs’ derivatives contracts are based to follow federal anti-money laundering or similar requirements.

The Divisions also expect that registered trading facilities reach out “meaningfully” to relevant stakeholders while developing a new contract’s terms and conditions. Specifically, the Divisions suggested that DCMs and SEFs reach out not only to members and other stakeholders who propose to trade a new virtual currency derivatives contract, but also to those members and other persons who do not.

Staff will also consider whether proposed initial margin requirements for DCOs are sufficient to cover potential future exposures to clearing members based on an “appropriate historic time period.” How a DCO considered the views of clearing members – including dissenting views – will also be evaluated by staff.

The Divisions noted that they reserve the right to notify any registered trading facility in writing of any concerns they may have with a self-certification that does not appear to comply with applicable law and CFTC regulations, make such notice public, and transmit a copy to other regulators, “as appropriate.”

On December 1, 2018, three regulated trading facilities – the Chicago Mercantile Exchange, the CBOE Futures Exchange and the Cantor Exchange – self-certified with the CFTC cash-settled derivatives contracts based on Bitcoin. (Click here for details in the article “Three CFTC-Regulated Exchanges Self-Certify Bitcoin Derivatives Contracts,” in the December 3, 2017 edition of Bridging the Week.)


  • My Big Coin Pay: The parties in the CFTC’s My Big Coin Pay, Inc. litigation continued to tussle over whether the Commission has jurisdiction and standing to bring its anti-fraud case against defendants. (Click here for background on this CFTC enforcement action in the article “Defendants in CFTC Crypto Case First Argue Commission Lacks Anti-Fraud Authority Then Some Consent Voluntarily to Jurisdiction” in the April 8, 2018 edition of Bridging the Week.) 

Among other things, defendant Randall Crater and the relief defendants argued in papers to support a motion to dismiss that the CFTC has no jurisdiction to bring its enforcement action alleging fraud in connection with the sale of the virtual currency known as “My Big Coin,” because the virtual currency was not a commodity under applicable law. This is because, said the defendants, the virtual currency was neither a good nor an article, or a service, right or interest in which contracts for future delivery are dealt in. If My Big Coin was not a commodity, then the CFTC has no authority to prosecute a fraud case against them under applicable law, claimed the defendants.

Moreover, the defendants argued that the CFTC has no standing to bring a general anti-fraud case against them relying on a fraud-based manipulation prohibition adopted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act that solely prohibits market-based fraud but not general fraud. (Click here to access Commodity Exchange Act § 6(c)(1), 7 U.S.C § 9(1).) The defendants relied on the recent federal court decision involving Monex Deposit Company in California in proposing such an argument (see discussion of the decision, below).

The CFTC rejected the defendants’ legal arguments, claiming that My Big Coin was either a good or an article, and thus a commodity, or in the alternative was a category of virtual currencies, like Bitcoin, for which futures contracts currently exist. In addition, the CFTC said that the reasoning of the Monex decision was incorrect. The Commission claimed that the relevant law prohibited “any manipulative or deceptive device” (emphasis added), and rejected the federal court’s view that “or” should be read as “and.”

  • Monex: The CFTC determined not to amend its complaint against Monex Deposit Company following the decision of a federal court in California last month to dismiss the Commission’s enforcement against the firm and other defendants for alleged fraud in connection with their financed sale of precious metals to retail persons. Instead, the Commission will solely appeal the court’s decision.

Last month, the court held that:

  1. actual delivery of precious metals in financed transactions to retail persons falls outside the CFTC’s authority when ownership of real metals is legally transferred to such persons within 28 days – the so-called “Actual Delivery Exception” – even if the seller retains control over the commodities because of the financing beyond 28 days; and 
  2. the CFTC cannot use the prohibition against persons engaging in any manipulative or deceptive device or contrivance in connection with the sale of any commodity in interstate commerce enacted as part of Dodd-Frank to prosecute acts of purported fraud except in instances of fraud‑based market manipulation.

(Click here for background on the Monex decision in the article “California Federal Court Dismissal of CFTC Monex Enforcement Action Upsets Stable Legal Theories” in the May 6, 2018 edition of Bridging the Week.) 

  • Titanium Blockchain: The Securities and Exchange Commission brought an enforcement action in a federal court in California against Titanium Blockchain Infrastructure Services Inc., Michael Stollery, TBIS’s founder, chief executive officer and president, and related defendants for allegedly committing fraud in connection with the initial coin offering of a crypto asset known as “BAR.” In connection with this offering, claimed the SEC, the defendants falsely promoted business relationships with well-known public companies that they did not have and used fake testimonials. The SEC said the defendants also claimed they would provide “a bevy of trademarked products and services.” However, the SEC alleged they had no such trademarks.

The SEC alleged that, through its ICO, the defendants raised as much as the equivalent of US $21 million from late November 2017 through at least January 25, 2018. BAR was a security that was required to be registered or lawfully exempt, said the SEC, and it was not. The SEC seeks preliminary and permanent injunctions, disgorgement and civil penalties, among other remedies.

  • NASAA: The North American Securities Administrators Association announced an ongoing campaign to identify potential investment frauds in the cypto asset arena. The initiative – known as "Operation Crypto Sweep" – resulted in over 70 inquiries and investigations and 35 pending or completed enforcement actions involving ICOs and crypto assets through May 22. The members of NASAA participating in this initiative are from states and provinces in the United States and Canada.

My View: Fortunately or unfortunately, depending on your perspective, regulatory edicts and federal court decisions, but not Congress, will likely determine how virtual currencies and other crypto assets will be regulated in the US in the near term. To me this is unfortunate as this path is likely, at least in the interim, to lead to different views and approaches being taken in different parts of the US.

The oversight of crypto assets in the US – split among the SEC, CFTC, states, and other regulators – must be rationalized to avoid unnecessary impediments to blockchain technology evolution and to prevent fraudsters from taking advantage of regulatory arbitrage. The sooner this process begins, the better.

That being said, under existing law, the better view is that all crypto assets – including virtual currencies – are commodities. This is because they are goods or articles. They are not intangible articles like services, rights or interests. As the New York Court of Appeals recently held in connection with source code, crypto assets represent computer code that is tangible “in the sense of ‘material’ or ‘having physical form’.” This is because computer code stored on a computer takes up space on a drive. As a result, it must be physical in nature. (Click here for background on this NY Appeals Court decision in the article “Investment Bank Ex-Employee’s Conviction Upheld for Theft of High-Frequency Trading Algorithmic Code” in the May 6, 2018 edition of Bridging the Week.) Similarly, the Internal Revenue Service treats virtual currencies as property. (Click here to access a relevant March 2018 IRS guidance.)

Moreover, as I have observed previously, the fact that the applicable definition of commodity under law excludes box office receipts “or any index, measure, value, or data related to such receipts” from the reference to “all other goods and articles,” evidences the intent of Congress to view the term “goods and articles” broadly. Indeed, the exclusion of box office receipts specifically suggests that all other types of receipts are included in the definition of a commodity regardless of form. Presumably this would include records of physical fiat currencies, electronic credits of fiat currency and all other potential types of payments that could be reflected in receipts – e.g., payments by all virtual currencies. (Click here for the definition of commodity under the Commodity Exchange Act, 7 U.S. Code §1a(9).)

Random Observations: The last two sentences of the CFTC staff advisory on self-certifications by DCMs, SEFs and DCOs are very curious for a matter where presumably the Commission has exclusive jurisdiction. The sentences read:

To bring greater transparency to the process, if Commission staff is unable to confirm that the contract being self-certified complies with the CEA and regulations, but the exchange lists (or intends to list) the contract, staff may notify the exchange of its concerns in writing. Additionally, Commission staff may make such notice public and transmit a copy of such letter to other regulators, as appropriate

(Emphasis added.)

Given that the CFTC ordinarily has exclusive jurisdiction over the self-certification of new futures and swaps contracts by DCMs and SEFs (as applicable), the only time this threat would appear meaningful would be if a trading facility self-certified a derivative based on a commodity that might be deemed a security by the Securities and Exchange Commission (e.g., a security futures contract if the derivative was a futures contract). Are these sentences then an implicit warning to DCMs and SEFs not to list derivative contracts on new virtual currencies (e.g., Ether or Ripple) without prior approval of some kind from the SEC that such commodities are not also securities? If yes, hopefully such approval will not take too long a time! (Click here for a link to the FIA webinar and related PowerPoint presentation entitled “Beyond Bitcoin” where attorneys from Katten Muchin Rosenman LLP, including me, presented a framework to help consider whether Ether and Ripple should today be regarded as securities; I believe the better argument is no.)


  • CME Group Summarily Suspends Foreign Broker’s Access to All Its Markets for Not Cooperating Fully With Its Investigations and Purported Position Misreporting: CME Group’s chief regulatory officer summarily suspended Hana Financial Investment’s direct and indirect access to all CME Group markets for 60 days because of its alleged incomplete cooperation with “several” investigations from May 2017 through the present. Hana is a member of the Hana Financial Group of Korea, a worldwide banking organization ranked as the 80th largest banking group based on Tier 1 capital (click here for more details).

According to CME Group, during the relevant time, the firm – apparently operating as a foreign broker with non-United States customers – provided exchange staff with “incomplete, inaccurate, false and misleading information related to account ownership, authorized traders for accounts, audit trail data, and account statements.” CME Group claimed that this prevented staff from investigating possible spoofing, disruptive trading and money pass activity.

CME Group also said that it appeared that Hana “improperly and inaccurately” netted positions among independently owned and controlled accounts within omnibus accounts at “several” CME Group clearing members, causing the clearing members to inaccurately report long and short positions and impacting open interest reporting. 

Hana’s access ban will last at least through July 20, 2018, although the firm or its customers may liquidate existing positions. 

Separately, a business conduct committee of the Chicago Board of Trade accepted a settlement offer from Thomas Lindstrom to be permanently barred from accessing CME Group exchanges. This settlement was in response to a finding by the BCC that, from August 1, 2014, through January 27, 2015, Mr. Lindstrom engaged in a practice of purchasing deep out of the money options on 10-year T-Note futures contracts to artificially inflate the value of his trading account at his employer, in order to hide trading losses. In January, Mr. Lindstrom pleaded guilty to criminal charges related to this matter that alleged he caused losses at his employer in excess of US $13.7 million. (Click here for details in the article “Former Options Trader Pleads Guilty to Trading Futures Options to Disguise Trading Losses and Causing Collapse of Employer” in the January 28, 2018 edition of Bridging the Week.)

Additionally, Wells Fargo Securities LLC agreed to disgorge profits of US $117,000 and pay a fine of US $70,000 to the CBOT to resolve charges that on August 25, 2015, and January 15, 2016, it pre-hedged potential block trades prior to the consummation of such transactions. At the time, pre-hedging under such circumstances was prohibited. The relevant business conduct committee also found that the firm failed to supervise the trader engaging in such activity by failing to provide sufficient relevant training.

Two traders – David Campanile and Gust Saltouros – agreed to sanctions for engaging in disruptive trading activities on the CBOT. Specifically, each was charged with entering and canceling orders during pre-open periods without the intent to execute such transactions, solely to assess the depth of the relevant order book. Mr. Campanile agreed to pay a US $10,000 fine and serve a 20-business-day all CME Group trading prohibition, while Mr. Saltouros consented to serve a one-month trading prohibition for their purported violations. Separately, Arjun Capital Limited agreed to pay a US $20,000 fine for engaging in wash trades when one of its traders, between October 17 and 27, 2016, entered opposite side of the market orders in EU Wheat futures on the CBOT for the same firm account.

Finally, George Barker, an associated person with INTL FCStone LTD, agreed to pay a fine of US $8,500 to ICE Futures U.S. for submitting block trades later than 15 minutes after execution, contrary to requirements, and for brokering two raw sugar/refined sugar futures spreads between the identical clients, where the exchange legs immediately offset. INTL FCStone agreed to pay a fine of US $25,000 and restitution to customers of US $3,000 for failing to “timely” provide requested documents to IFUS in connection with the investigation of its employee.

Legal Weeds: Designated contract markets are required by a Commodity Futures Trading Commission core principle to have a disciplinary process that includes certain required elements that promote fairness, but may include an emergency process that permits a DCM to “impose a sanction, including suspension, or take other summary action against a person or entity subject to its jurisdiction upon a reasonable belief that such immediate action is necessary to protect the best interest of the marketplace.” (Click here to access the CFTC’s guidance regarding its Core Principle 13 for DCMs – Disciplinary Procedures.)

Pursuant to this CFTC authority, DCMs, like CME Group exchanges, have adopted rules to permit summary denial of access to exchanges’ trading facilities “upon a good faith determination that there are substantial reasons to believe that such immediate action is necessary to protect the best interests of the Exchange.” (Click here to access CME Group Rule 413.A. See also ICE Futures U.S. Rule 21.02(f); click here to access.) Under these rules, there is typically a maximum period such summary ban may remain in effect. In the interim, a respondent may request a hearing before a hearing panel.

Compliance Weeds: In late 2016, both CME Group and ICE Futures U.S. updated their block trading guidance to authorize the pre- or anticipatory hedging of futures and related options block trades by principal counterparties prior to a transaction’s execution under limited circumstances. Qualified parties to a block trade (e.g., not persons initially acting as agents taking the opposite side of customer orders) may now “engage in transactions to hedge positions which they believe in good faith will result from the consummation of the block trade which is under negotiation.” (Click here to access the relevant CME Group MRAN – Q/A 11, and here for the applicable IFUS FAQs – Q/A 24. Click here for more background in the article “Pre-Hedging by Principals Authorized in Block Trade Clarification Implemented by IFUS and Adopted by CME Group,” in the October 30, 2016 edition of Bridging the Week.)

  • Programmer Moves to Dismiss Criminal Charges for Allegedly Aiding and Abetting Trader’s Spoofing Violations: Jitesh Thakkar, who was criminally charged earlier this year in a federal court in Chicago with conspiracy to commit spoofing and aiding and abetting spoofing by Navinder Sarao, filed a motion to dismiss his indictment with prejudice. Among other things, Mr. Thakkar claimed that his indictment violated “the constitutional prohibition against arbitrary enforcement” and that a five-year statute of limitation precluded an allegation that he aided and abetted spoofing. 

At all relevant times and now, Mr. Thakkar was and is a computer programmer, founder and president of Edge Financial Technologies, Inc. Through this entity he develops electronic trading software and tools.

In November 2016, Mr. Sarao pleaded guilty to criminal charges for allegedly engaging in manipulative conduct through spoofing-type activity involving E-mini S&P futures contracts traded on the CME between April 2010 and April 2015, including illicit trading that contributed to the May 6, 2010 “Flash Crash.” He also settled a CFTC enforcement action related to the same conduct. (Click here for background regarding Mr. Sarao’s settlement and initial charges in the article “Alleged Flash Crash Spoofer Pleads Guilty to Criminal Charges and Agrees to Resolve CFTC Civil Complaint by Paying Over $38.6 Million in Penalties” in the November 13, 2016 edition of Bridging the Week.) Mr. Sarao said he used software provided by Mr. Thakkar to facilitate his spoofing activities.

In his motion to dismiss, Mr. Thakkar claimed that, although he received a request for programming from Mr. Sarao in late 2011 and early 2012, he was not aware it was to be used for spoofing. Moreover, he claimed, other programmers employed by his software development firm and not him created Mr. Sarao’s trading program, which was delivered to Mr. Sarao in January 2012. Finally, Mr. Thakkar claimed he could not have been on notice as to what constituted spoofing for him, as a CFTC guidance explaining spoofing for traders (not programmers) was not published until May 2013, more than a year after the delivery of the software to Mr. Sarao. (Click here to access the CFTC 2013 guidance on spoofing.)

Earlier this year, the Commodity Futures Trading Commission also charged Mr. Thakkar and Edge Financial with spoofing and engaging in a manipulative and deceptive scheme for designing software that was used by an unnamed trader (now known to be Mr. Sarao) to engage in spoofing activities.

According to the CFTC, Mr. Thakkar and Edge Financial aided and abetted the unnamed trader’s spoofing by designing a custom “back-of-book” function. This function automatically and continuously modified the trader’s spoofing orders by one lot to move them to the back of relevant order queues (to minimize their chance of being executed) and canceled all spoofing orders at one price level as soon as any portion of an order was executed. 

Legal Weeds: On January 29, the CFTC and the Department of Justice coordinated announcements regarding the filing of civil enforcement actions by the CFTC, naming five corporations and six individuals, and criminal actions by the DOJ against eight individuals – including six of the same persons named in the CFTC actions – for engaging in spoofing activities in connection with the trading of futures contracts on US markets. One of the individuals included in this group was Mr. Thakkar; however, he was the only software developer named. The other individuals were all accused of engaging in spoofing themselves.

(Click here for details regarding these coordinated actions in the article “CFTC Names Four Banking Organization Companies, a Trading Software Design Company and Six Individuals in Spoofing-Related Cases; the Same Six Individuals Criminally Charged Plus Two More” in the February 4, 2018 edition of Bridging the Week.)

In April 2018, Andre Flotron, the former UBS trader who last year was indicted for conspiracy to defraud in connection with purported spoofing‑type trading activity involving precious metals futures contracts listed on the Commodity Exchange, Inc., was found not guilty by a jury hearing his case in Connecticut. (Click here for details in the article “Former UBS Trader Found Not Guilty of Conspiracy to Defraud for Alleged Spoofing” in the April 29, 2018 edition of Bridging the Week.)

More recently, the United States Supreme Court declined to hear an appeal by Michael Coscia, the first individual convicted of spoofing under an amendment to applicable law adopted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. In February, Mr. Coscia requested the US Supreme Court overturn his conviction. (Click here for details in the article “First Trader Criminally Convicted for Spoofing Requests Supreme Court Overturn Decision, Claims Applicable Statute Is Unconstitutionally Vague” in the February 11, 2018 edition of Bridging the Week.)

  • Former FCM Fined by CFTC and NFA for Processing CPO Client’s Unlawful Post-Trade Allocations Despite Red Flags: X-Change Financial Access LLC (“XFA”), formerly a futures commission merchant registered with the Commodity Futures Trading Commission and a member of the National Futures Association, agreed to pay two fines totaling US $250,000 to the regulators to settle charges that, from at least January 2013 through January 2014, it failed to supervise the allocation of trades by Jonathan Hansen and Mr. Hansen’s firm, Newport Private Capital LLC, a CFTC-registered commodity trading advisory and commodity pool operator (collectively, “NPC”). According to separate orders by the CFTC and NFA, during this time, XFA did not act on red flags that Mr. Hansen was unlawfully allocating profitable trades after the fact to accounts where NPC or its associates had a proprietary interest and less profitable trades to customer or pool accounts. Moreover, said both regulators, after NFA restricted and later suspended NPC from trading in 2013 and 2014, XFA did not stop Mr. Hansen from allocating trades to a new account in Mr. Hansen’s wife’s name.

The CFTC also charged XFA with failing to maintain required records. According to the CFTC, XFA retained relevant instant messages related to the post-trade allocations, but the IMs did not contain time stamps.

XFA is now registered with the CFTC as an introducing broker.

My View: Although the CFTC charged XFA with failure to supervise under the general supervision requirement in its rules applicable to all Commission registrants (click here to access CFTC Rule 166.3), the CFTC said in the XFA settlement order that the CFTC regulation dealing with the post-execution allocation of bunched orders “places an affirmative obligation on FCMs to monitor for unusual allocation activity and to make a reasonable inquiry into the matter if an FCM had actual or constructive knowledge of fraudulent allocations.” However, there is no such express requirement in the relevant rule. The only two requirements on FCMs in the relevant rule (unless they are the eligible account manager engaging in the allocation) are (1) to maintain records to identify each order and account subject to a post-trade allocation and (2) not to accept orders for post-trade allocation from an eligible account manager if the CFTC advises it accordingly. (Click here to access the relevant CFTC regulation, Rule 1.35(b)(5).)

That being said, under an NFA guidance, FCMs have an express, affirmative obligation to take “appropriate action” if they have actual or constructive knowledge that allocations for its customers are fraudulent. (Click here to access NFA Interpretive Notice 9029 to Compliance Rule 2-10.) The CFTC acknowledged this NFA guidance in its XFA settlement order, as well as in the 2013 Federal Register release where the CFTC adopted its amended bunch order rule. (Click here to access 68 Fed. Reg 34,790, 34,792 (June 11, 2003).)

In times of CFTC budget shortages – like now – it is not clear what is the benefit of both the CFTC and NFA bringing parallel actions against XFA for effectively the same offense, particularly where the NFA has an express guidance on an FCM’s obligations related to its handling of bunched orders, the cited CFTC rule is silent on an FCM’s specific obligations, and the basis for the CFTC’s failure to supervise claim against an FCM in connection with bunched orders ultimately derives from the NFA guidance.

More Briefly:

  • Federal Reserve Board Proposes Simplification of Some Volcker Rule Requirements: The Board of Governors of the Federal Reserve System proposed changes to the so-called “Volcker Rule” to simplify and capture risk more appropriately. Among other things, the changes, if adopted, (1) would divide banking entities into three categories based on the size of their trading assets and liabilities and impose different compliance requirements to each category of banking entity; (2) eliminate one of the three current elements of what currently constitutes a trading account subject to a trading prohibition – the short term intent prong – to provide an easier quantifiable measure; (3) exclude error trades and correction transactions from the prohibition against proprietary trading; and (4) amend restrictions related to market making, underwriting and certain private equity and hedge funds (so-called “covered funds”). The FRB will accept comments for 60 days following publication of its proposed changes in the Federal Register.
  • SEC Sweep Results in 13 Investment Advisers Paying US $75,000 Fines for Not Filing Annual Reports: Thirteen investment advisers each agreed to pay a fine of USD $75,000 to the Securities and Exchange Commission to resolve charges that they failed over multiple years to file an annual report on Form PF. Under an SEC rule, certain investment advisers with at least US $150 million in private fund assets under management must file a report with the agency on an annual basis that provides information about themselves and their investment management activities. (Click here to access SEC Rule 204(b)-1; click here to access a sample Form PF.)
  • Investment Bank Employee Subject to Criminal and Civil Charges for Purportedly Trading on Inside Information Through Friend’s Account: Woojae “Steve” Jung, a vice president of Goldman Sachs & Co. and an employee since 2012, was criminally charged by the Department of Justice with trading on nonpublic, confidential information of his employer related to pending mergers and acquisitions as well as corporate restructurings despite strict rules and training by his employer prohibiting such conduct. Mr. Jung allegedly traded in violation of law through an account that was impermissibly not disclosed to his employer in the name of a friend at a third-party broker. From 2015 through 2017 the account realized at least US $130,000 in profits. Mr. Jung was charged with one count of conspiracy to commit securities fraud and six counts of securities fraud. Separately, the Securities and Exchange Commission also charged Mr. Jung for securities law violations in connection with this purported activity.
  • NFA Warns FCMs and IBs About Not Complying With AML Requirements: The National Futures Association reminded futures commission merchants and introducing brokers to comply with their anti-money laundering requirements. This includes, among other things, providing AML training to staff at least once every 12 months and provide evidence that training was given, and having independent testing conducted of the adequacy of a firm’s AML program at least annually by firm personnel or a qualified third party. According to NFA, “a number of firms failed to provide AML training and/or conduct an independent AML audit as required by NFA.” (Click here for details regarding NFA’s AML requirements in its Rule 2-9(c).)
  • Indian Court Prevents SGX From Listing New India-Stock Indices Based Futures Contracts: An Indian court issued an injunction preventing The Singapore Exchange Limited from listing, offering or trading three new futures contacts based on India stock indices – SGX India Futures, SGX Options on SGX India Futures and SGX India Bank Futures – beginning today, as SGX had scheduled. The legal action was initiated by an affiliate of the National Stock Exchange of India. SGX had sought to list new contracts based on India stock indices after three India stock exchanges, including the NSE and Bombay Stock Exchange, had earlier this year determined to cease providing relevant data to foreign exchanges, including SGX (click here to access a relevant SGX announcement). SGX had intended to migrate its current parallel futures contracts to the new futures contracts to address this termination of data feed. In response to the Indian court's injunction, SGX apparently consented to arbitrate its dispute with the plaintiff, but separately announced it will continue to list its current India stock indices-referenced contracts until August 12 while contesting the court's decision. An arbitration resolution is expected by June 16. NSE was recently accorded Part 30 status by the Commodity Futures Trading Commission which potentially enables United States persons to access Nifty 50 futures contracts traded on the NSE through NSE members. (Click here for background in the article, "National Stock Exchange of India Granted Part 30 Relief" in the May 20, 2018 edition of Bridging the Week.)
  • CME Group Amends MRAN to Not Require Registration of Tag 50s for Designated Preferential Fees Programs: CME Group amended its Market Regulation Advisory Notice related to its Tag 50 identification code required for electronic orders, to make clear that such tags might not have to be registered with it in connection with reduced fee programs that specifically exempt such registration. Currently Tag 50s of all employees or contractors of clearing members and persons associated with reduced fee programs, among other persons, must be registered with CME Group. The revised MRAN will be effective June 5 absent Commodity Futures Trading Commission objection.
©2022 Katten Muchin Rosenman LLPNational Law Review, Volume VIII, Number 155

About this Author

Gary DeWaal, Securities Attorney, Katten Law Firm, New York
Special Counsel

Gary DeWaal focuses his practice on financial services regulatory matters. He counsels clients on the application of evolving regulatory requirements to existing businesses and structuring more effective compliance programs, as well as assists in defending and resolving regulatory disciplinary actions and enforcement matters. Gary also advises buy-side and sell-side clients, as well as trading facilities and clearing houses, on the developing laws and regulations related to cryptocurrencies and digital tokens.

Previously, Gary was a senior...