CFTC’s Coronavirus (COVID-19) Response
By: Jua T. Tawah, Esq.
As the Commodity Futures Trading Commission (CFTC or Commission) began taking action in response to the COVID-19 pandemic back in March, CFTC Chairman Heath Tarbert issued public remarks in which he laid out five key objectives of the agency’s pandemic response including:[1]
- Increasing monitoring and surveillance of derivatives markets and their participants;
- Leveraging the CFTC’s regulatory framework to promote orderly and liquid markets;
- Responding swiftly to changing conditions with practical, targeted relief;
- Communicating consistently and transparently with all stakeholders; and
- Maintaining the CFTC’s commitment to advancing the agency’s strategic goals.
In his public remarks, Chairman Tarbert explained that the first objective was being met by the CFTC engaging with clearinghouses, exchanges and analyzing market activity; monitoring infrastructure essential to orderly trading; and surveying markets to detect and pursue potential misconduct.[2] Meanwhile, the second objective was being met by the Commission aggressively using its regulatory framework to promote orderly and liquid markets.[3]
Regarding the third objective – responding swiftly with practical, targeted relief – the CFTC has primarily responded through no-action letters and limited rulemaking designed to relieve regulatory pressure on market participants dealing with activated business continuity plans, personnel displacement due to social distancing, redirected resources, and other consequences of the pandemic.
On March 17, the CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) and Division of Market Oversight (DMO) issued a series of no-action letters providing relief to futures commission merchants (FCMs), introducing brokers (IBs), swap dealers (SDs), retail foreign exchange dealers (RFEDs), floor brokers (FBs), swap execution facilities (SEFs), designated contract markets (DCMs), and other market participants regarding certain regulatory obligations and compliance deadlines.[4]
The initial batch of March no-action letters generally provided temporary regulatory relief that extended until June 30, 2020.[5] Since then the CFTC has issued additional no-action letters extending some of the initial relief granted from June 30 to September 30, 2020, and addressing certain new matters. For instance, after Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the treatment of Paycheck Protection Program loans under the CARES Act in relation to calculation of net capital requirements under CFTC Regulation 1.17 was addressed in an April no-action letter.[6] Another April no-action letter waived fingerprinting requirements for CFTC registrants listing new principals, as well as for applicants for registration as associated persons (APs).[7] Relief from fingerprinting requirements, originally scheduled to end on July 23, was extended to September 30 in a subsequent no-action letter issued on July 14.[8]
The no-action letters have typically been in response to requests from market participants and other stakeholders such as the National Futures Association, the Futures Industry Association (FIA) and the Managed Futures Association (MFA). Taken together, the no-action letter guidance demonstrates that the Commission is working diligently to meet the Chairman’s goal of responding swiftly to changing conditions brought on by the pandemic with practical, targeted relief. Moreover, the CFTC staff’s proactive no-action letter guidance in response to requests from market participants and other stakeholders also comports with the Chairman’s fourth stated objective of communicating consistently and transparently with all market stakeholders.
With respect to the fourth objective, since March the CFTC has issued several customer advisories alerting investors of potential pandemic-related fraud such as gold and silver fraud schemes, as well as fee scams targeting workers sidelined by COVID-19.[9] In addition, the CFTC issued staff letters to market intermediaries emphasizing risk management and maintaining market integrity in light of increased market volatility caused by the pandemic.[10]
Chairman Tarbert’s fifth objective has largely been undertaken by the Commission forging ahead with a robust rulemaking agenda using virtual open meetings. After initially cancelling an open meeting scheduled for March 19 and postponing another from March 31 to April 14 due to the pandemic, the CFTC has continued to meet regularly, producing several rulemaking actions, and recently publishing its 2020-2024 Strategic Plan.[11] The 2020-2024 Strategic Plan calls on the CFTC to focus its work on five strategic goals:
- Strengthening the resilience and integrity of our derivatives markets while fostering their vibrancy;
- Regulating the derivatives markets to promote the interests of all Americans;
- Encouraging innovation and enhancing the regulatory experience for market participants at home and abroad;
- Being tough on those who break the rules; and
- Focusing on our unique mission and improving our operational effectiveness.
Chairman Tarbert has emphasized that, for the rest of 2020, the Commission intends to finish its current rulemaking agenda, notwithstanding any disruptions caused by the coronavirus pandemic. This is evidently true based on the Commission’s robust rulemaking agenda so far this year. Since cancelling or postponing its March meetings, the CFTC has held six virtual open meetings between April 14 and July 23, during which the agency has adopted seven final rules, an interim final rule, six proposed rules, and an amended order, as well as withdrawn one proposed rule and one supplemental rule.
At its open meeting on July 22, the CFTC reached a milestone when it approved a final rule imposing new capital requirements on SDs and MSPs that are not subject to supervision by a banking regulator.[12] This final rule marked the completion of the agency’s required rulemaking under Section 731 of the Dodd-Frank Act, and it was adopted in the same week as the ten year anniversary of the legislation.[13]
Conclusion
Looking forward, market participants can expect the CFTC to continue to react to changing market conditions with temporary, targeted relief, while also advancing its strategic goals with a focus on completing its rulemaking agenda in the near to medium-term and implementing its strategic plan objectives in the long-term.
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For further information about any of the topics covered, please feel free to contact Ruddy Gregory, PLLC (www.ruddylaw.com) or 202-797-0762.
[1] See CFTC Chairman Heath Tarbert Provides COVID-19 Response Update, YouTube (March 17, 2020), https://www.youtube.com/watch?v=PVVjp9UBUBg&feature=emb_logo (last visited August 17, 2020).
[2] Id.
[3] Id.
[4] See CFTC No-Action Letter No. 20-02, No-Action Positions for Certain Members of Designated Contract Markets and Swap Execution Facilities to Facilitate Physical Separation of Personnel in Response to the COVID-19 Pandemic (March 17, 2020), https://www.cftc.gov/csl/20-02/download; CFTC No-Action Letter No. 20-03, No-Action Positions for Futures Commission Merchants and Introducing Brokers to Facilitate Physical Separation of Personnel in Response to the COVID-19 Pandemic (March 17, 2020), https://www.cftc.gov/csl/20-03/download; CFTC No-Action Letter No. 20-04, No-Action Positions for Floor Brokers to Facilitate Physical Separation of Personnel in Response to the COVID-19 Pandemic (March 17, 2020), https://www.cftc.gov/csl/20-04/download; CFTC No-Action Letter No. 20-05, No-Action Positions for Retail Foreign Exchange Dealers to Facilitate Physical Separation of Personnel in Response to the COVID-19 Pandemic (March 17, 2020), https://www.cftc.gov/csl/20-05/download; CFTC No-Action Letter No. 20-06, No-Action Positions for Swap Dealers to Facilitate Physical Separation of Personnel in Response to the COVID-19 Pandemic (March 17, 2020), https://www.cftc.gov/csl/20-06/download.
[5] For annual compliance reports that would otherwise be due before September 1, 2020, CFTC No-Action Letters No. 20-03 and 20-06 provide FCMs and SDs, respectively, with thirty additional days to furnish such reports. CFTC No-Action Letter No. 20-08 gives SEFs sixty additional days to furnish such reports.
[6] CFTC No-Action Letter No. 20-15, No-Action Position for Futures Commission Merchants and Introducing Brokers to Address Net Capital Treatment of Covered Loans under the CARES Act (April 22, 2020), https://www.cftc.gov/csl/20-15/download.
[7] CFTC No-Action Letter No. 20-16, No-Action Position in Response to the COVID-19 Pandemic for Persons Required to Submit Fingerprints in Connection with Applying for Registration as an Associated Person or Being Listed as a Principal of a Registrant (April 24, 2020), https://www.cftc.gov/csl/20-16/download.
[8] CFTC No-Action Letter No. 20-20, Time Extension for No-Action Position in Response to the COVID-19 Pandemic for Persons Required to Submit Fingerprints in Connection with Applying for Registration as an Associated Person or Being Listed as a Principal of a Registrant (July 14, 2020), https://www.cftc.gov/csl/20-20/download.
[9] See CFTC Customer Advisory: Beware of Fee Scams Targeting Workers Sidelined by COVID-19, https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/CustomerAdvisory_CoronaFees.htm (last visited August 17, 2020); CFTC Customer Advisory: Beware of Gold and Silver Schemes Designed to Drain Your Retirement Savings,https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/CustomerAdvisory_COVID19PreciousMetals.htm (last visited August 17, 2020).
[10] CFTC Letter No. 20-17, Staff Advisory on Risk Management and Market Integrity under Current Market Conditions (May 13, 2020), https://www.cftc.gov/csl/20-17/download.
[11] The CFTC’s 2020-2024 Strategic Plan was published on July 8, 2020 after it was unanimously approved by the Commission in May and was subject to a 30-day comment period that ended in June.
[12] CFTC Release No. 8210-20 (July 22, 2020), https://www.cftc.gov/PressRoom/PressReleases/8210-20 (accessed August 18, 2020).
[13] Id.
