Regulatory Review for Week Ended September 22, 2023
This week’s BR Derivatives Report Regulatory Review highlights five regulatory actions issued by the U.S. Commodity Futures Trading Commission (“CFTC”).
1) CFTC ENFORCEMENT ORDER ISSUED 9/20/2023
Type of Market Participant Involved
Swap Dealer (“SD”)
Summary
Registered SD failed to:
- Implement procedures to ensure that its pre-trade mid-market marks (“PTMMMs”) were accurate (i.e., consistent with the SD’s internal pricing methodologies);
- Adequately train and monitor its associated persons regarding PTMMM disclosure requirements; and
- Timely provide PTMMMs to counterparties on numerous occasions.
The order imposed a penalty of $650,000 and requires the FCM to remediate the compliance oversight failures.
Commentary
Although many non-SD counterparties do not find the receipt of pre-trade marks to be particularly valuable, SDs are nonetheless obligated to provide counterparties with these marks and supervise the process for doing so.
Bottom Line
SD external business conduct standards (“EBCs”) are a perennial source of enforcement orders—and penalties—for registered SDs. Accordingly, every market participant that may be required in the future to register—or decide to voluntarily register—as a swap dealer would do well to consider the costs of not only EBC compliance oversight but also what seems to be costs of inevitable compliance oversight failures.
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