Commodity-Corner.com is a Murphy & McGonigle resource for those interested in legal developments in the commodities, futures, and derivatives area. The information provided by this site is intended to provide insightful analysis and perspectives, as well as regulatory and enforcement updates and trends, in this increasingly varied and complex industry.
Although distributed ledger technology offers significant potential to streamline financial transactions, it does not come without potential challenges to its use to record electronic warehouse receipts – a fundamental part of the financial plumbing supporting cash commodity and commodity derivatives transactions.
The Bible’s Book of Genesis tells the story of how Jacob persuaded his older, first-born, brother, Esau, to exchange his first-born birthright for a bowl of stew. Needless to say, the famished Esau made a bad deal. Last fall, the SEC hinted that it may be on the verge of making a similar bad deal with its younger sister agency, the CFTC. To rid Bitcoin-related securities from trading in the U.S. securities markets, the SEC has implied that it was willing to cede jurisdiction over commodity-linked exchange-traded notes to the CFTC on the basis that such instruments are “commodity swaps” rather than securities.
On November 5, 2018, the Commodity Futures Trading Commission (“Commission” or “CFTC”) voted 4-1 to propose sweeping changes to its regulations relating to swap execution facilities (“SEFs”) and the trade execution requirement under the Commodity Exchange Act (“Act”). This article summarizes the proposed modifications to the SEF regulatory framework and trade execution requirement.
On November 15, 2018, the CFTC’s Division of Enforcement released its Annual Report for Fiscal Year 2018. This article provides an in-depth and comprehensive analysis of the Division’s FY 2018 enforcement campaign, with predictions of trends and developments for the coming year.
Over the past week, regulators in both the United Kingdom and Hong Kong have voiced words of caution regarding varying virtual assets. Both regulators were concerned in particular about the integrity of the cash markets for virtual assets and products giving retail investors both direct and indirect exposure to virtual assets.
On August 16, 2019, the defendants filed an emergency motion seeking to hold the CFTC in civil contempt for violating the terms of the Consent Order by issuing the statements by the Commission and Commissioners Benham and Berkovitz. These statements have since been pulled down from the CFTC’s website. Continuing further down this unprecedented path, the Court held a hearing on August 19, 2019, and ordered Chairman Tarbert, Commissioner Benham and Commissioner Berkovitz, to testify at an evidentiary hearing on September 12, 2019. Stay tuned to further updates on www.commodity-corner.com.
On August 15, 2019, the CFTC announced that the U.S. District Court for the Northern District of Illinois entered a Consent Order which settles the CFTC’s claims against Kraft Foods Group, Inc. (“Kraft”) and Mondelēz Global LLC (“Mondelēz”) for manipulating and attempting to manipulate the prices of cash wheat and wheat futures, violating speculative position limits, and engaging in noncompetitive trades in CBOT wheat. The Consent Order imposed a civil monetary penalty in the amount of $16 million against Kraft and Mondelēz, which was described as approximately three times the amount of the alleged gain of the defendants. This settlement is unusual due to the absence of findings of fact and conclusions of law in the Consent Order, and restrictions to further comment on the parties beyond publicly filed information.
“A two-letter conjunction and a two-word phrase decide this case. At stake are hundreds of millions of dollars.”
On May 8, 2019, the Division of Enforcement made public its first-ever Enforcement Manual. The Enforcement Manual addresses the various stages of the Division’s investigations and litigations. While much of the Enforcement Manual is rooted from the Commission’s Regulations and still leaves much discretion to Division Staff, its deputies and director, it does shed some light into the Division’s processes and policies. Although the Enforcement Manual does not create any private rights, is not enforceable in court, and is not binding law, it will likely be a useful reference tool for engaging in dialogue with Division Staff during various points of the Division’s investigations and litigations.
On April 18, 2019, Eric Powers of Kern County, California, entered into a consent order with the Financial Crimes Enforcement Network for acting as an unregistered money transmitter. FinCEN determined that Powers’ purchase and sale of Bitcoin for U.S. Dollars in over 1,700 “peer-to-peer” transactions from 2012 through 2014 made him an “exchanger” of convertible virtual currency.
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