Edited by Robert L. Kohl and David A. Pentlow
Bipartisan Bill Introduced in U.S. Senate to Authorize SEC to Impose Larger Penalties
On July 23, Senators Charles Grassley (R-IA) and Jack Reed (D-RI) introduced S.3416, the Stronger Enforcement of Civil Penalties Act of 2012 (the Bill), in the U.S. Senate, which seeks to increase the statutory limits that may be obtained by the Securities and Exchange Commission from individuals and entities charged with securities law violations in administrative and civil actions.
Pursuant to existing law, the SEC may only penalize individuals a maximum of $150,000 per violation and entities $725,000 per violation. The SEC has the authority to seek penalties above these caps only if the matter is adjudicated in federal court, but not when the SEC handles a case through its administrative process.
Under the Bill, the per violation cap for the most serious securities law violations involving fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement that resulted in substantial losses to victims or substantial pecuniary gain to the violator, would be increased to the greater of (i) $1 million for individuals and $10 million for entities, (ii) three times the gross pecuniary gain, or (iii) the losses incurred by the victims as a result of the violation.
The Bill also proposes to increase the per violation maximum penalties associated with less serious securities law violations to the greater of $100,000 for individuals and $500,000 for entities, or the gross pecuniary gain as a result of the violation. The maximum per violation penalties associated with violations not involving fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement would be increased to the greater of $10,000 for individuals and $100,000 for entities, or the gross pecuniary gain as a result of the violation.
The maximum penalty for recidivists would be three times the applicable cap where the individual or entity within the five years preceding the act or omission is criminally convicted of securities fraud or is subject to a judgment or order concerning securities fraud.
The SEC may seek these increased maximum penalties in administrative proceedings, without being required to submit the matter to civil litigation.
The Bill has been referred to the Senate Committee on Banking, Housing and Urban Affairs.
To view the Bill, click here.
CFTC Designates Provider of Legal Entity Identifiers
In general, Commodity Futures Trading Commission Rule 45.6 provides that each counterparty to a swap must be identified by a single legal entity identifier (LEI) for purposes of the CFTC's swap recordkeeping and reporting rules. On July 23, the CFTC issued an order announcing that the Depository Trust & Clearing Corporation & SWIFT (DTCC-SWIFT) would be responsible for providing LEIs (which will be known as CFTC Compliant Interim Identifiers or CICIs) on an interim basis until the CFTC transitions to a global LEI system. The CFTC designated DTCC-SWIFT as the CICI provider for a limited term of two years.
CFTC registered entities and swap counterparties subject to the CFTC's jurisdiction must use the CICIs provided by DTCC-SWIFT for purposes of the CFTC's swap recordkeeping and reporting rules. CFTC registered entities and swap counterparties may contact DTCC-SWIFT at:
The Depository Trust & Clearing Corporation 55 Water Street New York, NY 10041 212-855-1000
Click here to see the CFTC's order.
CFTC Proposes Clearing Determination for Credit Default and Interest Rate Swaps
On July 24, the Commodity Futures Trading Commission issued the first proposed clearing determinations pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) revisions to the Commodity Exchange Act that generally prohibit market participants from engaging in a swap transaction that is required to be cleared unless it is submitted for clearing to a derivatives clearing organization (DCO). The proposed clearing determination would require market participants, other than persons relying on the "end-user exemption" from clearing, to submit certain credit default swaps (CDS) and interest rate swaps for clearing by a DCO as soon as technologically practicable and no later than the end of the day of execution.
The proposal addresses CDS and interest rate swaps that are currently cleared by DCOs and would subject swaps in four interest rate swap classes and two CDS classes to mandatory clearing. The six classes identified in the proposal are fixed-to-floating swaps, basis swaps, forward rate agreements, overnight index swaps, North American untranched CDS indices, and European untranched CDS indices. The CFTC is expected to make a determination with respect to each swap within 90-days following publication of the proposed clearing determination in the Federal Register.
The proposal does not apply to entities that are eligible for the end-user exception to the clearing requirement, such as non-financial entities hedging commercial risks. In addition, the clearing requirement does not apply to swaps entered into prior to the enactment of the Dodd-Frank Act or prior to the application of the mandatory clearing requirement.
The proposed rule is available here.
CFTC Approves Swap Transaction Compliance and Implementation Schedule Rule
On July 24, the Commodity Futures Trading Commission approved an implementation schedule to phase in compliance with the mandatory swap clearing requirements created by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). Under the Dodd-Frank Act, the path to mandatory clearing begins with the publication of a proposed clearing determination for a particular class of swaps, followed by a 30-day public comment period, and a final clearing requirement determination which, absent a stay of up to 90 days, must be made within 90 days of the publication of the proposed determination. The new CFTC rule provides that, when the CFTC deems it appropriate, market participants will have additional time to comply with any such clearing requirement determination.
As proposed, the final rule divides market participants into three categories and establishes a compliance schedule for each category. Category 1 includes swap dealers, security-based swap dealers, major swap participants, major security-based swap participants, and active funds. Pursuant to the CFTC's schedule, Category 1 entities will have 90 days from the date that a final clearing requirement determination is published in the...