In keynote remarks at the Futures Industry Association (FIA) Futures and Options Expo on November 4, 2015, CFTC Chairman Timothy Massad outlined a packed CFTC agenda with upcoming rulemaking on important issues, including:

The chairman also continued to emphasize enforcement, as the CFTC shifts focus, having completed much of its rulemaking under Title VII of the Dodd-Frank Act. The chairman emphasized enforcement in the areas of:

The latter was highlighted in a recent high-profile “spoofing” case, decided on November 4, 2015, the first US prosecution under the Dodd-Frank anti-spoofing law ( 7 U.S.C. § 6c(a)(5)),

The following is a summary of the chairman’s remarks.

The chairman acknowledged the uncleared swaps bank margin rules released late last month by US prudential bank regulators and confirmed (as expected) that corollary CFTC rules on uncleared swaps margin for nonbanks are likely to be finalized by the CFTC late this year (see Legal Update, Final Uncleared Swaps Margin Rules for Banks Adopted by US Bank Regulators). He noted that while certain minor differences between the rules will remain, similarity on the following issues can be expected:

According to the chairman, the CFTC remains committed to harmonizing these rules with the bank margin rules, as well as internationally, as much as possible.

The chairman confirmed that the CFTC is expected to soon consider proposed rulemaking on automated trading, designed primarily to address the potential for market disruptions, not market structure issues. The rules seem likely to be directed at high-speed and algorithmic trading. The chairman noted that these rules would be “principles-based.”

Further to this, Chairman Massad noted that the CFTC:

The chairman anticipates that the CFTC’s automated trading proposals will be consistent with best practices followed by many firms already.

Chairman Massad also mentioned that he expected the CFTC to take action shortly in the area of cybersecurity. The chairman noted the CFTC’s focus on disruptive cyberattacks and cited recent approval of National Futures Association’s (NFA’s) cybersecurity guidance that will require NFA members to adopt – and enforce – policies and procedures to secure customer data and protect their electronic systems.

The CFTC is also considering proposals to ensure that major exchanges, clearinghouses, and swap data repositories (SDRs) are conducting adequate evaluation and testing of their own cybersecurity and operational risk protections.

These are also expected to be principles-based standards. A proposal can be expected in 2016.

The CFTC is expected to publish, before the end of the month, a preliminary report, mandated under Title VII of the Dodd-Frank Act, on the swap dealer (SD) de minimis exemption. The de minimis threshold is currently $8 billion – which is the amount of aggregate notional swap dealing activity that requires an entity to register with the CFTC as an SD. This threshold is currently scheduled to fall to $3 billion in about two years.

Chairman Massad noted that when the CFTC and the SEC wrote the de minimis exemption, they did so without the benefit of much data. Now, Massad asserts, the CFTC is in a much better position to estimate the impact of setting different threshold levels, with data to inform the discussion. The CFTC will estimate the number of participants that might be subject to registration under a lower threshold, and the percentage of the market that might be captured.

The CFTC intends to solicit public comment on this issue once the report is released.

Chairman Massad also stated that the CFTC is working to make swap execution facility (SEF) registrations permanent. Twenty-two platforms are temporarily registered. The CFTC expects to make determinations of permanent registrations by early 2016 for the platforms that have provided complete information.

Over the last 18 months, the CFTC has issued no-action letters and guidance on several rules which Chairman Massad expects the CFTC to “formalize” through rulemaking proposals. CFTC staff members have recently noted the following no-action relief that the CFTC is looking to make permanent through rulemaking:

The chairman noted that the CFTC was unlikely to finalize final rules on position limits for certain physical commodities. These rules remain in the re-proposal stage after being struck down in federal court in 2012. For details on the proposal, see Practice Note, The Dodd-Frank Act: Commodity Position Limits.

The CFTC will consider additional matters, such as:

Chairman Massad had extensive remarks in this area, touching on a number of subtopics.

Making sure the data is complete. The chairman noted first that many dealers were leaving certain data fields incomplete and there was a high rate of incomplete data reporting fields. He noted that after consulting with SDRs and with these parties that completeness has made a dramatic improvement across a number of data fields.

However, in addition to encouraging SDRs to continue to use “heat maps” and similar tools to improve the quality of data reporting, Massad suggested the following further improvements that could be made to the data collection and dissemination process. These may be the subject of proposed rulemaking in 2016:

Making sure data is consistent and high quality. The chairman also pointed to a lack of standardization in how many data fields are reported. There is considerable variation in how the same information is reported to the SDRs, and in how the SDRs themselves transmit the same information to the CFTC.

In its final rules on data reporting under Title VII of the Dodd-Frank Act, the CFTC purposely did not prescribe exactly how each field should be reported – the CFTC felt that industry standards might develop, which did not occur. Therefore, the chairman explained, the CFTC is currently developing proposals to refine how data should be reported, and the proposals will specify the form, manner, and the allowable values that each data element can have. According to the chairman, the CFTC will publish proposals on about 100 fields before the end of 2015, and solicit public comment.

Massad noted that the CFTC is also focused on international data reporting harmonization. The CFTC co-chairs an international task force that is leading the effort to harmonize data reporting standards. This has been formed under the auspices of Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO), which include representatives from regulators in the G-20 countries.

One of its projects is to standardize the reporting of data fields by proposing definitions and formats for each. This group recently published its first consultative document containing a batch of data fields and the CFTC is working on standardizing its data fields according to the international recommendations.

Refining swap identifiers. The CFTC is working to develop effective means to identify swaps and swap activity by participant, transaction and product type throughout the swap life cycle. These include the Legal Entity Identifier (LEI), as well as the Unique Transaction Identifier (UTI) and Unique Product Identifier (UPI).

The LEI is the most advanced way to identify a specific entity and its activities, with over 400,000 LEIs in existence. The chairman advocated for the expanded use of the LEI so that it can be used to identify affiliated entities – and aggregate positions or transactions among them – something the chairman asserts cannot be done today.

Clarifying reporting obligations, and eliminating unnecessary reporting obligations. Another issue pertains to clarifying who has the obligation to report data, what data must they report, and eliminating reporting obligations that are not necessary.

In connection with this, the chairman noted a couple of recent measures that have provided some limited progress in this area, including amendments to Part 45 cleared swap data reporting proposed by the CFTC (see Legal Update, Amendments to Part 45 Cleared Swap Data Reporting Proposed by CFTC) and rules exempting SEFs from reporting certain data in master agreements not in their possession (see Legal Update, CFTC Issues No-action Letters Reducing Regulatory Burden on SEFs: No-action Letter 15-25: Transaction Confirmation Recordkeeping and Reporting).

Enforcing reporting obligations. Chairman Massad emphasized the need to enforce reporting obligations. He noted that the CFTC “will not hesitate to carry out enforcement actions for industry participants who do not make timely, complete and accurate reporting.”

The chairman noted that the CFTC fined a major global bank $2.5 million for repeated failures to comply with swap reporting obligations, including failing to report swaps and failing to correct errors in its reporting, and that since the beginning of 2014, the CFTC has brought actions against six other institutions, including other major banks and an exchange, for various reporting violations (see Legal Update, CFTC Fines Bank for Failure to Comply with Large-trader Reporting Requirements). Massad emphasized that the CFTC “will continue to promote compliance in recordkeeping and reporting – and hold those who are not in compliance accountable.”

Though not part of his keynote remarks, as reported by Reuters, Chairman Massad spoke to reporters at the conference, and warned traders that the CFTC will aggressively pursue cases of market manipulation.

These remarks highlighted the significance of the conviction of high-frequency trader Michael Coscia in the first US prosecution under a new "anti-spoofing" law on November 4, 2015. Coscia, owner of New Jersey-based Panther Energy Trading, was found guilty of six counts of commodities fraud and six counts of spoofing after a seven-day trial.

According to Reuters, lawyers and analysts say the verdict clarifies the definition of spoofing, in which traders place orders without intending to execute them to create the illusion of market demand. As a result, the government may become more aggressive in pursuing such cases against traders.

Coscia was accused of entering large orders that he never intended to execute into futures markets in 2011. He canceled most of the large orders and made money executing smaller trades, prosecutors said. Coscia spoofed markets run by exchange operators CME Group Inc and Intercontinental Exchange Inc.

Coscia's prosecution was the first under an anti-spoofing provision that was added to the Commodity Exchange Act (CEA) by the Dodd-Frank Act..

According to Reuters, Chairman Massad noted that the CFTC has “been very aggressive in going after situations that we feel are violations of the law and implementing our new authority," and that the CFTC “will continue to do that."

Update: On July 13, 2016, Michael Coscia was sentenced to three years in prison and two years of supervised release. Prosecutors had sought a prison term of up to seven years. Coscia appealed his conviction due, in part, to the government’s inability to specifically identify how much money individual traders lost as a result of Coscia’s actions as well as on the grounds that the anti-spoofing law was unconstitutionally vague.

On August 6, 2017, Coscia's conviction and sentencing were unanimously upheld by a three-judge panel on the US Court of Appeals for the Seventh Circuit in Chicago. In its decision, the Appeals Court stated that the anti-spoofing provisions were not unconstitutionally vague because they provided "clear notice and [did] not allow for arbitrary enforcement." Further, the Appeals Court noted that there was sufficient evidence to support they jury's conviction of Coscia.

Update: On May 14, 2018 the US Supreme Court denied certiorari (cert) ( (U.S. May 14, 2018)) in Coscia v. United States, leaving in place Coscia's spoofing conviction. In its decision to deny cert, the Supreme Court did not issue any opinion on its decision, and left the 7th Circuit's decision that the anti-spoofing provisions under Dodd-Frank were not unconstitutionally vague in effect.