CFTC Amends Recordkeeping Requirements under Regulation 1.35(a) | Practical Law

CFTC Amends Recordkeeping Requirements under Regulation 1.35(a) | Practical Law

The CFTC approved a final rule which amends recordkeeping requirements under CFTC Regulation 1.35(a) for futures commission merchants (FCMs), introducing brokers (IBs), and members of SEFs and registered swap exchanges (DCMs).

CFTC Amends Recordkeeping Requirements under Regulation 1.35(a)

Practical Law Legal Update w-001-1132 (Approx. 3 pages)

CFTC Amends Recordkeeping Requirements under Regulation 1.35(a)

by Practical Law Finance
Published on 23 Dec 2015 • USA (National/Federal)
The CFTC approved a final rule which amends recordkeeping requirements under CFTC Regulation 1.35(a) for futures commission merchants (FCMs), introducing brokers (IBs), and members of SEFs and registered swap exchanges (DCMs).
On December 18, 2015, the CFTC approved a final rule, effective December 24, 2015, which amends recordkeeping requirements under CFTC Regulation 1.35(a). The final rule:
  • Excludes certain market participants from some of the written and oral recordkeeping requirements of the rule.
  • Clarifies and eases the requirements regarding the form and manner in which these records must be kept.
  • Reorganizes the rule’s text to provide greater clarity to market participants regarding their recordkeeping obligations.
CFTC Regulation 1.35(a) requires that the following parties keep "full, complete, and systematic records, which include all pertinent data and memoranda, of all transactions relating to its business of dealing in commodity interests and related cash or forward transactions”:
The systematic records required include "all oral and written communications provided or received concerning quotes, solicitations, bids, offers, instructions, trading and prices that lead to the execution of a transaction in a commodity interest and related cash or forward transaction, whether communicated by telephone, voicemail, facsimile, instant messaging, chat rooms, electronic mail, mobile device, or other digital or electronic media." These records must be kept in a "form and manner identifiable and searchable by transaction."
Since CFTC Regulation 1.35(a) has become effective, there has been significant market pushback on these requirements, and the CFTC has granted numerous no-action letters to provide relief from these requirements (see Legal Update, CFTC Continues Relief from CTA Oral Reporting Requirement Under Regulation 1.35(a)).
The final rule clarifies that:
  • Members of a DCM or SEF that are not registered or required to register with the CFTC are only required to keep transaction records. These members are exempt from:
    • keeping records of written pre-trade communications;
    • keeping records of transaction records transmitted via text message; and
    • keeping records in any particular form or manner.
  • Commodity trading advisors (CTAs) that are members of a DCM or of a SEF are exempt from the requirement to record and keep oral pre-trade communications.
  • All required records must be kept in a form and manner which permits prompt, accurate, and reliable location, access, and retrieval of any particular record, data, or information.
  • Relaxes the requirement to keep records in a "form and manner that allows for identification of a particular transaction." The final rule does not require CFTC registrants to convert their records to searchable electronic databases. Rather they are permitted to keep paper and electronic records in a manner which they deem prudent and appropriate for their particular business, provided that searches yield prompt and accurate results.
  • Reorganizes the text of 1.35(a) to provide greater clarity regarding the regulatory obligations of all those affected. While this change is not a substantive change to the rule, the reorganized text defines separate categories of required records and then separately specifies for all parties affected the category of records it is required to keep.