Bridging the Week by Gary DeWaal: February 23 to 27 and March 2, 2015 (CCP Report Cards; HFTs; Wash Trades; CFTC Lawsuit Against Attorney; Insider Trading; Conflicts)

Jump to: Bridging the Week    Compliance Weeds    Exchanges and Clearing Houses    High Frequency Trading    Insider Trading    Managed Money    My View    Position Limits    Systems and Controls    Totally Irrelevant (But Is It?)    Trade Practices (including Disruptive Trading)   
Email Print
Published Date: March 01, 2015

Last week, the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions gave good grades to regulators in Europe, Japan and the United States for their implementation of best practices for key financial market infrastructures, including clearinghouses, The same regulatory organizations also recommended a common template for all clearinghouses so that stakeholders could more fairly compare the entities’ risks, risk controls and systemic importance. Separately, a Bank of England report concluded that high frequency traders may be good for the marketplace (at least the equities markets in the United Kingdom). As a result, the following matters are covered in this week’s Bridging the Week:

Video Version:

Article Version:

Europe and US Receive Good Grades for PFMI Implementation; Japan Receives the Best Grade

Regulators in the European Union, Japan and the United States have made “good progress” in implementing the Principles of Financial Market Infrastructures, according to a peer review conducted and publicized last week by the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions.

CPMI and IOSCO found that, generally, regulators have made greater progress in implementing the Principles related to central clearing counterparties (CCPs), while their efforts to apply the Principles to trade repositories (TRs) “has been more varied.”

The PFMIs—which the Committee on Payment and Settlement Systems and IOSCO adopted in April 2012—are high-level best practices for key financial market infrastructures, including financial exchanges, TRs and CCPs (e.g., clearinghouses and clearing agencies (CCAs)), that set forth standards for organization; credit and liquidity risk management; settlement; default management; general business and risk management; and other topics (click here to access the Principles).

CPMI and IOSCO found that US regulators (the Commodity Futures Trading Commission, the Securities and Exchange Commission and the Board of Governors of the Federal Reserve System) have “developed rules that completely and consistently implement the majority of the Principles that are applicable to CCPs.” However, CPMI and IOSCO found that the CFTC has not sufficiently implemented a principle for systemically important derivative clearing organizations (SIDCOs) that requires potential principal risk caused by exchange of value settlements to be mitigated solely through a delivery-versus-payment mechanism. Instead, the CFTC permits SIDCOs to manage this risk through the use of “appropriate tools and procedures,” which the regulatory organizations claim “is far more general and could conceivably be met by the use of measures other than DvP.”

CPMI and IOSCO also found that the SEC’s proposed regulations regarding CCAs do not include an unambiguous requirement that a CCP use central bank money “where available and practical,” and fail to set forth in sufficient detail requirements related to a board of director’s role in the governance of a CCP’s operational risk management framework (including business continuity requirements).

CPMI and IOSCO likewise found regulations adopted in Europe regarding CCPs (e.g., the European Market Infrastructure Regulation) are “consistent or broadly consistent with a majority of the Principles” but identified a number of specific areas requiring improvement. The regulatory organizations concluded that Japan “has completely and consistently adopted the Principles applicable for CCPs and TRs,” effectively giving it the best grade.

All assessments were as of April 18, 2014. CPMI operates under the umbrella of the Bank for International Settlements.


My View: Contrast this BOE research report with an article by Gregory Scopino, an attorney with the Commodity Futures Trading Commission, entitled, “The (Questionable) Legality of High-Speed ‘Pinging’ and ‘Front Running’ in the Futures Markets,” that appeared earlier in February in the Connecticut Law Review (click here to access the article). Mr. Scopino’s composition suggests that high frequency traders in futures markets sometimes engage in an activity known as “pinging” that permits them to front run other traders. Through this activity, alleges Mr. Scopino, HFTs enter one-lot orders, receive their fill, and use this trade information to place other orders to the detriment of other market participants. Mr. Scopino claims that this type of activity may be illegal under applicable law and CFTC regulations. Although Mr. Scopino’s views likely reflect, at most, a minority view of applicable law, his article provides another example of the ongoing strong emotions engendered by HFT techniques. The BOE research report is a refreshing, dispassionate, quantitative look at the potential positive impact HFTs apparently have on liquidity in at least one market segment—UK equities. 

Compliance Weeds: Transfers of positions from one account to another with the identical beneficial ownership should be accomplished applying exchange rules related to transfers of trades not through pre-arranged trades. (Click here to access CME Group Rule 853.A.1.i)

And even more briefly:

And finally:

Totally Irrelevant (But Is It): Perhaps this may be a good example of the grass not always being greener on the other side (of the border)—at least when it comes to disclosures!

For more information, see:

Asset Managers Warned to Avoid Conflicts by SEC Asset Management Unit Co-Chief…:

Bank of England Report Finds Positive Impact on UK Equities Markets by High Frequency Traders:

Canadian Regulators Not High on Medical Marijuana Industry Disclosures:

CME Group Sanctions Firm and Traders for Wash Trades Used to Transfer Positions and Another Firm for a Deficient Algorithm:

Cargill de Mexico:

Port 22 LLC:

Court Rules CFTC Lawsuit Against Multiple Clients' Attorney May Proceed:

CPMI and IOSCO Propose Uniform Disclosure Standards for CCPs:

Déjà vu All Over Again: CFTC Reopens Comment Period on Position Limits and Aggregation:

ESMA Criticizes European Regulators for Not Implementing Best Execution Requirements:

Europe and US Receive Good Grades for PFMI Implementation; Japan Receives the Best Grade:

United States:

…FCA Fines Investment Manager for Conflicts:

Fed Extends to April 3 Comment Period for Proposal to Levy Capital Surcharges for Largest Banks:

ISDA Recommends Measures to Enhance Derivatives Trade Reporting and Transparency:

NY-Based Broker-Dealer Sanctioned by FINRA for Not Having Adequate Procedures to Ensure Employee Did Not Trade on Insider Information:

The information in this article is for informational purposes only and is derived from sources believed to be reliable as of February 28, 2015. No representation or warranty is made regarding the accuracy of any statement or information in this article. Also, the information in this article is not intended as a substitute for legal counsel, and is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The impact of the law for any particular situation depends on a variety of factors; therefore, readers of this article should not act upon any information in the article without seeking professional legal counsel. Katten Muchin Rosenman LLP may represent one or more entities mentioned in this article. Quotations attributable to speeches are from published remarks and may not reflect statements actually made.

Recent Commentaries




Gary DeWaal

Gary DeWaal is currently Special Counsel with Katten Muchin Rosenman LLP in its New York office focusing on financial services regulatory matters. He provides advisory services and assists with investigations and litigation.

Social Media:


Katten is a firm of first choice for clients seeking sophisticated, high-value legal services in the United States and abroad.

Our nationally recognized practices include corporate, financial services, litigation, real estate, environmental, commercial finance, insolvency and restructuring, intellectual property, and trusts and estates.

Our approximately 650 attorneys serve public and private companies, including nearly half of the Fortune 100, as well as a number of government and nonprofit organizations and individuals.

We provide full-service legal advice from locations across the United States and in London and Shanghai.


Gary DeWaal
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, NY 10022-2585


Request Information »

Join Mailing List »