Bridging the Week by Gary DeWaal (Abbreviated Independence Day Holiday Version): June 29 to July 3 and 6, 2015 (Diva of Distressed; Uncleared Margin; Reg MAR Breakdown; China; FINRA Defamation)

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Published Date: July 05, 2015

A shortened work-week in the United States because of the Independence Day holiday still saw a few important developments impacting firms in the financial services industry, including still yet another case regarding the location where the SEC should bring enforcement actions (i.e., federal court or administrative tribunal) and a CFTC proposal regarding uncleared swaps margin in cross-border transactions. As a result, the following matters are covered in this week’s abbreviated Independence Day holiday version of Bridging the Week:

​(There is no video version of Bridging the Week in this abbreviated edition.)


​Helpful to Getting the Business Done: After so many years of anticipation, it is very significant that the opening of China's futures markets to foreigners may be only three months away. This is an exciting development that presents potential new opportunities to a wide range of futures market participants. Traders, end users, and Futures Commission Merchants should be studying these new rules to determine how they may be beneficial to their businesses. (Click here for a summary of material developments in China's futures market in the article, "China's Futures Markets: The Door Opens Another Crack More" that I authored in the March 9, 2015 edition of Futures Industry Magazine.)

My View: Although settlements help limit potential damages and litigation costs, as well as minimize the time officers and employees need dedicate to litigation, they deny respondents the opportunity to present their side of the story publicly. Without knowing anything more about this matter other than what I read in the relevant SEC order, it is hard to imagine that, if given a chance, GSCO wouldn’t have argued (as it appears to have been the case) that it had policies and procedures reasonably designed to ensure its compliance with Reg MAR, but they weren’t perfect and a few employees violated the spirit if not the letter of those policies — giving rise to the firm’s August 20, 2013 problems. However, as a result of its settlement, GSCO is required to be mute and we will never know its side of this story. As I told a reporter last week when she asked me whether today, could an SEC or Commodity Futures Trading Commission registrant be prosecuted if they were cyber hacked despite a lack of specific regulatory proscriptions — yes, of course! It would not matter whether a specific regulation applied. If regulators determine something is problematic (e.g., an event causes a media sensation), even if not expressly prohibited, they may use existing tangential regulations to prosecute the perceived offense, and a firm will be left with the uneasy option of fighting the regulatory action at great cost (even if to a successful end), or settling at a likely lesser cost and biting its proverbial lips. Unfortunately, a policy and procedure that appears reasonably designed when implemented, may be considered unreasonable after the fact if it was not perfect in anticipating every conceivable breakdown -- if the breakdown caused a noticeable public event, as happened on August 20, 2013. That's not supposed to be the standard (certainly not under Reg MAR), but, unfortunately, it's the regulatory reality.

And even more briefly:

For more information, see:

CFTC Proposes to Apply Margin Obligations for Uncleared Swaps in Cross-Border Transactions on Broad Range of US Entities; Substituted Compliance Potentially Available:

Fact Sheet:
Proposed Rule:

China Regulator Issues Final Interim Measures Governing Overseas Access to Its Futures Markets:
China Interim Measures:
China Interim Measures (redlined against proposed Interim Measures):
(Translation and redlining courtesy of Shanghai office staff of Katten Muchin Rosenman LLP)

CME Group Fines Firm for Position Limits Violation:

CME Group Requires Firms Connecting to the CME Globex Platform to Recertify Trading Systems by April 1, 2016:

Deloitte & Touche Settles SEC Charges for Violating Auditor Independence Rules:

“Diva of Distressed” Loses Bid to Have SEC Enforcement Action Heard in Federal Court, Not Administrative Tribunal:

FINRA Expresses Formal Support for Members of Disciplinary and Appellate Panels Who Have Become Subjects of Alleged Disparaging Online Attacks:

See also, Brummer v. Wey et al. (Complaint):

Goldman Sachs Pays US $7 Million to SEC for Alleged Reg MAR Breakdown:

LME Provides Feedback on Warehouse Reforms Proposal:

Singapore Commences Consultation on Mandatory Swaps Clearing:

The information in this article is for informational purposes only and is derived from sources believed to be reliable as of July 2, 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.

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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.

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