Dodd-Frank 30 Day Countdown: Day 4

CFTC Increases Policing Power under Dodd-Frank

The Commodity Futures Trading Commission (CFTC) has finalized a set of five “anti-manipulation” rules with respect to Title VII of Dodd-Frank requirements.

The CFTC voted unanimously to expand the government’s ability to police potential fraud and insider trading with respect to derivatives. The CFTC established that a regulator need only show that a trader acted recklessly, as opposed to the previous standard of proving that the trader intentionally manipulated the market and created artificial prices. Scott O’Malia, CFTC Commissioner, stated that this anti-manipulation rule may confuse market participants until the agency is able to clarify how it will be used.   It still remains to be seen how the CFTC will prosecute these instances of fraud and manipulation, but CFTC Chairman Gensler said this rule, “closes a significant gap as it will broaden the types of cases we will pursue and improve the chance of prevailing over wrongdoers.”

Another final rule requires hedge funds and large firms to release daily reports to the CFTC with respect to derivatives trading.  The CFTC has estimating that 5 clearing organizations, 100 swaps dealers, and 100 members will be required to report to them daily.

It should be noted that these were the first major rules to be completed in accordance with Dodd-Frank despite the fact that the Legislation will be in effect in less than five days. Over 40 derivatives rules remain incomplete or to be drafted.

-Stephanie Kane co-authored this post