Syllabus and Course Outline with Reading Assignments

08-12-2020 (Ver. 1) Georgetown University Law Center

Regulation of Derivatives - Fall 2020 Georgetown University Law Center LAWG-2054-11 (CRN#: 29963) LAWJ-2054-11 (CRN#: 29964)

Course Description This course will focus on US federal and state laws and regulations affecting commodities (e.g., energy, agriculture, metals, forex, cryptocurrency) and the related derivatives (i.e., swaps, futures, and options) markets. Topics include: (1) overview of the origins of derivatives and commodity trading generally; (2) the concepts of hedging and speculation; (3) development of derivatives regulation in the U.S. during the 20th and 21st century and the evolution of the Commodity Exchange Act of 1936 (CEA); (4) the current jurisdiction of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) in the post- Dodd-Frank world; (5) application of commodity trading and derivatives statutes and regulations to new products, such as bitcoin, blockchain and other FinTech innovations; (6) analysis of energy and emissions-based derivatives; (7) application of certain securities and banking statutes and regulations to derivative transactions (e.g., the Volcker Rule); (8) registration and regulation of market participants, such as brokers, hedge fund operators, investment advisers, swap dealers; (9) administrative and injunctive enforcement powers involving violations of the CEA; (10) current developments in self-regulatory oversight; and (11) foreign market access to derivatives trading and developments in the EU and Asia.

Students who complete this course will have a solid understanding of the CEA and CFTC’s rules and regulations under the CEA as well as federal relevant cases. In addition to learning the black-letter law, the students will learn how derivatives and commodities markets work in the US and overseas and how securities, energy, emissions, agricultural and financial markets interact with these markets. Through a series of in-class exercises culminating with the final paper students will develop their research, analytical and writing skills.

Contact Information Peter Y. Malyshev – o: (202) 414-9185; [email protected] Paul G. Hayeck – c: (703) 239-0122; [email protected]

Course Materials / Textbook Reading materials will be available through the Course Materials Distribution Site at the Law Center or for individual download and printing from Canvas. In addition, the professor will distribute additional reading materials in hard copy in class. Each class will feature a PowerPoint presentation that will cover the entire class materials for each class session and will be posted to Courseware before the next class. This syllabus can be used as a course outline for students’ reference. The syllabus is organized into several modules and each class may include several modules with the reading assignments relating to each module. Students will be expected to read or skim (as appropriate) their required reading materials. These materials will be used as the basis for discussion in each class. On the last day of the class the professor will

distribute his class notes with case summaries for further students’ reference and to assist with paper writing.

Meeting Times and Places Thursdays 3:00 pm – 5:00 pm. Classes begin on September 3, 2020. The final paper is due on December 18, 2020 (i.e., you have one more week to work on the papers after the exams). There will be no extensions.

Course Grading Your final grade for this 2-credit course will be based on a take-home paper that must be at least 15 pages in length; there is no extra credit for the length of the paper, but thoughtful, publication- ready and well researched papers will be viewed with preference. The focus in grading the papers will be: (a) identification of an interesting and relevant issue (suggested topics will be discussed in class); (b) grasp of the relevant area of law and citation to relevant sources of law (no Bluebooking is necessary but the citation style must be standard); (c) analytical discussion; (d) suggested solutions to an issue or an insightful conclusion; and (e) professional law-firm writing style. The professor will distribute suggested paper topics in the middle of the semester. Active participation in class is encouraged (e.g., questions, comments, observations or volunteering to cover a particular case / topic) and will count for a ½ grade increase for the final grade. There is no downside to participation – we do not lower your grade for lack of participation (i.e., there is no extra credit for being an A-type personality!).

Content of the Course

The term “commodity” includes almost every standardized commodity (such as energy and emissions) contract traded in interstate commerce in the U.S. and internationally. This class will provide a comprehensive overview of commodity trading and derivatives regulation by the Commodity Futures Trading Commission (CFTC), including with respect to traditional energy products (such as natural gas, power, crude oil and coal), agricultural products, financial products and derivatives on securities.

The class will explore questions including: Who are the market participants (e.g., energy companies, banks, hedge funds) and how are they regulated? How do companies use commodities (e.g., as consumers, producers, hedgers, investors) and what are the implications of using different commodity instruments, e.g., physical spot and forward contracts versus hedging instruments (futures, swaps and options), from a regulatory, collateral and bankruptcy perspective. What will be the impact on commodity trading of new technologies, such as bitcoin and block-chain functionality? What are types of behavior in commodities markets that becomes the subject of CFTC enforcement actions?

Although the class is designed primarily for law students, business students will also benefit from this class given the impact of recent regulatory changes stemming from the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) on the structuring of energy and commodity transactions. Given the comprehensive nature of the Dodd-Frank Act, we will also address the areas where the CFTC’s jurisdiction overlaps with the jurisdiction of the Securities and Exchange Commission (SEC), the Federal Energy Regulatory Commission (FERC), the Environmental Protection Agency (EPA) as well as US Treasury and the Federal

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Reserve. Finally, the class will discuss how commodity markets operate globally (e.g., crude oil trade and environmental offsets) and how U.S. and foreign cross-border requirements interact.

In addition to learning the fundamentals of energy and commodities trading and regulation, students will be encouraged to think creatively about how commoditized contracts can serve the needs and challenges of humanity in the 21st century both in the developed and developing worlds with respect to climate change, water shortage, decreasing farm lands, development of alternative energy, population growth and fluctuating prices of industrial and agricultural raw materials.

CLASS 1 – SEPTEMBER 3, 2020

Overview and Introduction to Energy and Commodities Regulation – Why these Markets Matter: A brief high-level outline of the course and the Commodity Exchange Act (CEA), the rise of the Commodity Futures Trading Commission (CFTC), state versus federal jurisdiction; the financial crisis and the passage of the Dodd-Frank Act of 2010. The first class will review expectations for the course, the course outline and reading materials, expectations for class participation, grading policy and other course logistics. During the first class we will discuss the emergence of hot topics in derivatives (cryptocurrency) and the public interest in having a robust market in commodities and derivatives.

1. Introduction.

(a) Origins of derivatives and commodities regulation

(b) History of derivatives regulation

(i) Origins of derivatives.

(ii) Purposes of derivatives.

(iii) Elements of a derivative contract.

(iv) Ancient Mesopotamian derivative.

(v) Origins of derivatives trading in the US.

(i) E.g., agricultural commodity exchange in Ethiopia

(ii) E.g., the cap and trade emissions programs in the US and the EU

(iii) E.g., the LME and aluminum prices for soda cans

(d) The Grain Futures Act of 1922

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(e) The Commodity Exchange Act of 1936 (CEA)

(f) The Commodity Futures Trading Commission (CFTC)

(g) Federal preemption

(i) State bucket shop laws

(ii) First federal cases on commodities

(h) Federal regulators, concurrent jurisdiction over commodities

(i) CFTC,

(ii) SEC,

(iii) Prudential Regulators (The Fed, Treasury, OCC, FDIC),

(iv) FERC,

(v) EPA,

(i) Self-Regulatory Organizations (SROs)

(i) The NFA and FINRA,

(ii) Exchanges (SEFs and DCMs),

(iii) Electricity Markets (RTOs and ISOs)

(j) State Regulators

(i) Insurance

(ii) Banking

2. The Financial Crisis of 2008 and The Dodd Frank Act of 2010

(a) Market before 2008 (CFMA 2000)

(b) Financial crisis of 2008

(i) Clearing

(ii) Trading

(iii) Reporting

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(iv) Margining

(d) The Dodd Frank Act of 2010

(e) The global effort to reregulate derivatives

3. The president trump reform of financial regulation

(a) Presidential Orders

(b) Congressional Activity to Repeal the Dodd Frank Act.

4. The checklist for analysis for commodity and derivatives matters

(a) Commodity

(b) Commodity Interest

(d) Enforcement Authorities

Required Reading:

Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236 (1905)

Section 1a(9) of the Commodity Exchange Act of 1936 (the definition of “Commodity”)

Commodity Exchange Act, 7 U.S.C. §1(a) (19), (20), (29), (36), (47), (51)

Hunter v. FERC, 711 F.3d 155 (DC Cir. 2013)

CFTC v. My Big Coin Pay, Inc., 334 F.Supp.3d 492, 2018 WL 4621727 (D.Mass. 2018)

Optional Reading:

CFTC v. McDonnell, et al., (“CabbageTech”), 287 F. Supp. 3d 213 (E.D.N.Y. 2018), https://www.cftc.gov/PressRoom/PressReleases/7774-18

CFTC’s Giancarlo and Tuckman Respond to Vatican Criticism of Derivatives (July 23, 2018) https://www.cftc.gov/PressRoom/PressReleases/7761-18

Browse http://www.cftc.gov/About/HistoryoftheCFTC/index.htm

Roundtree v. Smith, 108 U.S. 269, 276 Supreme Court (1883)

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Hill v. Wallace, 259 U.S. 44 (1922)

Board of Trade of City of Chicago v. Olsen, 262 U.S. 1 (1923)

CFTC Website, Education Center, Basics of Futures Trading and the Economic Purpose of Futures Markets and How they Work. http://www.cftc.gov/ConsumerProtection/EducationCenter/economicpurpose

The Grain Futures Act of 1922

Sen. Lincoln Floor Statement, colloquy after the passage of the Dodd-Frank Act (July 15, 2010) (S5920-23)

President Trump Executive Order Regarding Financial Regulation, February 3, 2017 https://www.whitehouse.gov/the-press-office/2017/02/03/presidential-executive-order-core- principles-regulating-united-states Congressional Research Service: Derivatives: Introduction and Legislation in the 114th Congress (Jan. 16, 2016) (pages 1-14)

Financial Crisis Inquiry Commission Report (January 2011) (pages 45 to 51)

CLASS 2 – SEPTEMBER 10

Discussion of Risk Management and Risk Mitigation Generally. This class will focus on how risk mitigation technics have evolved in history and how various regulatory regimes handle risk mitigation. We will compare SEC’s, FERC’s, Insurance Regulators and Commodity Regulators’ techniques to risk mitigation.

CLASS NOTE: Suggested paper topics will be distributed during class by instructors.

5. Risk Management Basics

(a) Risk, uncertainty, unpredictability and volatility

(b) Theories on human risk management

(d) Basics of statistical analysis

(e) Modern risk management techniques, algo / high frequency trading (HFT)

(f) The futures trading game

6. Choice of Risk Management Instruments

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(a) Managing risks with securities products

(b) Managing risks with insurance products

(d) Managing risks with commodity products and derivatives

(e) Managing risk with traditional banking products

7. Legitimate Business Purpose

(a) Gambling vs. Hedging or Speculation

(b) Providing liquidity

Required Reading:

Securities and Exchange Commission v. W. J. Howey Co., 328 U.S. 293 (1946)

Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236 (1905)

Gaunt v. John Hancock Mut. Life Ins. Co., 160 F. 2d 599 (1947)

CFTC v. Co Petro Mktg. Group, 680 F.2d 573 (9th Cir. 1982)

Optional Reading:

Timothy Allen v. Burnet Realty, LLC, 801 N.W.2nd 153 (Aug. 3, 2011)

Transnor (Bermuda) Ltd. v. BP North American Petroleum, 738 F.Supp. 1472 (S.D.N.Y. 1990)

CFTC v. Enron Corp., US Dist. Court, S.D. Texas (May 25, 2004)

CFTC Letter No. 14-130, No-Action, October 29, 2014, Division of Market Oversight - Victoria University of Wellington’s Request for No-Action Letter regarding the Operation of a Small- Scale, Not-For-Profit Market for the Trading of Event Contracts for Educational Purposes

CFTC Order Prohibiting Certain Event Contracts (Apr. 02, 2012) http://www.cftc.gov/ucm/groups/public/@rulesandproducts/documents/ifdocs/nadexorder040212 .pdf

Further Definition of ‘‘Swap,’’ ‘‘Security-Based Swap,’’ and ‘‘Security-Based Swap Agreement’’; Mixed Swaps; Security-Based Swap Agreement Recordkeeping; Final Rule, 17 CFR Parts 230, 240 and 241. Read “Forward Contract Exclusion”, August 13, 2012

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CLASS 3 – SEPTEMBER 17

Defining Commodity and a Commodity Interest. These definitions are at the core of US federal commodities regulation and are critical to the understanding of CFTC’s jurisdiction. We will examine various types of “things” that may or may not qualify as commodities and analyze contracts subject to CFTC’s jurisdiction and note regulatory implications of these distinctions.

8. Commodity

(a) Defining “commodity” – Sec. 1a(9) CEA

(b) Implications of classifying something as a “commodity”

(i) Corn

(ii) Wheat

(iii) Hemp

(d) Excluded commodity – Sec. 1a(20) CEA

(i) Currencies

(ii) Weather derivatives

(iii) Interest rates

(iv) S&P 500

(v) Events

(e) Exempt commodity – Sec. 1a(19) CEA

(i) Gold

(ii) Copper

(iii) Natural gas

(iv) Crude oil

(v) Ethanol

(f) “Catch-all” commodity

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(i) Bitcoin

(ii) Crypto currencies

(g) “Bootstrapped” commodity

(i) A product that becomes commodity if there is a swap on it

(h) Non commodity – Sec. 1a(9) CEA

(i) Onions

(ii) Movie ticket receivables

(i) Security

(j) Traditional banking products

9. Commodity Interest

(a) Importance of classification

(i) CFTC’s jurisdiction

(A) Non-exclusive jurisdiction with respect to manipulation of any “commodity in interstate commerce”; and

(B) Exclusive jurisdiction for “commodity interests” – Sec. 2(a)(1) CEA

(b) Significance pre- and post-Dodd Frank

(i) Spots

(ii) Forwards

(iii) Futures – Sec. 1a(9), (13) and (27) CEA

(iv) Swaps – Sec. 1a(47) CEA

(v) Options – Sec. 1a(36) CEA

(vi) Other

(A) Event contracts – Sec. 5c(c)(5)(C) CEA

(B) Contracts for differences

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Required Reading:

CFTC v. Co Petro Mktg. Group, 680 F.2d 573 (9th Cir. 1982)

CFTC Statutory Interpretation Concerning Forward Transactions, 55 Fed. Reg. 39188, September 25, 1990 (“CFTC’s Brent Interpretation”)

In re Grainland Cooperative, CFTC Docket No. 97-01 (Opinion and Order, Nov. 2003) (hedge to arrive contracts; futures v. forwards) http://www.cftc.gov/files/ogc/oporders03/ogcgrainland112503.pdf

CFTC v. Hunter Wise Commodities, LLC eta/., (Case No.: 12-81311, May 15, 2014)

CFTC v. Monex Credit Company, et al., 931 F.3d 966 (9th Cir. 2019)

Optional Reading:

CFTC v. Zelener, 373 F.3d 861 (7th Cir. 2004)

Commodity Exchange Act, 7 U.S.C. §1(a) (9), (13) (19), (20), (27), (29), (36), (47), (51), Sec. 2(a)(10; Sec. 5c(c)(5)(C); 17 CFR 1.3 (zz)

In the Matter of: Coinflip, CFTC (2015)

Key Statutory Provisions: Commodity Exchange Act, 7 U.S.C. §1a(47) (definition of swap and forward contract exclusion); §2(d)-(h) (characterization and exemptions)

CFTC, Policy Statement Concerning Swap Transactions, 54 FR 30694 (July 21, 1989)

CFTC, Exemption for Certain Contracts Involving Energy products, 58 FR 21286 (April 20, 1993)

In re Stovall, [1977-1980 Transfer Binder], Comm. Fut. L. Rep. (CCH) Par. 20,941

CFTC v. Noble Metals Int’l, Inc., 67 F.3d 766, 772 (9th Cir. 1995) http://www.cftc.gov/ConsumerProtection/EducationCenter/CFTCGlossary/index.htm

CFTC v. Erskine, et. al. (6th Cir. 2008)

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CLASS 4 – SEPTEMBER 24

Hedging and Speculation. This class will focus on participants’ behavior in derivatives and commodities markets which broadly falls into one of the two categories – hedging or speculation (or providing liquidity). On the basis of case-law examples and CFTC rules, we will identify this behavior and discuss characteristics, differences and regulatory implications of each.

10. Hedging and Speculation

(a) Jurisdictional matters, private cause of action

(b) Gambling revisited

(i) Hedging for purposes of clearing, margining, position limits

(d) Hedging

(i) Bona fide hedging – Sec. 4a(c) CEA

(ii) Mitigation of commercial risks

(e) Speculation

(i) Providing liquidity and making markets

(f) Efficient markets theory

(g) Introduction to position limits – Sec. 4a(a) and (b) CEA

(h) Hedging and speculation in the EU for comparison

(i) CEA Sec. 4a; Preamble to CFTC Position Limits Rule.

(j) Implications in Commodity Pools – CFTC Reg. 4.13(a)(3) exemption.

(k) Volcker Rule.

Required Reading:

Merrill Lynch v. Curran, 102 S. Ct. 1825 (1982)

Day v. U.S., 734 F. 2d 375 (1984)

“Position Limits and the Hedge Exemption, Brief Legislative History”, Testimony of General Counsel Dan M. Berkovitz, Commodity Futures Trading Commission, July 28, 2009 https://www.cftc.gov/PressRoom/SpeechesTestimony/berkovitzstatement072809

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In re Sadia, S.A. Securities Litigation 643 F. Supp. 2d 521, (2009)

Optional Reading:

Board of Trade of the City of Chicago v. Christie Grain and Stock Company, 198 U.S. 236 (1905)

Basic Incorporated v. Levinson, 485 U.S. 224, 108 S. Ct. 978 (1987)

Corn Product Refining Co. v. Commissioner of Internal Revenue, 76 C. Ct. 20 (1956)

CFTC Regulation 1.3(z), 17 C.F.R. 1.3(z); Sec. 4a(c) and Sec. 4a(a) and (b) of the CEA

IRWIN v. WILLIAR & Another, 110 U.S. 499 (1884)

CFTC v. R.J. Fiztgerald & Co., 310 F.3d 1321 (2002)

In Re Boston Scientific Corp. Securities Litigation, 604 F.Supp. 2d 275 (2009)

Fezzani v. Bear Stearns & Co., 777 F.3d 566, (2015)

§ 619 of the Dodd Frank Act, “the Volcker Rule”

CLASS 5 – OCTOBER 1

Physical Energy Purchase and Sale Agreements and Hedging Instruments, CFTC- Regulated Contracts Generally. We will explore the distinction between forward contracts, spots, swaps, options and futures contracts. Through case studies we will analyze the fundamentals of hedging, the various types and uses of energy derivatives. By the end of the class, the students will become also familiar with the recharacterization risk in structuring complex derivatives as well as the anti-avoidance authorities under the CEA.

11. Trading in Physical Commodities

(a) Forwards

(i) Volumetric optionality

(ii) Pricing optionality

(b) Trade options - CFTC Rule 32.3, 17 CFR 32.3

(i) Foreign Exchange (Spot)

(ii) Crude oil trading

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(A) Brent interpretation

(iii) Electricity trading

(A) Cooperatives

(B) Regional Transmission Organizations (RTOs) and Independent Systems Operators (ISOs)

(D) Capacity contracts

(iv) Base metals

(v) Gold, silver and platinum

(vi) Emissions, cap and trade, and RECs (The Paris Agreement)

(vii) Agricultural contracts (e.g., hedge to arrive contracts)

(d) Delivery of a commodity

(i) E.g., allocated metals and unallocated

(ii) Retail participants and delivery – Sec. 2(c)(2)(D)(ii) CEA

(e) Service contracts and commercial agreements

(f) Hedge to arrive contracts

(g) CEA Sec. 2(c)(2)(D)(ii);

12. Trading in Financial Commodities.

(a) Financial contracts revisited

(i) Futures – Sec. 1a(13), (9) and (27) CEA

(ii) Options – Sec. 1a(36) CEA

(iii) Swaps – Sec. 1a(47) CEA

(b) Forex and Currency

(i) Retail forex – Sec. 2(c)(2)(B) CEA

(ii) The Treasury exemption – Sec. 2(c)(1) CEA

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(iii) Foreign exchange forwards and foreign exchange swaps – Sec. 1a(24) and (25) CEA; Sec. 1a(47)(E) and (F); Sec. 1b CEA

(iv) Zelener – Rolling Spot and NDFs

(d) Credit default swaps (CDS) – Sec. 1a(47)(A)(iii)(XV) CEA

(e) Event and Prediction Contracts – Sec. 5c(c)(5)(C) CEA

(f) Bitcoin and crypto currencies

(g) Financial innovation and FinTech

(i) The change in how commodities trade: from pit to the iPad

(ii) Algorithmic and high frequency trading

(iii) Future for entrepreneurship and the changing business practices

Required Reading:

Dunn v. CFTC, 519 US 465 (1997)

The Master LNG Sale and Purchase Agreement (to be distributed in class) [skim to become familiar with the structure of the document]

In re Wright, CFTC Docket No. 97-02, 2010 WL 4388247 (CFTC Oct. 5, 2010).

CFTC v. Zelener, 373 F. 3d 861 (7th Cir. 2004)

Optional Reading:

CFTC Final Rule on Trade Options; 81 Fed. Reg. 14966 (Mar. 21, 2016)

Nagle v. ADM Investor Services Inc., 217 F. 3d 436 (7th Cir. 2000)

Sections 1a(9), (13), (24), (25), (27), (36), (47) of the CEA; Sec. 1b of the CEA; Sec. 2(c) of the CEA

Interpretative Statement of the Office of the General Counsel, CFTC, 50 FR 39656 (Sept. 30, 1985)

Commodity Options, Final Rule, 77 FR 82 (April 27, 2012)

Forward Contracts with Embedded Volumetric Optionality, Final Interpretation, 80 Fed. Reg. 28239 (May, 18, 2015)

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Commodity Exchange Act, 7 U.S.C. §1(a) (9), (19), (20), (29), (36), (47), (51)

CFTC Rule: Excerpts from CFTC and SEC, Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed Swaps; Security based Swap Agreement Recordkeeping, 76 FR 29818 (May 23, 2011) (pp. 48227-48245)

Aggregation of Positions, 78 Fed. Reg. 68946 (Nov. 15, 2013) http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2013-27339a.pdf

Position Limits for Derivatives, 78 Fed. Reg. 75680 (Dec. 12, 2013) http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2013-27200a.pdf

HTA Law Review Article

CFTC Final Order for ISO/RTOs; 78 Fed. Reg. (April 2, 2013)

CLASS 6 – OCTOBER 8

Regulation of Participants in Commodities Markets. We will discuss indicia of swap dealing and what characteristics define a swap dealers (DSs) and distinguish a SD from other traders, such as major swap participants (MSPs), futures commission merchants (FCMs), introducing brokers (IBs). We will analyze the requirement for swap trading by eligible contract participants (ECPs) and what customer protections are required under the CEA for counterparties to SDs. The students will be familiarized with the NFA and CFTC registration and capital requirements.

13. Intermediaries and Participants.

(a) Registration – Sec. 4d, e, f, k, m, n, s of CEA

(b) Capital

(i) Defining an SRO

(ii) Membership at the SROs

(iii) SRO requirements distinguished from CFTC

(d) Participants

(i) Floor Broker and Floor Trader – Sec. 1a(22) and (23) CEA; Sec. 4e CEA

(A) Regulation AT and the new definition of Floor Broker

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(ii) Eligible Contract Participant (ECP) – Sec.1a(18)

(iii) End-user

(iv) Major Swap Participants (MSP) – Sec. 1a(33)

(e) Intermediaries

(i) Introducing Brokers (IB) – Sec. 1a(31) CEA

(ii) Retail forex dealers (RFED) - NFA

(iii) Futures Commission Merchant (FCM) – Sec. 1a(28) CEA; Sec. 4d and f CEA

(iv) Swap dealers (SD) – Sec. 1a(49) CEA; Sec. 4s CEA

(A) De minimis exemption

(B) Capital

(D) Business conduct standards (external and internal)

(E) Disclosures

(v) Associated persons (Aps)

(vi) Part 30.10 brokers

(vii) Foreign brokers and 3.10(c)(3) exemption

Required Reading:

Merrill Lynch v. Curran, 456 U.S. 353 (1982)

Sam Wong and Son v. New York Mercantile Exchange, 735 F.2d 653 (2d Cir. 1984)

CFTC v. Banc De Binary LTD (aka Binary Options LTD), (June 5, 2013)

Optional Reading:

CFTC v. Sentinel Management Group, Inc. et al, 2012 U.S. Dist. LEXIS 109747 (N.D. Ill)

Commodity Exchange Act, 7 U.S.C. §1(a) (12), §5, §5b, §5h and §21

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Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” Major Security-Based Swap Participant,” and Eligible Contract Participant, Final Rule, 77 FR 30596 (July 23, 2012) (pp. 30596-30616 )

Batra v. E.F. Hutton & Co., [1987-90 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶23,937 (CFTC 1987).

Registration of Intermediaries, Final Rule 77 FR 51898 (Oct. 29, 2012)

In re FXDirectDealer, LLC, CFTC Docket 13-34 (September 18, 2013)

Prestwick Capital Management v. Peregrine Financial Group, 727 F. 3rd 646 (7th Cir. 2013)

CFTC definitions (quick reference): http://www.cftc.gov/ConsumerProtection/EducationCenter/registration In re IBFX, Inc. (CFTC 2015) http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfibfxo rderdf121014.pdf In re INTL FCStone Markets LLC (CFTC 2015) http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/enforcementaction/enf fcstoneorder081915.pdf

Other Energy Market Registrants. Regulation of Commodity Pools, Commodity Pool Operators (CPOs) and Commodity Trading Advisors (CTAs); Exemptions from Registration as CPO; Brief Discussion of SEC regulation of Investment Companies and differences from CFTC’s regulation; Energy Equity Funds and Operating Companies; Customer Protection.

14. Commodity Pools.

(a) Defining "commodity pool" – Sec. 1a(10) CEA

(b) Commodity Pool Operators (CPO)- Sec. 1a(11) CEA

(d) Registration requirement – Sec. 4m and 4n CEA

(e) Required disclosures

(f) Exemptions and exclusions

(g) Harmonization with the SEC

(h) Sec. 1a(10), (11) and (12) CEA; Sec. 4m and 4n CEA;

Required Reading:

CFTC v. Savage, 611 F.2d 270 (9th Cir. 1979).

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Commodity Trend Serv. v. CFTC, 149 F.3d 679 (7th Cir. 1998)

Optional Reading:

Goldstein v. SEC, 451 F. 3d 873 - Court of Appeals, Dist. of Columbia Circuit 2006

Investment Company Institute v. CFTC,. 891 F. Supp. 2d 162, 172 (D.D.C. 2013); Investment Company Institute v. CFTC, 720 F 3d 370 (DC Cir. 2013)

Applicable Statutory Provisions: Commodity Exchange Act, 7 U.S.C. §§4d(a)(1), 4e, 4f, 4k, 4m, 4n (Registration of Commodity Professionals)

CFTC Regulations, Part 4 (Registration Exemptions)

Commodity Pool Operators and Commodity Trading Advisors: Compliance Obligations; Harmonization of Compliance Obligations for Registered Investment Companies Required To Register as Commodity Pool Operators; Final Rule and Proposed Rule, 17 CFR Parts 4, 145, and 147 FR. Vol. 77 , No. 37 (February 24, 2012). http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2012-3390a.pdf

CLASS 7 – OCTOBER 15

CLASS NOTE: Students to discuss briefly what topics they have picked for papers and why.

Futures and Exchange or Platform Trading of Commodity Interest Contracts. This class will address the fundamental rule of derivatives – the requirement that futures contracts must trade on the regulated commodity exchanges. We will discuss the general rules applicable to trading on exchanges and focus on specific exchange rules – such as speculation and position limits, delivery, EFRP and block trades. We will also address the emerging trends in regulation, such as “futurization” and “swapification” and discuss other regulated trading venues – the swap execution facilities (SEFs).

15. Organized Trading

(a) Execution vs. negotiation (defining a “Trading Facility”)

(b) Organic development of exchanges

(i) Spot and forward exchanges

(ii) Futures exchanges

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(i) Hedging

(ii) Price discovery

(d) Designated contract markets (DCM) – Sec. 1a(6), (37), (51) CEA, Sec. 5 CEA

(i) Mandatory Execution on exchanges – Sec. 4(a) CEA

(A) Agency vs. principal model

(ii) Clearing introduction

(iii) Margining of open positions

(A) Initial margin

(B) Variation margin

(e) Swap execution facilities (SEF)- Sec 1a(50) CEA, Sec. 5h CEA

(i) Single dealer platforms

(ii) Made Available to Trade – MAT Sec. 2(h)(8) CEA; 17 CFR Part 37.10

(f) Algorithmic and electronic trading

(i) Evolution from the pit trading

(ii) Regulation AT

(iii) Auto-trader

(g) Foreign Platforms

(i) Foreign Boards of Trade (FBOT) Sec. 4(b) CEA

(ii) Foreign Swap Execution Facility Sec. 5h(g) CEA; QMTF No Action Letter

(h) CEA Sec. 1a(6),(37),(50), (51); Sec. 2(a); Sec. 2(h)(8); Sec. 4(b); Sec. 5h and 5h (g).

Required Reading:

Sam Wong and Son v. New York Mercantile Exchange, 735 F.2d 653 (2d Cir. 1984)

CFTC v. Amaranth Advisors, LLC and Brian Hunter, Complaint for Injunctive and Other Equitable Relief and Civil Monetary Penalties under the Commodity Exchange Act, (July 25, 2007)

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US CFTC v. Kraft Foods Group, Inc. and Mondelez Global LLC, Civil Action No: 15-2881, (Apr. 01, 2015) https://www.cftc.gov/PressRoom/PressReleases/7150-15 Statement of Commissioner Berkovitz: https://www.cftc.gov/PressRoom/SpeechesTestimony/berkovitzstatement081519

CFTC Advisory on Market Volatility and Negative Pricing:

https://www.cftc.gov/csl/20-17/download

https://www.forbes.com/sites/sarahhansen/2020/04/21/heres-what-negative-oil-prices-really- mean/#259751105a85

https://www.wsj.com/articles/crude-oil-treasure-turns-toxic-for-chinese-bank-and-its-small- investors-11587642511

Optional Reading:

Yieldbroker, CFTC No Action Letter 16-52 (May 15, 2016)

Core Principles and Other Requirements for Designated Contract Markets, CFTC Final Rule, RIN 3038-AD09 (June 19, 2012)

SEFs: A Two-Year Anniversary Amid Growing Pains, P. Malyshev, Futures and Derivatives Law Reporter, July 2015

Senate Report, Excessive Speculation in the Natural Gas Market, June 25, 2007, available at: <> (pp. 23-47; 88-99, 119-121)

The Role of Market Speculation in Rising Oil and Gas Prices: A Need to Put the Cop Back on the Beat, S. Prt. No. 109-65, 109th Congress, 2nd Sess (June 27, 2006).

Int’l Swaps and Derivatives Assoc., et al. v. U.S. Commodity Futures Trading Commission, Civil Action No. 11-cv-2146, Mem. Op. 5-6 (D.C., Sept. 28, 2012). http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/order010312.pdf

NYMEX Henry Hub Futures Contract, <> (product specifications).

Non-competitive execution of futures contracts – CFTC Order re Absa Bank, Ltd.: http://www.cftc.gov/ucm/groups/public/@lrenforcementactions/documents/legalpleading/enfabs aorder092514.pdf

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Key Statutory Provisions: Commodity Exchange Act, 7 U.S.C. §§1a(9), 1a(13), 1a(27), 1a(47) (Definition of Regulated Contracts); §§4(a), 4(c) (Exchange Trading Requirement).

Commission Statement on contracts on motion pictures: http://www.cftc.gov/ucm/groups/public/@otherif/documents/ifdocs/dborcommissionstatement06 2810.pdf

Chairman Gensler’s Opening Remarks, CFTC Roundtable on the Futurization of Swaps, http://www.cftc.gov/PressRoom/SpeechesTestimony/opagensler-130

16. Clearing, Margining and Collateral Management.

(a) Why clearing was invented

(i) The G-20 Commitments

(ii) The economic choice where to clear (futures, cleared swaps, OTC uncleared swaps).

(b) Mechanics of clearing

(d) Accounts used

(e) Regulation of Derivatives Clearing Organizations (DCOs) – Sec.1a(15) CEA, Sec. 5b CEA

(i) Capital and the waterfall

(ii) Too big to fail analysis

(iii) Systemically significant institutions

(f) Exemption from DCO designation

(i) Settlement and netting facilities

(ii) Blockchain

(g) Clearing through DCMs

(h) Clearing mandate under the Dodd-Frank Act – Sec. 2(h)(2) CEA, 17 CFR Part 50

(i) Clearing models compared

(i) US vs EU

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(ii) Futures vs Swaps

(j) Collateral management

(i) Futures,

(ii) Cleared Swaps,

(iii) Un-Cleared Swaps

(k) The End-User Exception – Sec. 2(h)(7) CEA; 17 CFR Part 39.6

Required Reading:

In re Lehman Brothers Holdings Inc., Case No. 08-13555 (JMP) (Bankr. SDNY May 5, 2010) (“Swedbank”) http://www.nysb.uscourts.gov/opinions/jmp/171257_8806_opinion.pdf

In re Newedge USA, LLC, CFTC Docket No: 12-06, (June 9, 2012)

Amending Margin Requirements for Swap Dealers and Major Swap Participants (August 14, 2020): https://www.cftc.gov/PressRoom/PressReleases/8219-20

CFTC Extends Targeted Relief to Market Participants in Response to COVID-19 (July 17, 2020): https://www.cftc.gov/PressRoom/PressReleases/8206-20

Optional Reading:

In Re Peregrine Financial Group Inc., US Bankruptcy Court, Northern District of Illinois, Eastern Division, May 7, 2014

End-User Exception to Clearing Requirement for Swaps, Final Rule 77 FR 42559 (Sept. 17, 2012)

Central Counterparties: Addressing their Too Important to Fail Nature, Froukelien Wendt, IMF Working Paper 2015

MF Global Litigation

Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, CFTC Proposed Rule, (June 29, 2015)

IOSCO report on margin requirements, <>

CFTC Statutory Interpretation Concerning Forward Transactions, 55 Fed. Reg. 39188, September 25, 1990 (“CFTC’s Brent Interpretation”)

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Clearing Requirement Determination under CEA 2(h), 77 FR 74284 (Dec. 13, 2012).

Protection of Cleared Swaps Customer Contracts and Collateral; Conforming Amendments to the Commodity Broker Bankruptcy Provisions, 77 FR 6336 (Feb. 7, 2012) (LSOC).

MF global bankruptcy materials, available at <>

CLASS 8 – OCTOBER 22

CLASS NOTE: Paper abstracts are due today. These may be in draft form based on concepts covered to date. These are not expected to be final and there will be opportunity to change your focus as additional concepts are covered throughout the course.

Over-the-Counter Energy Swaps. This class will explore the definition of a swap and the regulated products that are not traded on exchanges. Students will become familiar with the timeline of emergence of swaps as traded instruments to the financial crisis and the emergence of the Dodd-Frank Act of 2010. We will address specific regulatory issues relating to swaps, such as documentation of swaps and business conduct standards. The students will explore current trends in the derivatives markets, such as futurization and swapification. Finally, the class will discuss the parallel regulation of security based swaps under the Dodd Frank Act.

17. Swaps Regulation.

(a) Swaps and security-based swaps (SBS) – Sec. 1a(47) and 1a(42); SEA Sec. 3(a)(68)

(b) History of swaps emergence

(i) Smart Contracts

(d) Capacity to enter into a swap

(e) Business conduct standards

(i) Internal; and

(ii) External

(f) Reporting

(i) Real-time and Regulatory – Sec. 2(a)(13) CEA

(ii) Swaps data repositories (SDRs) – Sec. 1a(48) CEA; Sec. 21 CEA

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(g) Mandatory clearing – Sec. 2(h) CEA; 17 CFR Part 50

(h) Mandatory trading- Sec. 2(h)(8) CEA

(i) Margin

18. SEC Regulation of Derivatives.

(a) Security-based swaps (SBS) – Sec. 1a(42) CEA and Sec. 3(a)(68) SEA

(b) Narrow-based security indices vs broad-based – Sec. 1a(35) CEA

(d) Security futures and single stock futures – Sec. 1a(44) CEA

(e) Security based swap agreements (SBSA) – Sec.

(f) SBS Reporting

(g) Registration

(h) SEFs / SBSEFs

(i) Capital and margin

(j) Clearing

(i) Clearing agencies (CFTC and SEC)

19. ISDA Documentation

(a) History of ISDA

(b) Document Architecture

(i) Master Agreement

(ii) Schedule

(iii) CSA

(iv) Definitions.

(i) Dodd-Frank Protocols

(ii) Variation Margin Protocol

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Required Reading:

Louis S. CAIOLA, Plaintiff-Appellant, v. CITIBANK, N.A., NEW YORK, Defendant-Appellee, 295 F.3d 312 (2002)

United States v. Radley, 632 F.3d 177 (5th Cir. 2011)

In the Matter of SAND HILL EXCHANGE, GERRIT HALL, and ELAINE OU. ADMINISTRATIVE PROCEEDING, File No. 3-16598 (June 17, 2015).

In re Plutus Financial, et al., CFTC Doc. No. 20-23 (July 13, 2020) https://www.cftc.gov/PressRoom/PressReleases/8201-20

Optional Reading:

Policy Statement Concerting Swap Transactions, 54 Fed. Reg. 30694 (July 21, 1989)

Statutory Interpretation Concerning Forward Transactions, 55 Fed. Reg. 39188 (September 25, 1990) “Brent Interpretation”

Exemption for Certain Contracts Involving Energy Products 58 Fed. Reg. 21286 (April 20, 1993)

Commodity Exchange Act, 7 U.S.C. 1a(47); Dodd-Frank Act section 721

ICE Report on Conversion of Swaps Into Futures (2012) https://www.theice.com/publicdocs/ICE_Swaps_to_Futures_FAQ.pdf

CFTC Enforcement Action in Connection with Conversion of Swaps into Futures (September 3, 2013) http://www.cftc.gov/PressRoom/PressReleases/6679-13

Exemption for Certain Swap Agreements, 75 Fed. Reg. 5587 (Jan. 22, 1993)

Congressional Report : “Over-the-Counter Derivatives Markets and the Commodity Exchange Act,” Report of the President’s Working Group on Financial Markets (November 1999), http://www.treasury.gov/resource-center/fin-mkts/Documents/otcact.pdf

Transnor (Bermuda) Ltd. v. BP North American Petroleum, 738 F. Supp. 1472 (S.D.N.Y 1990)

CFTC, Concept Release, 63 FR 26114 (May 12, 1998)

Excerpts from CFTC and SEC, Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed Swaps; Security based Swap Agreement Recordkeeping, 76 FR 48207 (May 23, 2011) (pp. 48207-48227). Note that Dodd-Frank Act

Rulemakings may be found at: <>.

IOSCO repot on margin for OTC swaps (September, 2013): http://www.bis.org/press/p130902.htm http://www.iosco.org/library/pubdocs/pdf/IOSCOPD423.pdf

July 15, 2010 CONGRESSIONAL RECORD—SENATE (Senator B. Lincoln Colloquy – pages 2 through 6) http://www.gpo.gov/fdsys/pkg/CREC-2010-07-15/pdf/CREC-2010-07-15-pt1- PgS5902.pdf#page=2

CLASS 9 – OCTOBER 29

FinTech – New Financial Technologies in Derivatives, Commodities and Securities. Discussion of new trends in financial innovation and the distinction between CFTC’s and SEC’s jurisdiction. We will discuss other regulators’ supervision of new products and analyze recent CFTC and SEC cases they relate to derivatives and commodities.

20. FinTech Issues

(a) Commodity vs. Security

(i) Definition of “Investment Contract” (Howey Test)

(ii) Definition of “Commodity”

(b) Jurisdiction – Who Regulates FinTech?

(i) CFTC

(ii) SEC

(iii) Department of Treasury (FinCEN)

(iv) State financial services agencies (e.g., New York Department of Financial Services)

(v) The NFA

(vi) FINRA

(vii) International agencies and governments

(i) Digital Assets (i.e., tokens, coins) – Different Types:

(A) Digital currencies (e.g., bitcoin, ether, litecoin)

(B) Utility tokens (e.g., virtual poker chips, loyalty points)

(ii) Smart Contracts

(A) How do they work?

(B) Use cases (swaps documentation, legal contracts, trade finance)

(iii) Decentralized Applications

(d) Initial Coin Offerings (ICOs) and Token Sales

(i) Regulatory treatment in US

(ii) Regulatory treatment in foreign countries (China, Singapore, EU)

(e) Other FinTech Topics

(i) Auto-Traders and AI / Machine Learning

(ii) High-Frequency Trading

(iii) CFTC Regulation AT

(f) Regulation of FinTech vs. “Old” or “Bricks and Mortar” Technology

(g) Future for FinTech / Expected Trends

Required Reading:

CFTC v. My Big Coin Pay, Inc., Randall Crater, and Mark Gillespie, 334 F.Supp.3d 492 (D. Mass. 2018)

CFTC v. Dillon Michael Dean and The Entrepreneurs Headquarters Limited, No. 18-cv-00345 (E.D.N.Y. January 18, 2018)

CFTC v. Gelfman Blueprint, Inc. and Nicolas Gelfman, No. 17-7181 (S.D.N.Y. September 21, 2017)

Optional Reading:

In the Matter of TeraExchange LLC, Comm. Fut. L. Rep. (CCH) ¶33,546, (Sep. 24, 2015)

In the Matter of BFXNA Inc. d/b/a Bitfinex, Comm. Fut. L. Rep. (CCH) ¶33,766, (Jun. 2, 2016)

CFTC v. McDonnell, et al., (“CabbageTech”), 287 F. Supp. 3d 213 (E.D.N.Y. 2018), https://www.cftc.gov/PressRoom/PressReleases/7774-18 (reread)

In the Matter of Coinflip, Inc., et al., Comm. Fut. L. Rep. (CCH) ¶33,538, (Sep. 17, 2015)

Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, SEC Release No. 81207 (July 25, 2017)

ISDA, “Smart Contracts and Distributed Ledger - A Legal Perspective”, August 2017, p. 4-20 only, available at https://www2.isda.org/attachment/OTU3MQ==/Smart%20Contracts%20and%20Distributed%20 Ledger%20%20A%20Legal%20Perspective.pdf

“No Summer Vacation for Distributed Ledger Technology”, Sept. 8, 2017, available at https://sites-reedsmith.vuture.net/24/700/september-2017/no-summer-vacation-for-distributed- ledger-technology-.asp?sid=76104b52-dc7f-40a3-87e1-559df5ca1ff9

Application of FinCEN’s Regulations to Persons Administering, Exchanging or Using Virtual Currencies, FIN-2013-G001 (Mar. 18, 2013), available at https://www.fincen.gov/sites/default/files/shared/FIN-2013-G001.pdf

N.Y. Comp. Codes R. & Regs. tit. 23 § 200

CLASS 10 – NOVEMBER 5

CLASS NOTE: Expanded paper abstracts are due today. We will discuss your progress with your papers and each student will be expected to briefly discuss his / her topic and articulate why they specifically chose that subject. Other students will be encouraged to ask questions and provide suggestions on the basis of the class materials.

Enforcement Under the Commodity Exchange Act. The class will address CFTC’s general anti-manipulation and anti-fraud authorities as well as specific causes of action, such as: insider trading, criminal liabilities, private rights of action. The materials will draw parallels with FERC’s and SEC’s enforcement authorities.

21. CFTC Enforcement Generally.

(a) General purposes behind derivatives trading

(i) Legitimate business purposes

(ii) Impact on the market theory

(b) Traditional CFTC authorities

(d) Fraud – Sec. 4b, 4o, 9, 13 CEA

(e) Manipulation and attempted manipulation

(f) Insider trading

(g) Ponzi schemes

(h) Private cause of action – Sec. 22 CEA

Required Reading:

General Foods Corp. v. Brannan, 170 F.2d 220 (7th Cir. 1948)

Cargill Inc. v. Hardin, 452 F.2d 1154 (8th Cir. 1971)

In re Indiana Farm Bureau Cooperative Assn., Inc. [1982-1984 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 21,796 (CFTC Dec. 17, 1982). Pages 1-11.

SEC v. Zandford, 535 U.S. 813 (2002) (meaning of “in connection with” under 10b-5).

CFTC v. Parnon, 875 F.Supp.2d 233 (S.D.N.Y. 2012)

Optional Reading:

In re Dynegy Marketing & Trade, and West Coast Power LLC, Order Instituting Proceedings, Making Findings and Imposing Remedial Sanctions (Dec. 18, 2002)

DiPlacido v. CFTC, 364 Fed. Appx. 657 (2nd Cir. 2009)

In re Barclays PLC, CFTC Docket No. 15-24 (May 2015)

Insider Trading: The CFTC Aggressively Pursues Its New Enforcement Authority Under the Dodd-Frank Act, Taxation and Regulation of Financial Institutions, CRI, May / June 2016, Vol. 29, No 5.

Chairman Gensler NY Times Op Ed on LIBOR Scandal: http://www.cftc.gov/PressRoom/SpeechesTestimony/gensleropinion080812

Prohibition on the Employment, or Attempted Employment, of Manipulative and Deceptive Devices and Prohibition on Price Manipulation, Final Rule, 76 FR 41398 (July 14, 2011)

In re Cox [1986-1987 Transfer Binder], Comm. Fut. L. Rep. (CCH) ¶ 23,786, 1987 CFTC LEXIS 325.

FERC Order to Show Cause, Energy Transfer Partners, Docket No. IN06-002, (July 26, 2007).

Applicable Statutory Provisions: Commodity Exchange Act, §4c(a)(5), §6(c), (d) and §9(a) (manipulation), §22 (private rights).

Prohibition of Energy Market Manipulation, FERC Order No. 670, pp. 1-16 (agency implementation of anti-manipulation rule), available at http://www.ferc.gov/whats-new/comm- meet/011906/M-1.pdf

Dealing with COVID Fraud: https://www.cftc.gov/media/4151/enfwalshcomplaint070720/download

https://www.sec.gov/sec-coronavirus-covid-19-response

CLASS 11 – November 12

Enumerated Enforcement Authorities. Discuss specific causes of action in addition to fraud and manipulation; authorities traditionally used by the CFTC under the CEA and the authorities provided under the Dodd-Frank Act, such as disruptive trading practices.

22. Specific Enforcement.

(a) Wash sales – Sec. 4c(a) CEA

(b) Self-Trading distinguished

(d) Aiding and abetting- Sec. 13 CEA

(e) False Reporting cases – Sec. 9(a)(2) and 6(c)(1)(A) CEA

(f) Duty to supervise

(g) Failure to register

(h) Front running

(i) Churning

(j) Disclosures

(k) Retail commodity fraud – Sec.

(l) Disruptive trading practices – Sec. 4c(5) CEA

(i) Spoofing

(ii) Violating bids and offers

Required Reading:

Rosenthal & Co. v. CFTC, 802 F.2d 963 (7th Cir. 1986)

US v. Coscia, Case No. 16‐3017 (7th Cir., August 7, 2017).

Hammond v. Smith Barney, CFTC Reporter CCH 24,617 (CFTC 1990).

Optional Reading:

In the Matter of James R. Burgess, 2006 WL 237509 (CFTC) (Optioneer case)

In the Matter of Lincolnwood Commodities Inc. of California, 1984 CFTC Lexis 773 (CFTC)

Sanchez v. Crown, 2006 CFTC Lexis 4 (CFTC).

CLASS 12 – NOVEMBER 19

Extraterritoriality / Cross Border; Part 30 of CFTC Regulations. Cross Border Application of CFTC rules to Global Firms and Foreign Entities Transacting with US Persons; Discussion of Global Trends in Commodities.

23. Cross-Border.

(a) Traditional CFTC's jurisdictional reach

(i) Trading on non-US exchanges (Foreign Boards of Trade – FBOTs)

(ii) Clearing on non-US DCOs

(iii) Offering brokerage services in the US from the overseas

(iv) Part 30.10 broker

(v) Part 30.7 accounts

(vi) Offering foreign futures products in the US

(vii) Reporting to the CFTC (Form 40)

(b) Cross-Border Regulations under the Dodd Frank

(i) US Person

(ii) Non-US SD and aggregation and de minimis threshold

(iii) Entity vs Transactional requirements

(iv) Mutual recognition and substituted compliance

(v) Comparability determinations

Required Reading:

CFTC Amicus Brief -- Prime International Trading Ltd. v. BP PLC (Second Circuit), Case 17- 2233 (Nov. 22, 2017).

CFTC v. TALLINEX a/k/a TALINEX, Ltd.; and GENERAL TRADER FULFILLMENT, Order for Final Judgment By Default, Permanent Injunction, Civil Monetary Penalties, Case No. 2:17-cv- 00483-DN (Jul. 9, 2018).

Loginovskaya v. Batratchenko, 764 F.3d 266 (2d Cir. 2014).

Morrison v. Nat’l Australia Bank Ltd., 561 U.S. 247 (2010).

Optional Reading:

In re JPMorgan Chase Bank, N.A.(CFTC 2013): so-called “London Whale” trading. http://www.cftc.gov/ucm/groups/public/@lrenforcementactions/documents/legalpleading/enfjpm organorder101613.pdf

Final Exemptive Order Regarding Compliance With Certain Swap Regulation, CFTC Final Order, RIN 3038-AD85, (Jan. 7, 2013)

In re Plutus Financial, et al., CFTC Doc. No. 20-23 (July 13, 2020) https://www.cftc.gov/PressRoom/PressReleases/8201-20

Interpretive Guidance and Policy Statement Regarding Compliance With Certain Swap Regulations, CFTC Rule, RIN 3038-AD85 (July 26, 2013)

Sec. Indus. & Fin. Markets Ass’n et al. v. CFTC, No. 13-CV-1916 (D.D.C. Dec. 4, 2013)

Initial Response to District Court Remand Order in SIFMA v. CFTC, RIN 3038-AE27, (March 10, 2015)

International Initiatives and publications: <>; .

Part 30 of CFTC Rules and Regulations http://www.ecfr.gov/cgi-bin/text- idx?SID=e74a13e7f2320240064783d8ddb2378a&node=17:1.0.1.1.23&rgn=div5

CFTC Q&A regarding Foreign Boards of Trade, Fact sheet, and the final rule http://www.cftc.gov/LawRegulation/DoddFrankAct/Rulemakings/DF_14_FBOTRegistration/ind ex.htm

24. European and Other Regulations.

(a) Implementation of the Pittsburgh Declaration

(b) EMIR and MiFID

(i) Clearing

(ii) Trading

(iii) Reporting

(iv) Collateral margining

(d) Australia

(e) EU and CFTC agreements on mutual recognition

Required Reading:

[To be determined]

CLASS 13 – DECEMBER 3

Prudential Regulators, Bankruptcy and History of Derivatives Regulations. This class will conclude the lectures with a brief discussion of Prudential Regulator’s rules applicable to derivatives and the Volcker rule. Next, we will discuss special bankruptcy issues applicable to derivatives and note prevailing documentation practices, such as ISDA. We will also discuss basic statistical models commonly used in derivatives markets and provide a brief survey of historic origins of derivatives markets. In conclusion we will review a case study from a current matter involving commodities and derivatives regulation.

25. Volcker Rule & U.S. Banking Regulations

(a) Policy Justification for Volcker Rule

(i) Speculation vs. Hedging

(ii) Deposit Taking and FDIC Insurance

(iii) Moral Hazard

(b) Financial Stability Oversight Council

(i) CFTC

(ii) SEC

(iii) Prudential Regulators

(d) Proposal for Revisions

Required Reading:

Joint Agency Summary of Final Rules Implementing Volcker Rule (http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/volckerrule_factsheet_final. pdf)

26. Bankruptcy and Derivatives and Commodities

Bankruptcy, Margining and Clearing. The US Bankruptcy Code and treatment of derivatives in insolvency; Clearing methodology and mitigation of risks via a central clearing counterparty; Emergence of ISDA documentation; Mandatory Clearing and the End-user exception; Role of Clearing Houses as a Central Counterparties; Exchanges of Futures for Swaps (EFS) and Exchanges of Futures for Physicals (EFP); Bookouts, Master Netting Agreements and Set-offs; Margining.

(a) The ipso facto clause

(b) Definitions in the US Bankruptcy Code

(i) Spot

(ii) Forward agreement

(iii) Swap agreement

(iv) Master netting agreement

(v) Commodity contract

(d) Netting and settlement

(i) ISDA netting opinions

(e) Collateral treatment

(f) Part 190 of CFTC regulations

(g) Segregation and Custody

(h) FCM bankruptcies

(i) MF Global

(ii) Peregrine

(iii) Lehman Brothers

(i) The Treasury Reports in 2017 and 2018.

27. STATISTICAL METHODS IN DERIVATIVES

(a) Statistics basics for derivatives lawyers.

(b) Basics of hedging techniques.

(i) The Black-Scholes Model for options pricing.

28. Case Study

(a) Case study of a cryptocurrency transaction

(b) Case study of an LNG forwards transaction

29. Class Summary

(a) Q&A

(b) Discuss Class Papers

Required Reading:

[To be determined]

CLASS NOTE: Seminar final papers are due December 18, 2020

[The End]

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