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Syllabus and Course Outline with Reading Assignments 08-12-2020 (Ver. 1) Georgetown University Law Center Syllabus and Course Outline with Reading Assignments 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 1 © Peter Y. Malyshev, 2020 08-12-2020 (Ver. 2) 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 - 2 - © Peter Y. Malyshev, 2020 08-12-2020 (Ver. 2) 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. (c) Purposes of derivatives (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 - 3 - © Peter Y. Malyshev, 2020 08-12-2020 (Ver. 2) (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 (c) The Pittsburg Declaration of September 2009 (i) Clearing (ii) Trading (iii) Reporting - 4 - © Peter Y. Malyshev, 2020 08-12-2020 (Ver. 2) (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 (c) Participant Status (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.
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