The CFTC approved a final rule amending Part 40, the implementation of Section 5c(c) of the Commodities Exchange Act (CEA), which covers the self-certification process for registered entities.
These entities include designated contract markets, derivatives clearing organizations, swap execution facilities and swap data repositories. Part 40 allows them to self-certify that their internal rules and product submissions comply with CEA and CFTC regulations before going into effect. Alternatively, registered entities can submit a product, rule or rule amendment to the CFTC directly for approval.
The amendment clarifies certain terms and requirements in Part 40, intending to simplify and streamline the certification process.
Complete description required
The CFTC also added a provision that requires “a concise explanation and analysis that is complete with respect to the product’s terms and conditions, the underlying commodity, and the product’s compliance with applicable provisions of the Act.” A similar “complete description” clarification was added for registered entities’ rules.
These amendments were added after the CFTC noticed that registered entities were failing to accurately describe rules and commodities during the self-certification process.
The Futures Industry Association and the International Swap Derivatives Association supported the changes, and submitted a joint letter in support.
The final rule is effective 30 days after its publication in the Federal Register.
Overregulation concerns
Commissioner Summer Mersinger dissented from the adoption of the new rule, citing potential for misuse and redundancy.
She stated that the new rule’s mandate for “complete” information was redundant, a s requirements already existed that registered entities adhere to the CEA and CFTC regulations. And because the rule’s preamble stated that the new requirements “are not intended to expand or otherwise alter the scope of the explanation or analysis required … ,” she questioned its necessity.
By adding further requirements, Mersinger argued that the rule could create unreasonable stays and requests for further information that would stifle innovation. This amounted to an erosion of the trust that currently exists between the CFTC and registered entities, she said.
Certain industry participants echoed Mersinger’s concerns that the amendments would introduce a new regulatory burden. Crypto platform Coinbase opposed the proposed amendments to § 40.2(a)(3) and stated it believed the proposed completeness standard “lacks clarity and would significantly alter the existing process for certification under Regulation 40.2”
