Weekend Reading from Miller Strategic Partners LLP

September 22, 2023 (Click here for a PDF of this note)

Weekend Reading - A short selection of regulatory and other relevant developments across the trading and markets industry

Digital Assets

UK FCA Crypto Marketing Warning.? The U.K Financial Conduct Authority issued a 4-page letter of “final warning” for cryptoasset firms marketing to UK consumers and those supporting them to get ready for the financial promotion regime.? The letter follows the FCA’s September 7, 2023 post (link) wherein it discussed firms’ preparations to comply with the cryptoasset financial promotions regime and provided feedback on good and poor practice.?

Three CFTC Commissioners Vote to Issue Order Disapproving Political Events Contract Filing; One Commissioner Dissented and One Commissioner Abstained From the Order (link).? The U.S. Commodity Futures Trading Commission issued an order disapproving a self-certified new product filing by a CFTC registered futures exchange that had sought to list? congressional control political event contracts.? Commissioner Mersinger dissented from the disapproval order, and Commissioner Pham abstained from voting.??

Trading & Markets

SEC Settles Order Marking Violations Claims with Two Separate Broker Dealers, Imposes $7 Million fine (link) and $6 Million Fine (link), Respectively.? One broker dealer settled charges related to a provision of Regulation SHO, which requires broker-dealers to mark sale orders as long, short, or short exempt.? According to the order, for a five-year period, it is estimated that the broker dealer incorrectly marked millions of orders, inaccurately denoting that certain short sales were long sales and vice versa. The SEC’s order stated that the inaccurate marks resulted from a coding error in the broker dealer’s automated trading system and that the firm provided the inaccurate data to regulators, including the SEC during this period.? The second broker dealer settled charges related to failing to provide complete and accurate securities trading information, known as blue sheet data, to the SEC.? The SEC’s order asserted that, over a period of approximately ten years, the broker dealer made more than 22,000 deficient blue sheet submissions to the SEC and that, as a result of 43 different types of errors, these submissions contained missing or inaccurate trade data for at least 163 million transactions. The order also stated that the broker dealer lacked adequate processes to verify the accuracy of its electronic blue sheet submissions.

Judge in Southern District of New York Dismisses CFTC “Fraud by Deceptive Device” Claim Against a Hedge Fund After Concluding that Certain ETF Swaps and Custom Basket Swaps Were Not Subject to CFTC Jurisdiction.? In an order dated September 19, 2023, Judge J. Paul Oetken of the Southern District of New York concluded that certain ETF Swaps and Custom Basket Swaps were not subject to CFTC jurisdiction and thus the CFTC’s claims for fraud by deceptive device - involving those swaps - must fail for lack of jurisdiction.? For the ETF Swaps, the Order held that a swap on a single ETF (notwithstanding that the ETF’s underlyer may be a basket of many stocks that may track an index) is a single stock ETF subject to SEC jurisdiction - and that it is not a “mixed swap” or swap on a broad based securities index.? In analyzing the Custom Basket Swaps, the Order cited to the CFTC/SEC joint Dodd-Frank rulemaking release on product definitions and quoted guidance indicating that where a swap on a basket of securities provides the parties discretion to change composition or weighting of securities in a security portfolio underlying or referenced by the swap, that security portfolio will be treated as a narrow-based security index (and thus subject to SEC, and not CFTC, jurisdiction).

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