Gibson Dunn | Publications


Our lawyers provide sophisticated analysis, practical guidance and thought leadership on a wide range of topics. We encourage our readers to review this collection of client alerts, articles and white papers and benefit from the authors’ exceptional experience, market knowledge, practiced judgment and singular insights.

May 21, 2018

Supreme Court Upholds Agreements To Individually Arbitrate Employment-Related Disputes

Click for PDF Epic Systems Corp. v. Lewis, No. 16-285; Ernst & Young LLP v. Morris, No. 16-300; National Labor Relations Board v. Murphy Oil USA, No. 16-307 Decided May 21, 2018 Today, the Supreme Court held 5-4 that an employee’s agreement to arbitrate employment-related disputes with his employer through individual arbitration is enforceable under the Federal Arbitration Act. The Court rejected the argument that enforcing the arbitration agreement’s class action waiver would violate employees’ right to engage in collective action under the National Labor Relations Act. Background: The Federal Arbitration Act (FAA) provides that agreements to arbitrate transactions involving interstate commerce “shall be valid, irrevocable, and enforceable,” except “upon such grounds as exist at law or in equity for the revocation of any contract.”  9 U.S.C. § 2.  In these consolidated cases, the employees agreed to arbitrate work-related disputes through individual arbitration, but later sued their employers in federal courts, arguing that the arbitration agreements were invalid because they violated employees’ right to engage in “concerted activities” under the National Labor Relations Act (NLRA).  29 U.S.C. § 157. Issue: Whether an agreement that requires an employer and an employee to resolve work-related disputes through individual arbitration, and waive class proceedings, is enforceable under the FAA, notwithstanding the employee’s NLRA right to engage in concerted activities.Court's Holding: Yes.  Arbitration agreements requiring individual arbitration of employment disputes are enforceable notwithstanding the NLRA collective-action right. What It Means: The Supreme Court ruling confirms that courts will continue to enforce agreements between employers and employees to arbitrate their disputes on an individual basis, rather than in class action litigation. This case continues the Supreme Court’s trend of enforcing the FAA’s strong policy favoring arbitration. The Court held that under the FAA’s saving clause, litigants only can challenge an arbitration agreement on grounds that would apply to “any” contract—not on grounds specific to arbitration. The Court’s reasoning suggests that state laws restricting arbitration are not likely to withstand challenge under the FAA. Clients should consult a Gibson Dunn attorney regarding the nuances created by different jurisdictions. The Court determined that the NLRA’s “concerted activities” provision was intended to protect organizing and collective bargaining in the workplace, not the treatment of class actions or class arbitration. Interestingly, the Solicitor General said the arbitration agreements are enforceable, but the National Labor Relations Board (NLRB) said they are not enforceable – and both argued their positions before the Supreme Court. For this reason (and others), the Court declined to afford Chevron deference to the NLRB’s view. “It is this Court’s duty to interpret Congress’s statutes as a harmonious whole rather than at war with one another. And abiding that duty here leads to an unmistakable conclusion.” Justice Gorsuch, writing for the Court Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Caitlin J. Halligan +1 212.351.3909 Mark A. Perry +1 202.887.3667 Nicole A. Saharsky +1 202.887.3669   Gibson Dunn's Labor and Employment lawyers are available to assist in addressing any questions you may have regarding arbitration programs. Please feel free to contact the following practice leaders or the attorneys with whom you work: Labor and Employment Practice Catherine A. Conway +1 213.229.7822 Eugene Scalia +1 202.955.8206 Jason C. Schwartz +1 202.955.8242   Related Practice: Class Actions Theodore J. Boutrous, Jr. +1 213.229.7804 tboutrous@gibsondunn.comm Christopher Chorba +1 213.229.7396 Theane Evangelis +1 213.229.7726   © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
Read More

May 21, 2018

The EU Responds to the U.S. Withdrawal from the Iran Deal

Click for PDF We recently assessed President Trump's decision to abandon the 2015 Iran nuclear deal, known as the Joint Comprehensive Plan of Action ("JCPOA"), and to re-impose lifted sanctions on Iran, including secondary sanctions that threaten to limit non-U.S. entities' access to the U.S. market if they transact with certain Iranian entities. On May 17, 2018, Jean-Claude Juncker, President of the European Commission, stated that the European Union (EU) would "stick to the [JCPOA]" and seek to protect "European businesses, especially small and medium-sized enterprises."[1] The next day, the European Commission announced it would prohibit compliance with the re-imposed U.S. sanctions.[2] The Commission will accomplish this by revising an existing EU blocking statute,[3] so that EU nationals and other persons within the EU, as well as companies incorporated within the EU, such as subsidiaries of U.S. companies, will be prohibited from complying with the revived U.S. sanctions.[4] This decision thrusts companies that do business in both the United States and EU into significant legal uncertainty. The European Commission also announced a number of other measures designed to facilitate continued trade with Iran. For example, the Commission has "[l]aunched the formal process to remove obstacles for the European Investment Bank to decide under the EU budget guarantee to finance activities" in Iran.[5] As "confidence building measures," the Commission will "continue and strengthen the ongoing sectoral cooperation with, and assistance to, Iran, including in the energy sector and with regard to small and medium-sized companies."[6] The Commission has also said it would encourage member states "to explore the possibility of allowing one-off bank transfers to the Central Bank of Iran" to allow Iranian authorities to receive oil-related revenues.[7] Implementation Timeline The U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC") announced the re-imposed sanctions will be subject to 90- and 180-day wind-down periods that will expire on August 6 and November 4, 2018, respectively.[8] The European Commission aims to have the amended blocking statute take effect before the first expiration on August 6, 2018.[9] Once amended, the blocking statute will automatically take effect after two months, unless either the European Parliament or Council object, but it could take effect sooner if both institutions indicate approval before the objection periods ends.[10] Legal Risks A tangle of U.S. laws, including the Iran and Libya Sanctions Act of 1996 ("ISA")[11] and Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 ("CISADA"),[12] provide sanctions that apply extraterritorially to prohibit non-U.S. entities from transacting with various Iranian entities. Companies that engage in such transactions may face severe consequences, including large financial penalties and a complete ban from the U.S. banking system.[13] Needless to say, such a ban may pose an existential threat to non-U.S. entities with significant U.S. business. The practical effect of the EU blocking statute, however, remains uncertain. That regulation prohibits entities and persons from complying with U.S. sanctions and foreign court requests that stem from U.S. laws specified in the blocking statute's annex.[14] The annex currently includes the following laws: a)      Cuban Liberty and Democratic Solidarity Act of 1996; b)      Iran and Libyan Sanctions Act of 1996; c)      Code of Federal Regulations, Ch. V, Part 515 (Cuban Assets Controls Regulations), subparts B, E, and G. The blocking statute's impact remains uncertain for a variety of reasons. First, EU member states must give effect to the statute by passing domestic implementing laws. The United Kingdom passed such a law, which created a criminal offence for compliance with the stated U.S. laws. The U.K. law does not provide for a prison sentence as punishment,[15] but it does provide for a potentially unlimited fine.[16] Other member states also created criminal offences, including Ireland, the Netherlands, and Sweden. Other states, including Germany, Italy and Spain, created administrative penalties for non-compliance. Meanwhile some member states, including France, Belgium and Luxembourg, never implemented the blocking statute. It is unclear whether they would do so now, although they have a duty under EU law to implement the blocking statute. Second, the European Commission has not yet released the amended statute: its scope remains to be seen. Finally, the extent to which member states will prosecute violations of the blocking statute remains unclear. It has largely been viewed as a political symbol, rather than an effective legal tool. No company has ever been convicted of breaching the blocking statute,[17] and only Austria has ever pressed charges.[18] Indeed, European Commission Vice President Valdis Dombrovskis recognized the blocking statute "could be of limited effectiveness" given the centrality of the U.S. banking system.[19] Considering the current political situation, which substantially differs from the situation when the EU blocking statute was first introduced in 1996, the enforcement appetite, however, might increase. Possible Options for Affected Companies The U.S. sanctions and impending EU blocking statute confront companies with a multi-jurisdictional Scylla and Charybdis. Entities have three basic options. First, they could attempt to comply with both U.S. and EU law while maintaining business in Iran. Some companies, such as French oil conglomerate Total, have indicated they will seek special licenses from the United States to allow their business in Iran to continue.[20] Given that the purpose of the U.S. sanctions is to isolate Iran economically, such efforts seem unlikely to succeed. Second, companies could comply with U.S. sanctions while exiting Iranian business and thereby potentially violating the EU blocking statute. While special attention has to be paid to criminal prosecution in, inter alia, Ireland, and high fines in the United Kingdom,[21] most member states impose maximum fines well under $1 million.[22] The United States, meanwhile, may impose multi-billion dollar fines[23] and ban companies from the U.S. banking system. Given the profound threat of such penalties, a number of non-U.S. companies have already announced plans to end business in Iran.[24] Third, companies could comply with the blocking statute, maintain business with Iranian entities, and violate the U.S. sanctions. But given the existential threat that a ban from the U.S. financial system would pose to many large companies, this route appears least tenable. Whether this route merits pursuit will largely depend on the support the EU commits to providing to small and medium-sized enterprises that become a target of U.S. sanctions. Conclusion The European Commission's announcement that it will amend the blocking statute further increases the uncertainty companies face in navigating U.S. sanctions on Iran, and may expose them to significant liability. Russia's recently proposed law to impose fines and possibly imprisonment for complying with U.S. sanctions against Russia only adds to the uncertainty.[25] The scope and practical effect of the EU blocking statute remain to be seen, but Gibson Dunn will continue to closely monitor the situation. 1 Speech, European Commission, Press conference remarks by Jean-Claude Juncker (May 17, 2018), 2 Press Release, European Commission, European Commission acts to protect the interests of EU companies investing in Iran as part of the EU's continued commitment to the Joint Comprehensive Plan of Action (May 18, 2018), 3 Council Regulation (EC) No. 2271/1996 (OJ L 309, 29.11.1996, p. 1-6). 4 Id.; see also Press Release, supra note 2. 5 Press Release, supra note 2. 6 Id. 7 Id. 8 U.S. Dep't of Treasury, Frequently Asked Questions Regarding the Re-Imposition of Sanctions Pursuant to the May 8, 2018 National Security Presidential Memorandum Relating to the Joint Comprehensive Plan of Action (JCPOA) (May 8, 2018),, (hereinafter "OFAC FAQ"). 9 Press release, supra note 2. 10 Id. 11 Pub. L. No. 104-172 (codified as amended in scattered sections of 50 U.S.C.). 12 Pub. L. No. 111-195 (codified as amended in scattered sections of 22 and 50 U.S.C.). 13 CISADA § 102. 14 Council Regulation (EC) No. 2271/1996, art. 5. 15 Extraterritorial US Legislation (Sanctions against Cuba, Iran, Libya) (Protection of Trading Interests) Order, S.I. 1996/3171. The U.K. law's omission of a custodial sentence makes it an outlier in U.K. financial crime laws. 16 Id. 17 See, e.g., In 1990s Redux, EU to Consider Blocking U.S. Sanctions Over Iran, N.Y. Times (May 9, 2018), 18 See Austria charges bank after Cuban accounts cancelled, Reuters (Apr. 27, 2007), 19 Huw Jones, EU says block on U.S. sanctions on Iran of limited use for EU banks, Reuters (May 17, 2018),; 20 Steven Mufson, French oil giant Total seeks Iran sanctions waiver from Trump for $2 billion project, Washington Post (May 16, 2018), 21 See Extraterritorial US Legislation (Sanctions against Cuba, Iran, Libya) (Protection of Trading Interests) Order, S.I. 1996/3171 (articulating no maximum penalty); Lag om EG:s förordning om skydd mot extraterritoriell lagstiftning som antas av ett tredje land (Svensk författningssamling [SFS] 1997:825) (Swed.) (same). 22 For example, the Netherlands imposes a maximum fine of one million guilders, which is about $560,000. See Uitvoering van verordening (EG) nr. 2271/96 van de Raad van de Europese Unie van 22 november 1996, 23 For example, it levied a $9 billion fine against BNP Paribas for violating sanctions against Iran, Cuba and Sudan. Maia De La Baume & Anca Gurzu, Europe not backing down on Iran, Politico (May 17, 2018), 24 EU moves to block US sanctions on Iran, Al Jazeera (May 17, 2018), 25 Maya Lester, Draft Russian Bill criminalises compliance with Western sanctions, European Sanctions Blog (May 16, 2018), The proposed Russian law targets U.S. sanctions against Russia, not Iran, but if Russia chooses to maintain business with Iran, then it's possible that compliance with the re-imposed U.S. sanctions against Iran could trigger the Russian law where that compliance implicates business in Russia. See id. The following Gibson Dunn lawyers assisted in preparing this client update: Judith Alison Lee, Patrick Doris, Mark Handley, Richard Roeder, Adam Smith, and Chris Timura. Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding the above developments.  Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm's International Trade Group: United States: Judith Alison Lee - Co-Chair, International Trade Practice, Washington, D.C. (+1 202-887-3591, Ronald Kirk - Co-Chair, International Trade Practice, Dallas (+1 214-698-3295, Jose W. Fernandez - New York (+1 212-351-2376, Marcellus A. McRae - Los Angeles (+1 213-229-7675, Adam M. Smith - Washington, D.C. (+1 202-887-3547, Christopher T. Timura - Washington, D.C. (+1 202-887-3690, Ben K. Belair - Washington, D.C. (+1 202-887-3743, Courtney M. Brown - Washington, D.C. (+1 202-955-8685, Laura R. Cole - Washington, D.C. (+1 202-887-3787, Stephanie L. Connor - Washington, D.C. (+1 202-955-8586, Helen L. Galloway - Los Angeles (+1 213-229-7342, William Hart - Washington, D.C. (+1 202-887-3706, Henry C. Phillips - Washington, D.C. (+1 202-955-8535, R.L. Pratt - Washington, D.C. (+1 202-887-3785, Scott R. Toussaint - Palo Alto (+1 650-849-5320, Europe: Peter Alexiadis - Brussels (+32 2 554 72 00, Attila Borsos - Brussels (+32 2 554 72 10, Patrick Doris - London (+44 (0)207 071 4276, Penny Madden - London (+44 (0)20 7071 4226, Benno Schwarz - Munich (+49 89 189 33 110, Michael Walther (+49 89 189 33-180, Mark Handley - London (+44 (0)207 071 4277, Richard W. Roeder - Munich (+49 89 189 33-160, © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
Read More

May 17, 2018

Webcast: Supreme Court Strikes Down Federal Limits On Sports Gambling

"A more direct affront to state sovereignty is not easy to imagine." — Justice Alito, writing for the majority On May 14, 2018, the United States Supreme Court held 7-2 striking down a federal law which prohibited States from authorizing sports betting. Gibson Dunn attorneys Theodore B. Olson and Matthew D. McGill led the successful team representing the Governor of New Jersey in this landmark case. In this webcast Mr. Olson and Mr. McGill will discuss the case, the oral argument, and the impacts of this Supreme Court decision. They will also be joined by Gibson Dunn partner Debra Wong Yang to discuss the regulatory and commercial opportunities following this decision. Murphy v. National Collegiate Athletic Association, No. 16-476 New Jersey Thoroughbred Horsemen’s Association, Inc. v. National Collegiate Athletic Association, No. 16-477 View Slides [PDF] PANELISTS Theodore B. Olson is a partner in the Washington, D.C. office of Gibson Dunn, a longtime member of the firm’s Executive Committee, and Founder of the firm’s Crisis Management, Sports Law, and Appellate and Constitutional Law practice groups. Selected by Time magazine in 2010 as one of the 100 most influential people in the world, Mr. Olson is one of the nation’s premier appellate and United States Supreme Court advocates. He has argued 63 cases in the Supreme Court and has prevailed in over 75% of those arguments. These cases include the two Bush v. Gore cases arising out of the 2000 presidential election; Citizens United v. Federal Election Commission; Hollingsworth v. Perry, the case upholding the overturning of California’s Proposition 8, banning same-sex marriages and Murphy v. NCAA, repealing PASPA. Mr. Olson’s practice is concentrated on appellate and constitutional law, federal legislation, media and commercial disputes, and assisting clients with strategies for the containment, management and resolution of major legal crises occurring at the federal/state, criminal/civil and domestic/international levels. He has handled cases at all levels of state and federal court systems throughout the United States. Matthew D. McGill is a partner in the Washington, D.C. office of Gibson Dunn.  He practices in the firm’s Litigation Department and its Appellate and Constitutional Law and Intellectual Property practice groups. Mr. McGill is a Chambers-ranked appellate litigator, and previously was named a national Rising Star by Law360, which identified him as one of ten appellate lawyers under 40 to watch. He has participated in 20 cases before the United States Supreme Court, prevailing in 15.  Spanning a wide range of substantive areas, those representations have included several high-profile triumphs over foreign and domestic sovereigns. Debra Wong Yang This webcast will be moderated by Debra Wong Yang, a partner in the Los Angeles office of Gibson Dunn. Drawing on her depth of experience and record of success, Ms. Yang focuses part of her practice on strategic counseling. She leads critical representations, both high-profile and highly confidential, involving a wide variety of industries, economic sectors, regulatory bodies, law enforcement agencies, global jurisdictions and all types of proceedings. She guides teams of attorneys and outside consultants in the development and implementation of strategies to achieve the most favorable outcomes, greatest protection of reputational interests and minimalizing of harm to the business assets. Ms. Yang also has a strong background in addressing and resolving problems across the white collar litigation spectrum, including through corporate and individual representations, internal investigations, crisis management and compliance. MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.50 credit hours, of which 1.50 credit hours may be applied toward the areas of professional practice requirement.  This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast.  Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.50 hours. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.
Read More

May 16, 2018

The ‘MFW’ Framework Gains Traction Outside the Merger Context

Washington, D.C. partner Jason Mendro and associate Jeffrey Rosenberg are the authors of "The ‘MFW’ Framework Gains Traction Outside the Merger Context," [PDF] published in the Delaware Business Court Insider on May 16, 2018.
Read More

May 15, 2018

CFTC Chairman and Chief Economist Co-Author “Swaps Reg Reform 2.0”

Click for PDF On April 26, 2018, Commodity Futures Trading Commission ("CFTC") Chairman J. Christopher Giancarlo and the CFTC's Chief Economist Bruce Tuckman released a co-authored white paper titled Swaps Regulation Version 2.0: An Assessment of the Current Implementation of Reform and Proposals for Next Steps ("White Paper"),[1] which analyzes and assesses the CFTC's current implementation of the swaps reforms promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank").[2]  The White Paper focuses on the following five specific areas of Dodd-Frank swaps reform:  clearing and central counterparties ("CCPs"); swaps data reporting; swaps execution rules; swap dealer capital requirements; and the end-user exception.  The paper's title is intended to draw an analogy between the need to further refine the CFTC's swaps regulatory reform under Dodd-Frank and the process undertaken by technology companies when updating or upgrading their software applications.  Indeed, the authors suggest that the CFTC—like a technology company—needs to assess where its Dodd-Frank swaps regulations are working, where those regulations require "updates" and where they require an upgrade or a complete overhaul. As part of its analysis and assessment, the White Paper primarily cites to academic research and market activity in reaching certain conclusions regarding the progress made to date and areas for improvement in the CFTC's implementation of Dodd-Frank swaps reform.  The authors also cite to the CFTC's four years of regulatory experience in implementing Dodd-Frank swaps reform in the United States as the basis upon which they make certain recommendations "to recognize success, address flaws, recalibrate imprecision and optimize measures. . . ."[3] Although the White Paper is comprehensive in its scope, it is noteworthy what the paper does not cover.  For instance, while the White Paper includes the authors' recommendations for further changes to the CFTC's swaps regulations and guidance, the paper does not propose detailed or prescriptive modifications to specific CFTC rules.  Thus, the paper describes at a high level what the authors envision would result in regulations that are more "economy-focused" and "what's in the best interest of the markets."[4] Additionally, the authors make clear that the White Paper does not express the views of the full commission.  Interestingly, however, the White Paper does include significant input from CFTC senior staff across all operating divisions (i.e., the directors of the CFTC's Division of Market Oversight, the Division of Swap Dealer and Intermediary Oversight, and the Division of Clearing and Risk). Further, the White Paper does not discuss other important Dodd-Frank swaps reform topics such as position limits, the CFTC's swap dealer de minimis threshold, the bounds of the CFTC's cross border authority or how best to harmonize the CFTC's swaps ruleset with the security-based swaps ruleset of its sister agency, the Securities and Exchange Commission. Lastly, the White Paper does not outline the timetable for any proposed changes to the CFTC's swaps regulations.  In unveiling the White Paper at an industry conference, Chairman Giancarlo noted that the CFTC will likely begin issuing proposals in the areas of trading and swaps data reporting in the early part of the summer of 2018.  Chairman Giancarlo further noted with respect to timing that, "We're not in the wake of a crisis right now — we need to take the time to get this right.  We have an ambitious timetable, and we will get this done, but we will do this right."[5] In this client alert, we have summarized below some of the key takeaways from each of the five topical areas covered in the White Paper. Please contact us if you have any questions regarding the White Paper or the CFTC's widely anticipated reforms to its swaps regulations. Clearing and CCPs The White Paper notes that swaps clearing is probably the most far-reaching and consequential of the swaps reforms adopted under Title VII of Dodd-Frank.  The authors cite data collected by the CFTC in finding that the CFTC's implementation of Dodd-Frank's clearing mandate was highly successful based on the increasing volumes of cleared swaps when compared to before the enactment of Dodd-Frank.[6] This section of the White Paper then focuses on the topics of CCP resources to maintain viability under extreme but plausible conditions, CCP recovery when those resources prove insufficient and CCP resolution in the highly unlikely event that a CCP fails.  In short, the authors applaud the substantial progress that CCPs and the CFTC have made in order to ensure that CCPs are safe and sound under extreme but plausible scenarios and the work that CCPs have undertaken to develop credible recovery plans to remain viable without government assistance. In terms of their recommendations to address continuing challenges in this space, the authors assert—without picking winners or losers as between CCPs and their clearing members—that further market-wide discussions are necessary regarding: (1) the development of potential solutions to ensure the liquidity of prefunded resources; (2) the network and systemic effects of defaults; (3) the liquidation costs of defaulted positions; and (4) improving transparency and predictability of CCP recovery plans.  Lastly, the authors note that the CFTC must continue to coordinate with the Federal Deposit Insurance Corporation ("FDIC") in formulating resolution plans, which would guide the authority vested in the FDIC under Dodd-Frank to intervene upon the highly unlikely event that a CCP fails. Swaps Data Reporting In the section of the White Paper covering swaps data reporting, the authors note that, while the state of data reporting has improved considerably, the CFTC's current swaps reporting regime is "suboptimal" and "imperfect."  They cite the lack of uniform data standards and nomenclature as the biggest problems with the regime.  Another cited problem is the fact that the CFTC has not provided sufficient technical specifications to swap data repositories ("SDRs") in collecting data from reporting parties. The authors then discuss a number of steps that the CFTC has taken within the last few years to improve the effectiveness of its swaps reporting regime, including the CFTC's cooperation with the global regulatory community, SDRs and reporting counterparties to harmonize uniform data standards, nomenclature and technical guidance.  The paper also mentions the work that CFTC staff has begun as outlined in the CFTC's 2017 Roadmap to Achieve High Quality Swaps Data ("Roadmap").[7]  Through the Roadmap consultation process, CFTC staff has heard from a wide range of market participants and interested parties.  Under consideration in the Roadmap are changes to the CFTC's reporting rules with the goal of making available to the CFTC and to the public more complete, more accurate and higher quality data. Finally, in this section, the authors urge the CFTC to ensure that its swaps reporting reforms will remain technologically neutral in order to allow for technological advancement (e.g., through the use of distributed ledger technology) to make reporting systems more reliable, more automated and less expensive.  They also urge CFTC staff and market participants to continue to collaborate in order to recalibrate the trade data reporting regime so that it is specific, accurate, and useful enough to:  (1) capture systemic risk, market abuse and market manipulation; (2) harmonize with globally accepted risk data fields; and (3) achieve transparency while promoting healthy trading liquidity. Swaps Execution Rules In the section covering swaps execution, the authors repeat many of the same concerns and arguments made by Chairman Giancarlo in his 2015 White Paper on swap trading reforms, which was titled Pro-Reform Reconsideration of the CFTC Swaps Trading Rules: Return to Dodd-Frank, White Paper.[8]  Essentially, they assert that Congress did not mandate that swap execution facilities ("SEFs") utilize any particular method of trading and execution.  In its final swaps execution rules, however, the CFTC determined that swaps which are "made available to trade" should be subject to the CFTC's mandatory trade execution requirement and must be traded through specified execution protocols (i.e., an order book or a request-for-quote system to three).  The authors cite to comprehensive industry research in noting that the CFTC's current swaps execution requirements have stunted swaps trading in the United States, fragmented global trading liquidity, increased market liquidity risk, restricted technological innovation and incentivized a significant amount of price discovery and liquidity to take place off-exchange. To correct these ills, the authors recommend that the CFTC eliminate the requirement that SEFs maintain an order book and permit SEFs to offer any means of interstate commerce for the trading or execution of swaps subject to the CFTC's mandatory trade execution requirement.  Additionally, they argue that the CFTC also should expand the category of swaps subject to the trading mandate to include all swaps that are subject to the CFTC's clearing mandate, unless no SEF or designated contract market lists the swap for trading.  Finally, they suggest that the CFTC's regulatory focus should be on enhancing the professional conduct of swaps execution through licensure, testing and the adoption of professional conduct principles. Swap Dealer Capital In the section covering swap dealer capital, the authors note that while current bank capital rules are extremely relevant to the swaps dealing business and the efficiency of swap markets, there are aspects of the current regime that result in an unintended bias against risk taken through swaps markets.  To correct this bias, the White Paper argues that bank capital rules need to allow firms to rely on internal models instead of a standardized approach.  The paper also argues that the current standardized approach and industry-developed models inappropriately rely on swap notional amounts to measure risk.[9] The authors do not offer one specific recommended approach to correct these concerns.  Instead, the paper offers a couple of remedial approaches.  One approach suggested by the authors to correct these concerns is for regulators to continue to refine—and by necessity complicate—the standardized models imposed on market participants.  Another suggested approach is for regulators to improve their capabilities with respect to approving and monitoring the use of bank internal models. End-User Exception In the last section of the White Paper, the authors assert that Congress intended a robust end-user exception from Dodd-Frank clearing and margin requirements for entities that are unlikely sources of systemic risk.  They further assert that there are a number of entities that currently fall within the Dodd-Frank definition of "financial entity" (and thus are ineligible to elect an exception from those requirements) but should not be captured under the definition because those entities are not sources of systemic risk.  Specifically, the paper identifies bank holding companies, savings and loan holding companies and certain relatively small financial institutions as being broadly and unnecessarily captured under the definition. To reduce the burdens on these categories of end-users, the authors offer a few recommendations.  First, the authors recommend that the CFTC codify into regulation relief for bank holding companies and savings and loan holding companies that is currently provided in CFTC staff no-action relief.[10] Second, the authors recommend that the CFTC exempt certain small financial institutions including pension funds and small insurance companies from clearing and margin requirements through a "material swaps exposure" test, which is similar to the test set forth in the CFTC's final uncleared margin rules.  Related to their second recommendation, the authors further assert that the CFTC and prudential regulators should consider exempting small financial end-users from uncleared margin requirements by tweaking the material swaps exposure thresholds to address real risk as opposed to risk based on swap notional amounts.  Interestingly, the authors cite to studies suggesting that pension funds and insurance companies should not broadly be excluded from the definition because larger entities might still pose significant risks. Finally, the authors argue that the CFTC should amend the calculation of initial margin for uncleared swaps in the CFTC's uncleared margin rules so that those rules do not promote a bias against the trading of uncleared swaps.  On this point, the authors argue that Congress did not intend for the CFTC's and prudential regulators' uncleared margin rules to favor cleared products.    [1]   J. Christopher Giancarlo and Bruce Tuckman, Swaps Regulation Version 2.0: An Assessment of the Current Implementation of Reform and Proposals for Next Steps (Apr. 26, 2018), available at    [2]   Dodd-Frank Wall Street Reform and Consumer Protection Act, 124 Stat. 1376, Pub. Law 111-203 (July 21, 2010), as amended.    [3]   White Paper at p.i.    [4]   CFTC Press Release, No. 7719-18, CFTC Chairman Unveils Reg Reform 2.0 Agenda (Apr. 26, 2018), available at    [5]   Id.    [6]   See White Paper, p.7 ("According to data collected by the CFTC on U.S. reporting entities, about 85% of both new interest rate swaps and new credit default swaps were cleared in 2017. Precise data as far back as 2010 are not available, but the Bank for International Settlements (BIS) estimated minimum global clearing rates at that time of about 40% for interest rate swaps and 8% for credit default swaps.").    [7]   Staff Advisory, Division of Market Oversight, Roadmap to Achieve High Quality Swaps Data, U.S. Commodity Futures Trading Commission, July 10, 2017, available at /documents/file/dmo_swapdataplan071017.pdf.    [8]   J. Christopher Giancarlo, Pro-Reform Reconsideration of the CFTC Swaps Trading Rules: Return to Dodd-Frank, Jan. 29, 2015, available at /documents/file/sefwhitepaper012915.pdf.    [9]   The CFTC's Chief Economist and others have published a paper proposing an alternative approach to measuring swaps risk.  See Richard Haynes, John Roberts, Rajiv Sharma and Bruce Tuckman, Introducing ENNs: A Measure of the Size of Interest Rate Swap Markets (Jan. 2018), available at sites/default/files/idc/groups/public/@economicanalysis/documents/file/oce_enns0118.pdf. [10]   See CFTC Letter 16-01 (Jan. 8, 2016). The following Gibson Dunn lawyers assisted in preparing this client update: Carl Kennedy and Jeffrey Steiner. Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact any member of the Gibson Dunn team, the Gibson Dunn lawyer with whom you usually work in the firm's Financial Institutions practice group, or any of the following: Arthur S. Long - New York (+1 212-351-2426, Michael D. Bopp - Washington, D.C. (+1 202-955-8256, Carl E. Kennedy - New York (+1 212-351-3951, Jeffrey L. Steiner - Washington, D.C. (+1 202-887-3632, © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
Read More

May 14, 2018

Supreme Court Strikes Down Federal Limits On Sports Gambling

Click for PDF Murphy v. National Collegiate Athletic Association, No. 16-476 New Jersey Thoroughbred Horsemen’s Association, Inc. v. National Collegiate Athletic Association, No. 16-477 Decided May 14, 2018 The Supreme Court held 7-2 that a federal law prohibiting States from authorizing sports betting violates the Tenth Amendment because it impermissibly commandeers state legislatures. Background: A federal law – the Professional and Amateur Sports Protection Act of 1992 (PASPA) – prohibits States from authorizing or licensing sports gambling.  In 2014, the New Jersey legislature repealed existing prohibitions on sports gambling at casinos and racetracks.  The NCAA and the four major professional sports leagues sued the State, arguing that the decision to allow sports gambling violated PASPA. Issue: Whether PASPA’s federal prohibition on state authorization of sports gambling violates the Tenth Amendment because it commandeers state legislatures. Court's Holding: Yes.  PASPA unconstitutionally commandeers state legislatures by dictating the content of state law regarding sports gambling (i.e., preventing States from legalizing sports gambling). "A more direct affront to state sovereignty is not easy to imagine." Justice Alito, writing for the majority What It Means: In a significant victory for States’ rights, the Court’s decision makes clear that the Tenth Amendment’s anti-commandeering rule has teeth.  Under that rule, Congress can neither affirmatively direct the States to enact a certain law nor prohibit them from repealing an existing law.  As a result, States are now free to choose whether or not to legalize sports gambling. The Court also struck down the additional federal prohibitions on state-run lotteries, private operation of sports gambling schemes, and advertising of sports gambling. The ruling likely will lead to the legalization of sports gambling in many States.  In advance of the Court’s ruling, bills authorizing sports gambling had been introduced in approximately 15 States, and they have already been enacted in Pennsylvania, Mississippi, Connecticut, and West Virginia. Gibson Dunn represented the winning party:  Petitioners Philip D. Murphy, as Governor of the State of New Jersey, et. al. Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Caitlin J. Halligan +1 212.351.3909 Mark A. Perry +1 202.887.3667 Nicole A. Saharsky +1 202.887.3669   © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
Read More