Derivatives, Legislative and Regulatory Weekly Update (February 7, 2025)

Client Alert | February 7, 2025

From the Derivatives Practice Group: This week, the CFTC announced plans to restructure the Division of Enforcement to refocus on fraud and stop regulation by enforcement.

New Developments

CFTC Announces Crypto CEO Forum to Launch Digital Asset Markets Pilot. On February 7, the CFTC announced that it will hold a CEO Forum of industry-leading firms to discuss the launch of the CFTC’s digital asset markets pilot program for tokenized non-cash collateral such as stablecoins. Participants will include Circle, Coinbase, Crypto.com, MoonPay and Ripple. [NEW]
CFTC Statement on Allegations Targeting Acting Chairman. On February 6, the CFTC released a statement regarding allegations targeting Acting Chairman Pham. [NEW]
David Gillers to Step Down as Chief of Staff. On February 6, the CFTC announced that David Gillers will step down as Chief of Staff to Commissioner Behnam on February 7. [NEW]
CFTC Announces Prediction Markets Roundtable. On February 5, the CFTC announced that it will hold a public roundtable in approximately 45 days at the conclusion of its requests for information on certain sports-related event contracts. The CFTC said that the goal of the roundtable is to develop a robust administrative record with studies, data, expert reports, and public input from a wide variety of stakeholder groups to inform the Commission’s approach to regulation and oversight of prediction markets, including sports-related event contracts. According to the CFTC, the roundtable will include discussion of key obstacles to the balanced regulation of prediction markets, retail binary options fraud and customer protection, potential revisions to Part 38 and Part 40 of CFTC regulations to address prediction markets, and other improvements to the regulation of event contracts to facilitate innovation. The roundtable will be held at the CFTC’s headquarters in Washington, D.C. [NEW]
CFTC Division of Enforcement to Refocus on Fraud and Helping Victims, Stop Regulation by Enforcement. On February 4, CFTC Acting Chairman Caroline D. Pham announced a reorganization of the Division of Enforcement’s task forces to combat fraud and help victims while ending the practice of regulation by enforcement. According to the CFTC, previous task forces will be simplified into two new Division of Enforcement task forces: the Complex Fraud Task Force and the Retail Fraud and General Enforcement Task Force. The Complex Fraud Task Force will be responsible for all preliminary inquiries, investigations, and litigations relating to complex fraud and manipulation across all asset classes. The Acting Chief will be Deputy Director Paul Hayeck. The Retail Fraud and General Enforcement Task Force will focus on retail fraud and handle general enforcement matters involving other violations of the Commodity Exchange Act. The Acting Chief will be Deputy Director Charles Marvine. [NEW]
CFTC Staff Issues No-Action Letter to Korea Exchange Concerning the Offer or Sale of KOSPI and Mini KOSPI 200 Futures Contracts. On February 4, the CFTC’s Division of Market Oversight issued a no-action letter stating it will not recommend the CFTC take enforcement action against Korea Exchange (“KRX”) for the offer or sale of Korea Composite Stock Price Index (“KOSPI”) 200 Futures Contracts and Mini KOSPI 200 Futures Contracts to persons located within the United State while the Commission’s review of KRX’s forthcoming request for certification of the contracts under CFTC Regulation 30.13 is pending. DMO issued similar letters when the KOSPI 200 became a broad-based security index in 2021 and 2022. See CFTC Press Release Nos. 8464-21 and 8610-22. The KOSPI 200 became a narrow-based security index in February 2024. The KOSPI 200 is set to become a broad-based security index on February 6, 2025, and the no-action position in DMO’s letter will be effective on that date. [NEW]
CFTC Staff Issues Supplemental Letter Regarding No-Action Position on Reporting, Recordkeeping Requirements. On January 31, the CFTC’s Division of Market Oversight and the Division of Clearing and Risk announced they have taken a no-action position regarding swap data reporting and recordkeeping regulations. The CFTC said this position is in response to a request from KalshiEX LLC, a designated contract market, and Kalshi Klear LLC, a derivatives clearing organization, to modify CFTC Letter No. 24-15 to remove the condition prohibiting third-party clearing by participants and to cover fully-collateralized variable payout contracts. The Divisions indicated that they will not recommend the CFTC initiate an enforcement action against KalshiEX LLC, Kalshi Klear LLC, or their participants for failure to comply with certain swap-related recordkeeping requirements and for failure to report to swap data repositories data associated with binary option transactions and variable payout contract transactions executed on or subject to the rules of KalshiEX LLC and cleared through Kalshi Klear LLC, subject to the terms of the no-action letter. The supplemental letter also removes the condition in CFTC Letter No. 24-15 that prohibits Kalshi participants from clearing contracts through a third-party clearing member. [NEW]
CFTC and SEC Extend Form PF Amendments Compliance Date. The CFTC, together with the SEC, extended the compliance date for the amendments to Form PF that were adopted Feb. 8, 2024. The compliance date for these amendments, which was originally March 12, 2025, has been extended to June 12, 2025. Form PF is the confidential reporting form for certain SEC-registered investment advisers to private funds, including those that also are registered with the CFTC as commodity pool operators or commodity trading advisers. This extension will mitigate certain administrative and technological burdens and costs associated with the prior compliance date. This extension will also provide more time for filers to program and test for compliance with these amendments.
Acting Chairman Pham Launches Public Roundtables on Innovation and Market Structure. On January 27, Acting Chairman Pham announced the launch of a series of public roundtables on evolving trends and innovation in market structure, including issues such as affiliated entities and conflicts of interest, prediction markets, and digital assets. Pham renewed calls for open public engagement and increased transparency by the CFTC on its policy approach to changes in derivatives markets last year.
Acting Chairman Pham Announces CFTC Leadership Changes. On January 22, Acting Chairman Pham announced the following CFTC leadership changes: Acting Chief of Staff: Harry Jung; Acting General Counsel: Meghan Tente; Acting Director of the Office of Public Affairs: Taylor Foy; Acting Director of the Office of Legislative and Intergovernmental Affairs: Nicholas Elliot; Acting Director of the Division of Market Oversight: Amanda Olear; Acting Director of the Division of Clearing and Risk: Richard Haynes; Acting Director of the Market Participants Division: Tom Smith; Acting Director of the Division of Enforcement: Brian Young; Acting Director of the Office of International Affairs: Mauricio Melara.
SEC Acting Chairman Uyeda Announces Formation of New Crypto Task Force. On January 21, SEC Acting Chairman Uyeda launched a crypto task force that, according to the SEC, is dedicated to developing a comprehensive and clear regulatory framework for crypto assets. Commissioner Hester Peirce will lead the task force. Richard Gabbert, Senior Advisor to the Acting Chairman, and Taylor Asher, Senior Policy Advisor to the Acting Chairman, will serve as the task force’s Chief of Staff and Chief Policy Advisor, respectively. The SEC said that the task force will collaborate with SEC staff and the public to set the SEC on a sensible regulatory path that respects the bounds of the law and that the task force’s focus will be to help the SEC draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks, and deploy enforcement resources judiciously. The Sec indicated that the task force will operate within the statutory framework provided by Congress, coordinate the provision of technical assistance to Congress as it makes changes to that framework, and coordinate with federal departments and agencies, including the CFTC, and state and international counterparts.

New Developments Outside the U.S.

DPE Regime for Post-Trade Transparency Becomes Operational. On February 3, the public register listing designated publishing entities (“DPEs”) that now bear the reporting obligation for post-trade transparency under MIFIR went live, bringing the DPE regime into full operational effect. The public register can be found here. The post-trade reporting obligation for systematic internalizers (“SIs”) has been replaced by an analogous obligation on investment firms that have chosen to register as DPEs. As a further consequence of the DPE regime launch, ESMA has decided to discontinue the voluntary publication of quarterly SI calculations data early, ahead of the scheduled removal of the obligation on ESMA to perform SI calculations from September 2025. As of February 1, the mandatory SI regime will no longer apply and investment firms will not need to perform the SI test. However, investment firms can continue to opt into the SI regime. ESMA’s press release on these measures can be found here. [NEW]
ECB Publishes Guidance on Initial Margin Model Approval Under EMIR 3. On January 31, the European Central Bank (“ECB”) published guidance on the initial margin validation process for entities under its supervision under the European Market Infrastructure Regulation (EMIR 3). Following the European Banking Authority’s (“EBA”) no-action letter on December 17, the guidance addresses implementation issues such as what the ECB approach will be until the EBA’s relevant regulatory technical standards and guidelines are applicable, the initial application process and model changes. [NEW]
Equivalence Extension for UK CCPs Published in EU Official Journal. On January 31, the European Commission’s (“EC’s”) implementing decision extending the equivalence decision for UK central counterparties (“CCPs”) until June 30, 2028 was published in the Official Journal of the EU. ESMA will now need to formally extend the temporary recognition decisions and tiering determinations for UK CCPs. [NEW]
ESMA Provides Guidance on MiCA Best Practices. On January 31, ESMA published a new supervisory briefing aiming to align practices across the EU member states. The briefing, developed in close cooperation with National Competent Authorities (“NCAs”), promotes convergence and prevents regulatory arbitrage, providing concrete guidance about the expectations on applicant Crypto Asset Service Providers, and on NCAs when they are processing the authorization requests.
ESMA Publishes Data for Quarterly Bond Liquidity Assessment. On January 31, ESMA published the new quarterly liquidity assessment of bonds. ESMA’s liquidity assessment for bonds is based on a quarterly assessment of quantitative liquidity criteria, which includes the daily average trading activity (trades and notional amount) and the percentage of days traded per quarter.
Equivalence of UK CCPs Extended to June 30, 2028. On January 30, the European Commission determined that the regulatory framework applicable to central counterparties (“CCPs”) in the United Kingdom of Great Britian and Northern Ireland is equivalent, in accordance with Regulation No 648/2012 of the European Parliament and of the Council.
Euribor Panel to include Finland’s OP Corporate Bank and the National Bank of Greece. OP Corporate Bank and the National Bank of Greece join the group of credit institutions that contribute to Euribor under its revised methodology, which is a substitute for the panel banks’ expert judgement. The methodology was adopted in a phased approach by all members across the Euribor panel between May and October 2024.
EC Adopts Delegated Act On OTC Derivatives Identifier for MIFIR Transparency. On January 24, the EC adopted the delegated act on OTC derivatives identifying reference data for transparency under the Markets in Financial Instruments Regulation (MIFIR). The delegated act mandates the inclusion of the unique product identifier in identifying reference data for OTC interest rate swaps and credit default swaps. The selection of the provider of a consolidated tape for OTC derivatives cannot begin until the delegated act has entered into force. In an effort to ensure the selection process can begin on-time, the delegated act will apply from the date of its entry into force – 20 days after publication in the Official Journal of the EU – but, according to the EC, to allow sufficient time to adapt to the new requirements, the identifying reference data specified within the delegated act should only be used to identify interest rate swaps and credit default swaps from September 1, 2026. [NEW]
New Governance Structure for Transition to T+1 Settlement Cycle Kicks Off. On January 22, ESMA, the European Commission (“EC”) and the European Central bank (“ECB”) launched a new governance structure to support the transition to the T+1 settlement cycle in the European Union. Following ESMA’s report with recommendations on the shortening of the settlement cycle, the new governance structure has been designed to oversee and manage the operational, regulatory and technological aspects of this transition. Given the high level of interconnectedness within the EU capital market, a coordinated approach across the EU, involving authorities, market participants, financial market infrastructures and investors, is desirable. ESMA said that the key elements of the new governance model include an Industry Committee, composed of senior leaders and representatives from market players, several technical workstreams, operating under the Industry Committee, focusing on the technological operational adaptations needed in the areas concerned by the transition to T+1 (i.e. trading, matching, clearing, settlement, securities financing, funding and FX, asset management, corporate events, settlement efficiency), and two more general workstreams that will review the scope and the legal and regulatory aspects of these adaptations, and a Coordination Committee, chaired by ESMA and with representation from the EC, the ECB, ESMA and the chair of the Industry Committee, intended to ensure coordination between the authorities and the industry, advising on challenges that may arise during the transition. Additionally, ESMA said that the Commission is currently considering the merits of a legislative change mandating a potential transition to a shorter settlement cycle.

New Industry-Led Developments

ISDA Publishes Joint Trade Association letter to SEC on US Treasury Clearing. On January 24, ISDA, the Alternative Investment Management Association, the Futures Industry Association (“FIA”), the FIA Principal Traders Group, the Institute of International Bankers, the Managed Funds Association and the Securities Industry and Financial Markets Association and its asset management group sent a letter to Mark Uyeda, acting chair at the US Securities and Exchange Commission (SEC) requesting an extension to the implementation dates for the Treasury clearing mandate by a minimum of 12 months. The associations believe this would give the SEC time to consider and address several critical issues and for the industry to implement clearing. In the letter, the associations highlight their concern that, without an extension, the success of the transition to central clearing will be compromised and may lead to disruptions in the cash Treasury securities and repo markets.
ISDA and AFME Publish Joint Response to ECB Consultation on Options and Discretions under EU Law. On January 24, ISDA and the Association for Financial Markets in Europe (“AFME”) responded to the European Central Bank’s (“ECB”) consultation on its approach to options and discretions under EU law. In the response, the associations highlight the efforts of the ECB to establish consistent options and discretions that would harmonize rules and foster a level playing field in the euro area. The response also mentions that further actions are necessary, specifically on trading book boundary classifications and exemptions.
ISDA Publishes Equity Definitions VE, Version 2.0. On January 21, ISDA published version 2.0 of the ISDA Equity Derivatives Definitions (Versionable Edition) on the MyLibrary platform. This publication includes, among other updates, provisions that can be used for documenting transactions with time-weighted average price or volume-weighted average price features, futures price valuation in respect of share transactions and benchmark provisions in respect of an index.

The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Marc Aaron Takagaki, Hayden McGovern, and Karin Thrasher.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Derivatives practice group, or the following practice leaders and authors:

Jeffrey L. Steiner, Washington, D.C. (202.887.3632, [email protected])

Michael D. Bopp, Washington, D.C. (202.955.8256, [email protected])

Michelle M. Kirschner, London (+44 (0)20 7071.4212, [email protected])

Darius Mehraban, New York (212.351.2428, [email protected])

Jason J. Cabral, New York (212.351.6267, [email protected])

Adam Lapidus – New York (212.351.3869, [email protected] )

Stephanie L. Brooker, Washington, D.C. (202.887.3502, [email protected])

William R. Hallatt , Hong Kong (+852 2214 3836, [email protected] )

David P. Burns, Washington, D.C. (202.887.3786, [email protected])

Marc Aaron Takagaki , New York (212.351.4028, [email protected] )

Hayden K. McGovern, Dallas (214.698.3142, [email protected])

Karin Thrasher, Washington, D.C. (202.887.3712, [email protected])

Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. Gibson Dunn (and its affiliates, attorneys, and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.

Derivatives, Legislative and Regulatory Weekly Update (February 7, 2025)

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