The National Association of Futures United States (NFA) responded to the CFTC sections of market supervision, clearing and risk and participants in the Public Comments to inform CFTC understanding of possible issues related to the specified market contract (DCM) Trading (SEF).
NFA believes that the Commission should consider whether current risk notifications are suitable for customers, especially retail, for 24/7 transactions. The NFA notes that there may be unique risks related to the 24/7 transaction for customers both transactions and do not negotiate around the clock.
For example, although some customers cannot exchange 24/7, their positions may be negatively affected, including cleared, due to market movements over the weekend. While the interest of market participants can lead to the arrival of 24/7 transactions, all market participants must understand any unique risks arising from it and how they may be affected.
NFA also stressed some issues that believes that the Futures Impact (FCM) and their customers.
Specifically, Part 1 of the Commission’s regulations contains many requirements imposed on FCMS on their transactions with customers. While many of these requirements apply regardless of how the FCM business is being carried out, the NFA encourages the Commission to fully review Part 1 to ensure that the requirements are suitable for the purpose of properly supervising 24/7 transactions. The Commission may need to face and adjust several of these regulations to 24/7 transactions.
Some examples include:
- Use of the term “working day”. Several customer protections provided by Part 1 are currently based on the term “working day”, which is defined as “any day except Saturday, Sunday or holidays”. NFA believes that the Commission should consider how this definition affects FCM compliance with Part 1 and the relevant customer protection safeguards on weekends in 24/7 trading environment. Neither the Commission nor the FCM DSRO should lack transparency on critical issues related to the FCM business (eg business financial situation) if they are in danger of creating a weekend. In addition, while FCMS can provide customers with daily trade confirmations through Front-End systems for a weekend, at least under the current CFTC requirements, they do not need to do so because of the next “working day” terminology under the CFTC 1.33 regulation.
- Capital calculations. The term “working day” is also critical to calculating the FCM capital, which requires an FCM to calculate various charges and discounts, some of which are based on the number of business days of the appearance of a particular event.
The NFA also encourages the Commission to consider whether changes in FCM risk management requirements are required to ensure that they are sufficiently dealing with all the relevant risks, including credit, market, liquidity (eg, the movement of insurance), technological (eg maintenance of the system) and the operation of the system.