The Securities Industry and Financial Markets Association, the International Swaps and Derivatives Association, and the Futures Industry Association have told the Commodity Futures Trading Commission that the 1934 Securities Exchange Act’s Rule 10b-5 not be the model for how it polices market manipulation under the Dodd-Frank Wall Street Reform and Consumer Protection Law. In a comment letter, SIFMA, FIA, and ISDA told the CFTC not to impose additional duties of inquiry, disclosure, or diligence during bilateral transactions on sophisticated parties.
The groups were responding to a rule proposal involving the CFTC expanding its authority over manipulative and fraudulent conduct. CFTC says the proposal was patterned on Rule 10b-5 and Section 10(b). They contend that securities law standards, such as Rule 10b-5, are hard to adapt and “largely inapplicable” to the derivatives and future arena because the two market frameworks have key structural differences. They want the CFTC to “adopt an antifraud rule” that takes “into account the nature of material information in these markets and the types of duties that may exist.”
The associations also want the CFTC to give guidance that offers market participants clear principals on how to distinguish between “prohibited manipulative conduct” and “legitimate competitive trading practices.” In addition, they want “extreme recklessness” as the scienter standard and any anti-manipulation rule’s scope clarified in regards to the CFTC’s current anti-manipulation authority. ISDA, FIA, and SIFMA want commercial traders to be allowed to trade using their own, nonpublic data about company-specific assets and liabilities.
Shepherd Smith Edwards and Kantas Founder and Securities Fraud Lawyer William Shepherd has this to say: “Our country has just experienced the worst securities debacle in nearly 90 years, which many experts claim was largely caused by deregulation of the securities industry. Despite the ineffectiveness of watered-down securities regulation, the Commodities Industry fears being held to even this weak standard. First among these fears is that those who market commodities contracts to the public may be held to a similar duty as those selling securities. When smooth-talking phone jockeys call dangling profits and little or no risk they should be held responsible for their actions. In other words ‘there ought to be a law.'”
Securities Industry and Financial Markets Association
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