NewsRegulatory

CFTC- Hail Mary?

It has been a busy seven days in the world of regulatory position limits. First a new MiFID II position limits RTS was released as reported here and the CFTC re-proposed their own ‘Dodd-Frank’ limits regime. Most international firms will have to comply with both.  So why has the CFTC limits announcement being getting so much more attention than the EU announcement? CFTC limits are barely a speed bump compared to MiFID II mountain.

Like others, when I first heard about the CFTC trying to get Dodd Frank Limits out the door, I thought to myself, “Holy Cow! Regulatory Hail Mary!  shutterstock_121083574

This knee-jerk reaction is premised on the new Dodd-Frank limits being be killed on inauguration of the new President.  But, then I thought again. There are only 3 commissioners, and that it will be impossible to get slots filled to kill it outright.  Then I re-convinced myself that it truly is a hail mary and that it’s nothing but a symbolic gesture being left to an unknown commission.

Then I took a step back and realized that none of that mattered.  Here’s why:

Limits Is Already the Priority One Surveillance Activity

Busting any limit,  irrespective of whether it’s an exchange or other regulatory limit is seriously bad news. The consequences today have much higher stakes than they ever have.  If you take a big  step back and look…really looks at what the sum total of all regulations in the US and Europe and enforcement actions mean, the takeaway is very, very clear:  

Don’t do anything that brings attention to your firm.

The reason are simple:

Whatever happened, no matter how accidental or well intentioned, will absolutely, positively and unquestionably be viewed in the worst possible light. Any open door invites tough scrutiny.  I’ll give you an example.  In a recent manipulation case a trader called a trade a “suckers bet.”  The judge in the case said something to the effect of, “So you think your clients are suckers.”   There is a big difference between calling something a suckers bet and calling someone a sucker.  But, this kind of interpreting everything the worst possible light is de rigueur in compliance actions.

Another thing you can be sure of is that if you bring attention to yourself in one region every other regulatory body will be seeing you as easy meat to bring a settlement (or worse) from.

Above all else,  the memory of an investigation lingers. Everyone remembers BP and Shell being raided for alleged price fixing. It was the lead story on the evening news and front page of every newspaper. Even David Cameron was discussing it. But how many people remember the outcome? (Turns out…no charges or fines).  

Personally, I’ve been kicking around the trading space since 1996.  In that time I’ve seen countless trading firms make half hearted attempts at cobbling together Total Real Time Positions. Whether your justification is Dodd Frank and MiFID or just overall better risk and reputation management now is the absolute time to do more than cobble and go after it as a priority. See How Limits Work