Over the past several months, there has been a fair amount of talk about the Commodity Futures Trading Commission’s push on the so-called “self-reporting” initiative launched last September and aimed at taking it easier on firms that come forward with wrongdoing.
Yesterday’s announced spoofing charges and fines include one of the first such self-reporting cases, with HSBC Securities settling for $1.6 million, Deutsche Bank for $30 million and UBS for $15 million. Each was noted for their self reporting by James McDonald, the CFTC’s director of enforcement, who said in a statement: “Today’s enforcement action demonstrates that the commission will aggressively pursue entities that manipulate and spoof in our markets. Further, as a reflection of the division’s enhanced self-reporting and cooperation program, today’s action shows that the commission will recognize and give meaningful credit to companies that substantially cooperate in our investigations and proactively undertake remedial efforts. The ultimate goal of the division’s cooperation program is to enable the division to identify and hold accountable the individuals responsible for the wrongdoing—and not just the companies that employed them. Today’s actions represent a significant step in that direction.”
In December, the Institute for Financial Markets released a digital report from its Smart Financial Regulation Roundtable. The report, prepared by John Lothian Productions, covered the topics discussed by three panels including one called “Enforcing The Rules Of The Game,” which spent considerable time on the topic of self-reporting.
From the report New Rules Of The Road, “the challenge for market participants is what the CFTC or other agencies mean by the term ‘substantial reductions’ in penalties. There have been recent announcements by regulators that stated penalties were reduced because of the self-reporting. But for some watching the program, there is a feeling the CFTC should waive financial penalties for firms that come forward and work with the agency in a transparent manner. That would incentivize other firms to do the same and could be taken on a case-by-case basis.”
The other issue to consider is what happens next in such self-reporting cases. What will self-regulatory organizations such as the CME Group do next? Will they layer on even more penalties for those firms that came forward? And what happens to potential civil cases, where financial harm may be at issue?
There is much to discuss on the topic. But the CFTC, at least for this case, has grabbed the attention of every derivatives lawyer and compliance officer in the industry.