CFTC Chief of Staff Michael Gill, along with the heads of the major CFTC operating divisions, provided an update on Project KISS ("Keep It Simple, Stupid") and described CFTC efforts to simplify regulations and address outdated rules. The remarks were delivered at a forum in Washington, D.C. that was hosted by John Sodergreen, publisher of The Risk Desk.

Mr. Gill called Project KISS an attempt to enhance the application of CFTC rules and practices in a "policy-neutral way." He said that the premise behind the initiative was to periodically identify "out of date, duplicative, or unnecessarily complicated" rules, and update and improve as needed.

In 2017, the CFTC solicited comments on Project KISS. The CFTC asked commenters to concentrate on enhancements rather than rewrites or repeals. Mr. Gill categorized the responses as follows: (1) housekeeping, (2) reducing regulatory burdens with minor policy implications, and (3) changes with significant policy implications. Mr. Gill said the following recommendations are under consideration:

  • Division of Clearing and Risk ("DCR")

    • codify the process of granting exemptions from Derivative Clearing Organization ("DCO") registration;
    • amend various rules (i) clarifying certain requirements for DCOs that have caused industry confusion and (ii) streamlining the process for "comingling futures and swaps in customer accounts";
    • codify existing no-action relief relating to exemptions (i) for certain small bank holding companies, savings and loan holding companies and community development financial institutions and (ii) for swaps between affiliates; and
    • amend the current rules under Part 190 to (i) revise provisions relating to futures commission merchant ("FCM") liquidation, (ii) add explicit provisions concerning a DCO liquidation, (iii) clarify general provisions and (iv) simplify standard forms.
  • Division of Market Oversight ("DMO")

    • revisit, revise and re-propose guidance on peaking supply contracts;
    • codify the no-action letter that addresses notice filing requirements under the final aggregation rule for position limits;
    • remove the applicable "hard coded" reporting levels under Part 15 from the regulatory text so that staff may update in the future without requiring a rulemaking;
    • reduce the timeline to complete designated contract market rule enforcement reviews;
    • codify and improve no-action letters with respect to the Part 37 swap execution facility rules; and
    • amend swap data reporting rules.
  • Division of Swap Dealer and Intermediary Oversight

    • codify certain no-action letters for swap dealers related to trading activity;
    • amend swap dealer business conduct standard rules;
    • codify certain no-action letters and staff interpretations regarding FCM's receipt and holding of customer funds; and
    • amend the Part 4 rules to codify currently applicable staff letters regarding commodity pool advisors and commodity trading advisers registration relief.

Commentary / Bob Zwirb

Even within the strict parameters of this in-house exercise – limiting its scope to "cleaning up the rulebook," "cleaning up the clutter," and otherwise improving rules in a "policy neutral" way – there is a lot to be excited about here, especially given that past efforts to prune the barnacles of the CFTC's 2088-page rulebook came to naught. Codifying a significant amount of past no-action and exemptive relief, eliminating silly hoops to obtain such relief, and promising to issue future requirements in an "APA compliant manner" alone are worth the price of admission. 

One issue of note is the announcement that the staff will be "recommending extensive proposed amendments to current" CFTC Part 190 bankruptcy rules, "based largely on a set of Model Part 190 Rules prepared by a subcommittee of the American Bar Association's Business Law Section." This suggests that the CFTC may seek to amend Part 190 to allow customers of an insolvent FCM to go after all of the proprietary assets of the FCM where there is a shortfall, thus expressly overruling the Bankruptcy Court holding to the contrary in the Griffin Trading case. Such a change would have significant policy and economic implications that would seem to go beyond the scope of KISS, but the CFTC's actions on this issue bear watching.

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