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CFTC Representations: Difference between revisions
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===Points to note on Jurisdiction=== | ===Points to note on Jurisdiction=== | ||
*The governing law of an {{isdama}} or Transaction [[Confirmation]], and the jurisdiction of incorporation of either party '''does not affect the applicability of the [[CEA]]'''. | *The governing law of an {{isdama}} or Transaction [[Confirmation]], and the jurisdiction of incorporation of either party '''does not affect the applicability of the [[CEA]]'''. | ||
*There are certain limited circumstances where the [[CEA]] and {{tag|CFTC}} regulation does not apply. However, | *There are certain limited circumstances where the [[CEA]] and {{tag|CFTC}} regulation does not apply. However, it is difficult to monitor and a firm's systems may not set up in such a way to ensure compliance with these particular exceptions. | ||
*Accordingly, we request the inclusion of these provisions in all {{isdama}}s. | *Accordingly, we request the inclusion of these provisions in all {{isdama}}s. | ||
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The '''[[Eligible Commercial Entity]]''' (“'''ECE'''”) representation is needed in the {{isdama}} for any entity that intends to transact on a principal to principal basis in an [[Exempt Commodity]] on an [[Electronic Trading Facility]] (an electronic trade matching and execution platform for OTC derivative transactions) in order to ensure the transactions will be exempt from most provisions of the [[CEA]]. | The '''[[Eligible Commercial Entity]]''' (“'''ECE'''”) representation is needed in the {{isdama}} for any entity that intends to transact on a principal to principal basis in an [[Exempt Commodity]] on an [[Electronic Trading Facility]] (an electronic trade matching and execution platform for OTC derivative transactions) in order to ensure the transactions will be exempt from most provisions of the [[CEA]]. | ||
[[ECE]]s are subset of [[ECP]]s including, among others, entities who have a demonstrable ability to make or take delivery of the underlying [[commodity]], or to incur risk in addition to price risk related to the [[commodity]], or are dealers regularly providing risk management or hedging services to or engaging in market-making activities with other eligible commercial entities. | [[ECE]]s are subset of [[ECP]]s including, among others, entities who have a demonstrable ability to make or take delivery of the underlying [[commodity]], or to incur risk in addition to price risk related to the [[commodity]], or are dealers regularly providing risk management or hedging services to or engaging in market-making activities with other eligible commercial entities. | ||
===[[ECE]] Rep wording=== | ===[[ECE]] Rep wording=== | ||
{{quote|'''Additional Representations'''. Each party will be deemed to represent to the other party on each date on which a Transaction is entered into that: ... | {{quote|'''Additional Representations'''. Each party will be deemed to represent to the other party on each date on which a Transaction is entered into that: ... | ||
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If the parties do not meet the applicable ECP and/or ECE requirement the commodity transaction is considered an illegal off-exchange transaction. | If the parties do not meet the applicable ECP and/or ECE requirement the commodity transaction is considered an illegal off-exchange transaction. | ||
There may be fines from the {{tag|CFTC}} and the trade could be considered void. | |||
The {{tag|CFTC}} Enforcement Division is able to impose significant fines, up to $1MM per day per violation of the CEA. To date, we are not aware of any fines being imposed at this level for this issue but the {{tag|CFTC}} has only relatively recently acquired the ability to impose these hefty fines and we are seeing some very large3 fines being imposed for other violations. | The {{tag|CFTC}} Enforcement Division is able to impose significant fines, up to $1MM per day per violation of the CEA. To date, we are not aware of any fines being imposed at this level for this issue but the {{tag|CFTC}} has only relatively recently acquired the ability to impose these hefty fines and we are seeing some very large3 fines being imposed for other violations. | ||
Additionally, there are US cases were a party to a trade has walked away from the deal claiming it was an illegal off-exchange transaction | Additionally, there are US cases were a party to a trade has walked away from the deal claiming it was an illegal off-exchange transaction. | ||
=See Also= | =See Also= | ||