Davis Polk Discusses SEC No-Action Statement on Custody of Digital Asset Securities

A recent SEC conditional no-action position (the “No-Action Statement”) has further opened the regulatory door to trading of digital asset securities (“DAS”), by allowing certain limited purpose DAS-only broker-dealers to maintain custody of these securities on behalf of customers.  As firms have sought to develop trading systems for DAS, questions regarding whether or how broker-dealers could custody these securities for customers in compliance with SEC rules has been one of the primary regulatory hurdles.  Efforts to meet the SEC staff’s prior guidance that broker-dealers generally could not custody DAS for customers triggered somewhat cumbersome workaround attempts.  … Read more

Foreign Bank Cross-Border Trading under the Volcker Rule: the “Trading Outside the United States” Exemption’s Incongruous Consequences

At its core, the Volcker Rule is designed to prevent excessive risk-taking by banks, which was seen by the U.S. Congress and financial regulators as a contributor to the 2008 financial crisis. With its focus on the stability of the U.S. financial system, the Volcker Rule is meant to have only a limited reach to activities of foreign banks outside the United States. Although the scope of banks and bank affiliates subject to the Volcker Rule is very broad, the statutory language of the Volcker Rule exempts from the proprietary trading prohibition foreign bank trading activity that occurs solely outside … Read more

Davis Polk on CFTC Finalization of Cross-Border Swaps Guidance and Establishment of Phase-in Compliance Schedule

On July 12, 2013, the CFTC adopted long-anticipated final cross-border guidance (the “Final Guidance”) that provides guidelines for the application of the CFTC’s swap regulatory regime to cross-border swap activities. At the same time, the CFTC adopted a phase-in compliance schedule (the “Exemptive Order”)[1] that extends, with material changes, the cross-border exemptive order issued by the CFTC in January 2013 (the “January Order”).[2]

The Final Guidance and the Exemptive Order address several important topics, including:

  • the final definition of U.S. person for purposes of the CFTC’s swap regulatory regime;
  • guidance on which swaps a non-U.S. person must include in, and

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