The CFTC’s proposed rules for the swaps market may help to combat fraud. By codifying no-action relief and other standards for swaps broking conduct, the Commission may be able to make the market more transparent and efficient. However, the rules will likely only be effective if investors are protected. The Commission should also consider other issues, such as regulating broker compensation, such as the level of client service and the quality of customer support.
The NFA’s proposed rules also require certain individuals to be registered APs or Associates of an IB before they can trade in the swaps market. The order imposes a substantial monetary penalty and bars the employee from trading in the commodity interest markets for life. The APs must be associated with an IB that is registered with the NFA, and it addresses the role of a SEF trading specialist in exercising discretion in the multiple-to-multiple market.
The NFA believes that the current regulatory structure for the swaps market is inadequate and is in need of reform. It has recommended that SEFs supervise unregistered employees and should be registered with the NFA. The current regulatory structure is not enough to prevent fraudulent practices and should be changed. This new system should also improve the level of investor protections. It will reduce the risk of fraud in the broker swaps market.