1. Jurisdictional Split

CFTC: Regulates 'swaps' under CEA Sec 1a(47) - interest rate swaps, FX swaps, commodity swaps, CDS on broad-based indexes, non-security based.

SEC: Regulates 'security-based swaps' (SBS) under Exchange Act - CDS on single name, narrow-based index.

Joint: Mixed swaps, books-and-records for dual registrants.

FX swaps and forwards are exempt from mandatory clearing but subject to business conduct and anti-evasion authority.

2. Pillars of CFTC Oversight

A) Registration and Regulation of Market Participants

1. Swap Dealers (SD) and Major Swap Participants (MSP) - must register, meet capital, margin for uncleared swaps, risk management, CCO.
2. Futures Commission Merchants (FCM), Introducing Brokers (IB), Commodity Pool Operators (CPO), Commodity Trading Advisors (CTA)
3. Designated Contract Markets (DCM) - CME, ICE Futures US - where futures trade.
4. Swap Execution Facilities (SEF) - mandatory trading of made-available-to-trade swaps.
5. Derivatives Clearing Organizations (DCO) - CME Clearing, ICE Clear US, LCH Ltd - mandatory clearing.
6. Swap Data Repositories (SDR) - reporting under Part 43,45,46.

B) Mandatory Clearing, Trading, Reporting

Under Dodd-Frank Sec 2(h):

• All swaps that CFTC determines must be cleared, must be cleared via DCO.
• Must be executed on DCM/SEF if made available to trade.
• All swaps (cleared or not) must be reported to SDR in real-time.
• Uncleared swaps subject to margin rules - initial and variation margin.

C) Position Limits and Anti-Excessive Speculation

CEA Sec 4a - CFTC sets federal speculative position limits for 28 core physical commodity futures and economically equivalent swaps. Dodd-Frank broadened authority to include aggregate limits on swaps and linked foreign boards.

D) Market Surveillance and Anti-Manipulation

Two main tools:

1. CEA Sec 6(c)(1) and Rule 180.1 - Dodd-Frank Anti-fraud and Anti-manipulation: Modeled on SEC 10b-5. Prohibits fraud-based manipulation, attempted manipulation, false statements. Recklessness suffices, no need to prove specific intent to manipulate price.

2. CEA Sec 9(a)(2) - Traditional Manipulation: Requires proving ability to affect price, artificial price, causation, intent.

3. CEA Sec 4c(a)(5)(C) - Anti-Spoofing: Bidding or offering with intent to cancel before execution.

4. CEA Sec 6(c)(3) - Disruptive Trading Practices

3. Detailed Case Laws

Case 1: The London Whale - CFTC v. JPMorgan Chase Bank (2013) - First use of 6(c)(1)

Facts: JPMorgan traders in London accumulated $100bn CDS position, hid losses, made false valuations.
Holding: JPMorgan settled for $100 million. First CFTC use of new Dodd-Frank 180.1 anti-manipulation authority. CFTC held that being smarter than counterparty is not manipulation, but reckless false reporting of marks to distort market is. Established low scienter bar.

Case 2: Spoofing and Flash Crash - CFTC v. Navinder Singh Sarao & Nav Sarao Futures Ltd (2015) & US v. Sarao

Facts: UK day trader Sarao used automated layering algorithm to spoof E-mini S&P 500 futures, placing large sell orders with intent to cancel, pushing price down, then buying. Contributed to May 6, 2010 Flash Crash.
Holding: District Court for N.D. Illinois entered consent order $38m penalty, disgorgement. Court affirmed spoofing = bidding/offering with intent to cancel at time of placement. Criminal conviction upheld. Became template for all HFT spoofing cases.

Case 3: Traditional Manipulation - CFTC v. Kraft Foods Group & Mondelez (2015) - Wheat

Facts: Kraft bought $90m of December wheat futures, taking dominant long position, to manipulate cash wheat market and lower price for its commercial bakery operations. Called "long squeeze in reverse".
Holding: CFTC charged under Sec 6(c)(1) and 9(a)(2). Settlement $16m in 2019 after 4-year litigation. Court in N.D. Illinois clarified CFTC can bring manipulation claim even if conduct is in cash market that affects futures.

Case 4: Benchmark Manipulation - CFTC v. Deutsche Bank (2017) & Glencore (2022)

Deutsche Bank: Attempted manipulation of USD ISDAFIX - benchmark for interest rate swaps. $70m resolution.
Glencore: Largest benchmark case to date. CFTC found Glencore manipulated or attempted to manipulate 4 US-based S&P Global Platts physical oil benchmarks and related futures and swaps over 11 years, plus foreign corruption. Penalty $1.186 billion combined CFTC/DOJ.
Principle: CFTC jurisdiction extends to manipulation of physical commodity benchmarks that underlie futures/swaps - "any commodity in interstate commerce" Sec 6(c)(1).

Case 5: Swaps Market Intermediary and False Statements - CFTC v. John Patrick Gorman III (Nomura) (2024-2026)

Facts: Swaps trader managing director at Nomura made false statements to CFTC during investigation of swaps pricing.
CFTC dropped manipulation claim but obtained consent order SDNY $90k for false statements. Shows CFTC's separate power to police investigations under CEA Sec 6(c)(2).

Case 6: Unregistered Swaps Execution - CFTC v. HDR Global Trading (BitMEX) (2020-2022) & CFTC v. Ooki DAO (2022)

BitMEX: Offered leveraged crypto futures and swaps to US persons without DCM registration, failed to implement KYC/AML. Settlement $100m.
Ooki DAO: First CFTC action against DAO. Operated unregistered leveraged retail commodity transactions (perpetual swaps). Court for N.D. California held DAO is "person" under CEA and can be served via chat box. $643k penalty. Expands CFTC oversight to DeFi.

Case 7: Energy Manipulation - CFTC v. Parnon Energy, Arcadia Petroleum (2014-2019)

Facts: Accumulated large physical crude at Cushing to create artificial shortage and push up WTI futures, then short.
Second Circuit held CFTC must prove artificial price existed - price affected by other market forces not enough. Parnon settled $13m. Defines limit of manipulation theory.

Case 8: Spoofing Conviction - US v. Michael Coscia / CFTC v. Coscia (2014)

First criminal spoofing conviction. High-frequency trader programmed to cancel 98% of orders. Conviction under 18 USC and CEA upheld by 7th Circuit. Principle: Intent to cancel can be inferred from algorithm design and 98% cancellation rate.

4. Enforcement Process

1. Investigation by Division of Enforcement (subpoena power)
2. Wells Notice
3. File in federal district court (federal judge) or administrative law judge
4. Remedies: Civil monetary penalties up to $1.6m per violation (adjusted), disgorgement, injunction, trading ban, registration revocation.

Current enforcement priorities per Enforcement Director David Miller (2025): insider trading in event contracts/prediction markets, energy manipulation, spoofing, willful BSA violations.

In short: CFTC went from futures cop to swaps super-regulator. Dodd-Frank gave it four weapons - registration, mandatory clearing/trading/reporting, position limits, and new low-threshold anti-manipulation/spoofing. Case law shows shift from proving old-school corner to using 180.1 recklessness and algorithm intent.