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Citadel urges SEC to oversee equity-linked event contracts
Citadel says CFTC self-certification could let trading venues bypass SEC jurisdiction for KPI-linked binary options and similar equity-linked products.
Citadel Securities is urging the SEC and CFTC to reaffirm that the SEC should be the primary regulator for event contracts tied to U.S. public companies, including equity-linked products.
In a Sept. 9 letter responding to a joint request for comment, Citadel argued that trading venues should not be able to use CFTC self-certification to sidestep SEC oversight. The market maker said under CFTC rules, venues can self-certify new products and start trading as soon as the next business day without soliciting public comment, a process it said differs from the SEC framework.
Citadel highlighted key performance indicator contracts tied to public companies, saying some CFTC-registered designated contract markets have self-certified these products for trading under CFTC jurisdiction. Citadel’s global head of government and regulatory policy, Stephen John Berger, argued the instruments pose novel insider trading risks tied to whether the metrics will be met and how they will be reported by the issuer, and said KPI-linked binary options should be treated as securities under federal law.
The firm also asked the SEC to commit to timely review of new product filings and to resolve classification questions on equity-linked event contracts and perpetual derivatives, including the possibility that some contracts could qualify as security-based swaps when they are tied to events affecting a single issuer’s financial statements, financial condition, or financial obligations.