Remarks of Acting Chairman J. Christopher Giancarlo before the 42nd Annual International Futures Industry Conference in Boca Raton, Fla., "CFTC: A New Direction Forward,” as prepared for delivery.
Good morning, thank you for that kind introduction. I want to thank FIA and Walt Lukken for inviting me to speak this morning.
It is great to be here and it’s an honor to be speaking. I’ve been coming to the FIA Annual Conference for over a dozen years. I don’t know of any other event that better brings together high-level business issues and regulatory policy than this one. I tip my hat to FIA for maintaining such a high level of discussion and analysis.
As you know, I was sworn in as Acting Chairman of the Commodity Futures Trading Commission (CFTC) on Jan. 20, just a few hours after the inauguration of President Trump.
Watching the inaugural parade leave the Capitol for the White House on that drizzly afternoon, it occurred to me what an extraordinary privilege it was…to be a part of that peaceful transfer of power in the world’s oldest constitutional republic.
I must thank my two predecessors, former Chairmen Tim Massad and Gary Gensler, for their leadership of the CFTC. They steered a regulator that had been tasked with overseeing the largest corner of the financial markets – over-the-counter swaps – and faced the tremendous implementation challenges brought on by the Dodd-Frank Act of 2010.
In the wake of the 2008 market meltdown and the legislative responses, no financial regulator’s job was easy. But with the wholesale changes directed at the derivatives industry, their tasks were particularly challenging. I have great respect for both men - and those that led the agency before them – leaders like Walt Lukken, Sharon Brown-Hruska and Jim Newsome. They put in place a foundation that supports the fine work of the Commission today.
And speaking of current operations, a recent Bloomberg piece1 said the agency is running “smoothly and efficiently with only two commissioners.” That is indeed the case at the CFTC and what the American people expect from their government officials. I credit the professionalism and graciousness of Commissioner Bowen and her well-informed staff. It is a privilege to serve alongside them.
Looking Back and Looking Forward
It’s now been a long time since the 2008 financial crisis. Much of the regulatory work in the past half dozen years has been to implement Congress’ crisis response – the Dodd-Frank Act. Therefore the regulatory approach, both at the CFTC and across the federal government, was in a sense backward looking.
And yet, it has taken a long time – too long – for many American companies and citizens to emerge from the recession and hire, invest, and borrow again. So much policymaking, rulemaking, and thought have been directed at building a regulatory superstructure that ostensibly would prevent another 2008-style crisis that we’ve lost sight of the emerging challenges just ahead and what is the right regulatory response.
There is no question that the US economy has not rebounded satisfactorily from the financial crisis. Too many Americans have been left out of a tepid recovery that has mainly benefitted those in a few large cities on the East and West coasts.
In the past thirty months, I have had the good fortune as a Commissioner of travelling to a quite a few states – Kentucky, Indiana, Illinois, Iowa, Minnesota, Michigan, South Dakota, North Dakota, Missouri, Kansas, Texas, Louisiana, Florida and, of course, my home state of New Jersey. On these trips I have met with producers of cattle, pork, poultry, corn, soybean, dairy and various other Ag and energy products. I have also met with many workers at grain elevators, cooperatives, factories, exchanges and futures commission merchants (FCMs) who serve American producers.
I have come away from many of these meetings with the sense that everyday Americans believe that Washington politicians and bureaucrats have gotten in the way of their ability to earn a living. They want the burdens removed so that they can build their dreams again.
That is why November’s election was so significant. Americans have voted for a change in the direction of the country, a change back toward economic growth and broad based prosperity.
And our industry has a role to play.
Role of Derivative Markets in Economic Growth
As you well know, derivative markets provide means by which the risks of variable production costs, such as the price of raw materials, energy, foreign currency and interest rates, can be transferred from those who cannot afford them to those that can. They play an essential role in pricing risk and transferring it in efficient ways. Derivatives enable banks to increase business lending and economic investment.4 They serve the needs of society to help moderate price, supply and other commercial risks to free up capital for economic growth, job creation and prosperity.
Yet today, America’s derivatives markets are struggling, in some cases, under the weight of flawed and excessive regulation. Our markets today are more fragmented,5 more concentrated,6 less liquid7 and less supportive of economic growth and renewal than in the past. The overly prescriptive regulation of American derivative markets is a part and parcel of the over-regulation of the U.S. economy that thwarts revival of American prosperity.
The American people have entrusted the Trump Administration to turn the tide of over-regulation.9 Accordingly, financial market regulators, like the CFTC, must pursue their missions to foster open, transparent, competitive and financially sound markets in ways that best foster American economic growth and prosperity.10 The time has come for our
financial markets – and the efforts of those who regulate them – to be put more fully back into service of American economic recovery.
New Agenda for the CFTC
I want to talk to you today about a new agenda for the CFTC. I believe that, consistent with the goals of the Trump Administration, the CFTC must reinterpret its regulatory mission through the following three-part agenda:
I. Fostering economic growth
II. Enhancing US financial markets
III. Right-sizing its regulatory footprint
I. Fostering economic growth:
1. Reduce Regulatory Burdens: Project KISS
On Feb. 24, 2017, President Trump issued an executive order furthering his regulatory reform agenda to stimulate economic growth. To move forward, our first step is to reduce excessive regulatory burdens. The President’s executive order directs federal agencies to designate a Regulatory Reform Officer and establish a Regulatory Reform Task Force.
Although not strictly bound by the executive order, I am today announcing the launch of Project KISS, which stands for “Keep It Simple Stupid”. Project KISS will be an agency-wide review of CFTC rules, regulations and practices to make them simpler, less burdensome and less costly.
I have designated my chief of staff, Mike Gill, as our Regulatory Reform Officer. He will lead Project KISS and direct our task force inside the CFTC. Pursuant to the president’s order, we will review all CFTC rules in our quest to reduce regulatory burdens and costs for participants in the markets we oversee.
In addition, the CFTC will soon issue a call for recommendations from the public to make our existing regulations simpler, less burdensome and less costly. We look forward to receiving sensible recommendations that we can look to implement.
Let me be very clear, this exercise is not about identifying existing rules for repeal or even rewrite. It is about taking our existing rules as they are and applying them in ways that are simpler, less burdensome and less of a drag on American economy.
2. Improve market intelligence: Become a Smarter Regulator
The second step in fostering economic growth is to regulate smarter. To do so, the CFTC must develop a more holistic understanding of the overall openness, transparency, competitiveness and soundness of the markets it oversees. To that end, the agency is making two immediate reforms.
The first is an organizational restructuring. Elements of the market surveillance branch, currently housed in the Division of Market Oversight (DMO), will move to the Division of Enforcement (DOE). This realignment will strengthen our mission to identify and prosecute violations of law and regulation, such as spoofing, manipulation and fraud. It will foster increased efficiencies through knowledge sharing and cross training under unified leadership; thus benefitting the Commission’s surveillance mission and enforcement responsibilities.
Other elements will be reorganized within DMO as a new market intelligence branch, the function of which is to understand, analyze and communicate current and emerging derivatives market dynamics, developments and trends – such as the impact of new technologies and trading methodologies.
By separating the two units – surveillance within DOE and market intelligence within DMO – we will sharpen our surveillance capability while increasing our knowledge of evolving market structures and practices to inform sound policymaking at the Commission and promote efficient and sound markets. The overall goal is to make the CFTC more adept each of the two disciplines.
The second reform is the creation and appointment of a Chief Market Intelligence Officer (CMIO), reporting directly to the Chairman. The CMIO will engage with industry participants, other regulators and the new Market Intelligence Unit. The CMIO will help activate our agency’s latent capability for market intelligence, giving us better insight into the needs of participants in the futures and swaps we oversee.
The CMIO will also be tasked with helping the public understand risk transfer markets and why they are so important to prosperity. Too many people, including investors, don’t know what we do or why we do it – both from a marketplace and regulatory perspective. We will not be able to enact the policy reforms we need unless the public has a better understanding of why they are vital to economic growth.
As President Trump frequently said on the campaign trail, our government must get smarter. We must attract and retain competent, creative, insightful individuals to lead and staff our agencies. That same attitude should apply to the aspirations of the agencies themselves. The CFTC must get smarter by focusing on current and emerging market structure and dynamics and not just on participant behavior. We must track, gather, and analyze data and information on how our derivatives markets are changing in the new digital 21st Century.