May 19, 2010
Mr. Chairman, thank you for calling this hearing, and I appreciate the participation of our witnesses.
Today’s hearing will give the Commission the opportunity to learn about a potentially innovative product in the film industry.
The movie industry has advanced at a rapid pace to bring us technological wonders like Avatar -- and at least two entities are trying to innovate the way movies are financed.
I intend to use this hearing to better understand whether or not these contracts fit into our regulatory scheme and can meet the core principles mandated by Congress.
While there is no statutory requirement that these contracts be universally accepted, I am also curious to learn from our witnesses whether they believe these contracts will be effective in managing commercial exposure.
Innovation in both technology and financing is inevitable, and as regulators we must stay on top of the way markets innovate.
I am very pleased that the Commission will vote this week to reestablish the CFTC Technology Advisory Committee -- especially given the market events of May 6th and the integral role that technology appears to have played in the events.
Technology is now the foundation of the derivatives industry. Market information, trade strategies and execution, risk management, clearing, and settlement are all dependent on technology. In our time we have seen an unprecedented shift from trading in a physical pit to trading in a virtual pit that spans the globe.
Unfortunately, here at the Commission, we struggle to keep pace with technological advances as we continue to receive account data via facsimile and enter that data manually. I fully expect that Congress will provide new authorities to the Commission to oversee the OTC markets, which are estimated to be 10X the size of the regulated markets.
This agency is about to be hit with a tsunami of trade data and the fax machine will not provide any assistance whatsoever.
We must do a better job to automate all our forms and systems to handle the massive volume of trade data that will be sent to the Commission.
As regulators, we must understand and embrace technology in order to be effective. The Advisory Committee will bring together the best and the brightest together to discuss how technology is being deployed across the industry, how the CFTC should oversee such technology, and what the future holds for technological advancements in our markets so the CFTC can stop playing catch-up, as it has for so long.
The Committee will include representatives from academia, exchanges and clearinghouses, trade repositories, “technology traders,” otherwise known as algorithmic and high frequency traders, FCMs, end-users, and banks.
The Committee will hold its first hearing on July 14th which will specifically focus on high frequency trading. The hearing will include a presentation from the Office of the Chief Economist on recent research into high frequency trading, including a model that shows HFT’s effect on the market.
Other hearings will address – co-location, automation of all CFTC data collection, trade repositories, swap execution facilities, technological surveillance, and system security – to name a few topics.
Members of the Committee will be expected to provide papers on a number of topics, so the Committee and Commission can have informed discussions on these important issues.
I look forward to convening the hearing on July 14 and for the Committee to make a valuable contribution to the technology debate.
Last Updated: January 19, 2011