Release Number 8209-20

ICYMI: Chairman Tarbert Recaps His First Year Leading the CFTC on Bloomberg TV

July 21, 2020

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Chairman Tarbert on the First Year of His Chairmanship and the Impact of COVID-19:

“It has been a tremendous twelve months and we have gotten so much done. The men and women of the CFTC have really risen to the occasion. We have had twelve open meetings and this week we are going to have meetings thirteen and fourteen, and that’s more than in the last six years the CFTC had combined. That said, in the middle of it, as you mentioned, we’ve had this major challenge, COVID-19 and its impact on our markets. And the good news for everyone is that our derivatives markets have remained incredibly resilient. They’re working just as we intended them to work. The system is safe and sound, and its enabled many Americans to go ahead and hedge the risk they’re experiencing because of this crisis.”

Chairman Tarbert on the CFTC Wrapping Up Dodd-Frank Era Rulemakings:

“This week, David, of course, is the tenth anniversary of the Dodd-Frank Act. It had some positive aspects, it had some negative aspects. But most importantly, what we’ve heard from the business community for the last decade is, ‘we need certainty.’ So the good news is this week we will actually finish up final rules on two of our most significant outstanding items from that period. The first is capital rules for swap dealers and the second, as you alluded to, is of course the international rules—when do we bring foreign transactions into the ambit of the United States. And there we’re going to sort of hit the reset button to ensure that while we’re protecting against U.S. risk, we’re also being respectful of our regulatory counterparts which have, for the most part, implemented all of the G-20 reforms.

Chairman Tarbert on the CFTC’s Review of Negative Oil Futures Prices:

“Even before we saw prices go negative, it was something many in the market expected as a possibility. We saw the exchanges change their pricing models from the [Black-Scholes] model on futures to something called the Bachelier model, which the main difference is that it takes into account negative prices. And so that happened a few weeks before we saw prices go negative. And of course, fundamental supply and demand strains on the economy—demand going down sharper than it ever has in recent history and then of course supply continuing, if not expanding, because of the things Saudi Arabia and Russia were doing at the time. All of those macro factors contributed to negative pricing, but what we want to do is get down to the bottom, to actually go through the order book and determine why the price went as far down as it did so quickly. Again, it’s worth remembering that only a very small amount of trades traded at a negative amount, but it was certainly a historic period so we want to explain to the American public what happened and why. And obviously if we see that there was any kind of fraud or manipulation, we will open up a relevant investigation … We’re hoping to have a result this fall.”

Chairman Tarbert on Rules-Based Regulation vs Principles-Based Regulation:

“One of the things I’ve also tried to look into is articulating a bunch of objective standards as to when we would apply a principles-based approach—which offers flexibility and allows for innovation, provided that the approach is reasonable—and then in other areas a rules-based approach which is much more specific and granular and that has benefits as well—it provides market certainty and it also provides some degree of protections against manipulating the market and investors. And so finding that delicate balance between areas in which we apply principles that are a little bit more flexible and other areas where we have clear, crisp rules that provide certainty—I think that’s the real key and so we’ve been going through and thinking about that question very carefully.”

Chairman Tarbert on His Long-term Goals for the Agency:

“In the broadest possible terms, our new mission statement, I think, succinctly states what we’re all about and that’s sound regulation that leads to integrity, resilience, and vibrancy. We want our markets to continue to have integrity. That means when you go to the markets and you look at the prices, those prices actually represent real supply and demand that you can depend upon … We want our markets to be resilient and that’s another key factor. In 2008, there was a real concern that derivatives—particularly the uncleared derivatives, the over the counter swaps that were opaque—were actually exacerbating and amplifying systemic risk. We want the opposite to be the case. We want our markets to be resilient so regardless of what happens out there with the volatility of prices the system itself remains strong. And then finally we want our markets to be vibrant. That means they’re continuing to produce new and innovative instruments and new and innovative ways of handling risk. In that regard, we’re starting to see digital assets and cryptocurrency … enter into our marketplace. So the CFTC, despite regulating corn and wheat, also now finds ourselves regulating bitcoin and ether. Those would be the three things I would focus on and make sure the CFTC is focused on today and ten and twenty years down the road.”