Public Statements & Remarks

Statement of Commissioner Kristin N. Johnson in Support of Proposed Amendments to Provisions Common to Registered Entities

July 26, 2023

I support the Commission’s issuance for notice and comment of proposed amendments to provisions common to registered entities as set forth in Part 40 of the Commission’s regulations.[1]  These regulations implement Section 5c(c) of the Commodity Exchange Act (CEA or Act),[2] which prescribes the procedures for listing by registered entities of new products, as well as for approval of new rules or rule amendments, and also standards for review for and approval of the same by the Commission.[3]  These provisions apply to designated contract markets (DCMs), derivatives clearing organizations (DCOs), Swap Execution Facilities (SEFs), and swap data repositories (SDRs).

Part 40 has not been amended comprehensively for a decade.  Over the course of that same decade, a number of other notable market events have transpired.  For example, in 2008, an unidentified person—or group of people—using the pseudonym Satoshi Nakamoto published a white paper, innocently titled Bitcoin: A Peer-to-Peer Electronic Cash System, that outlined a decentralized peer-to-peer system for making and processing payments.  In the decade since the white paper’s release, we have witnessed exponential growth in the market for digital assets, including cryptocurrencies, as well as the explosion of the digital asset ecosystem.

In addition to the developments regarding the creation and proliferation of digital assets, we have witnessed remarkable growth in the market for carbon credits.  There is an indisputable and urgent need for markets to focus on sustainability.  This Commission’s Second Voluntary Carbon Markets Convening held in this room last week highlighted this necessity.  It also highlighted the need for careful consideration of important questions such as the potential for fraud or the veracity of claims regarding additionality and concerns regarding greenwashing.

I am enthusiastic to support the Director of the Division of Enforcement Ian McGinley as we stand up the Environmental Fraud Task Force and continue the work of the Digital Asset Task Force.  Yet, I strongly believe that effectively addressing fraud and market manipulation requires not only vigorous enforcement, but also thoughtful and proactive regulation.  The amendments proposed today are a significant step in empowering the Commission to better understand new products and new rules in our markets in support of our regulatory mission.

Turning to the rulemaking under consideration today, registered entities generally have two options when submitting products and rules for approval:  they may self-certify that the product or rule complies with the CEA and Commission regulations, or they may submit the product or rule for Commission approval.[4]  The proposed amendments are intended to build on the Commission’s experience over the past decade in applying the Part 40 regulations to product and rule submissions to clarify, simplify, and enhance the utility of the Part 40 regulations for both registered entities and the Commission.  Many of these revisions are technical in nature, and I appreciate the wisdom of the staff in both the Division of Clearing and Risk and the Division of Market Oversight in proposing them.  I note that there are additional revisions that update the regulations to reflect technological developments in the ways that registered entities communicate with the Commission—i.e., by using the Internet. 

Consequently, the revisions to the requirements under Regulations 40.2(a)(3)(v) and 40.3(a)(4) merit additional focus. These amendments require a registered entity to provide an explanation of the nature of the new product self-certified or submitted to the Commission for approval, “that is complete with respect to” the product’s terms and conditions as well as the product’s compliance with the applicable provisions of the Act, including core principles, and the Commission’s regulations.[5] Staff have noted that, in their experience, registered entities have not always included sufficient information about the underlying commodity to a new product to allow the Commission to complete the analysis of compliance required under the CEA and the Part 40 regulations.  The proposed amendments not only call for additional information about the product’s underlying commodity, including characteristics such as the deliverable commodity’s grade, quality and deliverable supply, as applicable, but also specifically reference the guidance provided in Appendix C to Part 38[6] as providing the requisite level of detail to comply with the newly proposed standard. 

I support the proposed amendments to Part 40 because I support making our rules clearer and easier to administer.  I look forward to hearing from commenters as to whether these new requirements are fit for purpose and will enable the Commission to effectively address innovations regarding products, platforms, and technologies.   I thank staff in the Division of Clearing and Risk and the Division of Market Oversight, including Rachel Kaplan Reicher, Steven Benton, Nancy Markowitz, and Eileen Chotiner, for their efforts, and look forward to receiving comments from registered entities and the public that will assist the Commission in achieving the best outcome with this rulemaking.

[1] 17 C.F.R. pt. 40.

[2] 7 U.S.C. § 7a-2(c). 

[3] Compare 17 C.F.R. §§ 40.2, 40.6 (providing for self-certification of products or rules), with 17 C.F.R. §§ 40.3, 40.5 (setting forth procedures for seeking Commission review and approval of products or rules). 

[4]  Id.

[5] 17 C.F.R. §§ 40.2(a)(3)(v), 40.3(a)(4). 

[6] 17 C.F.R. pt. 38 app. C.