Public Statements & Remarks

Remarks of CFTC Commissioner Rostin Behnam at the 2018 ISDA Annual Japan Conference, Shangri-La Hotel, Tokyo

Our Collective Strength

October 25, 2018

[Delivered in Tokyo October 26, 2018]



Thank you for the kind introduction; it is a great pleasure and honor to join you today.  I want to thank Scott O’Malia and the International Swaps and Derivatives Association (“ISDA”) for organizing this event and for bringing us together.  Before I begin, please allow me to remind you that the views I express today are my own and do not represent the views of the Commodity Futures Trading Commission (the “CFTC” or “Commission”) or my fellow Commissioners. 

As you will see, that reminder appears in the text of these remarks.  I haven’t always remembered to include such language in the text, and I often assume that it is understood that although I am part of the Commission, I am not the Commission.  The Commission comprises five commissioners, who are appointed by the President and approved by the Senate, who serve five-year staggered terms.[1]  No more than three of the five commissioners may be members of the same political party.[2]  The President appoints one of the commissioners as Chairman, and it is the Chairman who oversees the administrative functions of the Commission, such as supervising Commission personnel and directing their work agenda.[3]

The CFTC, like other independent federal agencies, is unique, in part because the membership is bipartisan and the terms of service are fixed.  Ultimately, the Commission provides the commissioners, republican or democrat, the opportunity to consider issues in a manner that aims to provide a full spectrum of ideas to reach the most informed and balanced outcomes.  If we, as a commission, are held to the highest standards of accountability, there should be no question that when the Commission speaks, the policy it’s announcing or the message it’s delivering is the outcome of well-reasoned and responsible deliberation.

Someone recently asked me: “What does success look like for a CFTC Commissioner in our current environment?” Answering that question first requires considering what success for the Commission looks like.  I believe that success for the Commission looks like what it has always looked like: fostering open, transparent, competitive, and financially sound markets; preventing and deterring misconduct and disruptions to market integrity; and protecting all market participants—whether institutional, retail or otherwise—from fraud, manipulation, and abusive practices.  I believe it also means avoiding being overconfident in the systems we’ve built and remaining nimble in our reconsideration of our past policies and practices and vigilant as we prepare for the challenges to come. 

Understanding the Commission’s goal, I was then able to think about what I believe success as an individual commissioner looks like.  For me, success means that I have done my best to make sure that every interested party is working collectively to address the issues facing the markets today.  It means moving beyond domestic political polarity and nationalistic animus to collaboratively address new and emerging risks with lessons learned from a decade of recovery and almost a century of history.  Simply put, success means working together to manage the day-to-day risks in our markets and creating plans to manage and resolve uncertainties.

Planning for a day or event that might never come seems especially tedious and wasteful, but it is essential.  It is the regulator that is ultimately accountable when things go awry and it is the regulator who will be looked to for strength and direction.  To achieve and maintain success, I believe that we individual Commissioners must adhere to regulatory process and transparency, be wary of false and incomplete progress, and hold one another accountable.

There is strength in the Commission. As the famous Japanese saying implies, “A single arrow is easily broken, but not ten in a bundle."  Each Commissioner may have their own opinion, but when the Commission speaks, it carries strength greater than each one individually.  This helps us ensure that the Commission meets success.

Along those lines, it is with that strength that the CFTC is participating, and in some cases taking the lead, in various work streams aimed at bringing international consensus to the issues facing the global derivatives market.  As the CFTC is strengthened by the participation of each commissioner, the regulatory framework for the global derivatives market is strengthened by the participation of every jurisdiction’s regulatory bodies.  While each agency may have responsibilities to their own constituency, we should remember that we can best achieve success by working collaboratively to ensure the integrity of markets that affect each and everyone one of us.

As 2018 draws to its close, enormous challenges such as benchmark reform, initial margin phase-in, cross-border regulation, Brexit, and emerging financial technologies are bringing regulators from around the world together in efforts to ensure that we put the right structures in place to absorb emerging risks.  With each of these issues, there is an uncomfortable level of uncertainty, as well as a sense of disdain for the anticipated costs of regulatory friction.  I believe that we must coordinate and work collectively to create plans that address and overcome any uncertainties.  Obscurity should not disqualify or deter us from moving forward: the decision must be to act.

Today I would like to address our greatest challenges of this moment and provide some insight and updates on the CFTC’s role in building the regulatory structures to eliminate or limit–and at least not amplify–the impact of the risks posed by benchmark reforms, margin, Brexit, new approaches to cross-border regulation, and fintech.  I will, at times, share some of my personal views and aspirations on these issues, but please remember that my views remain my own and are just one arrow in the bundle.

Benchmark Reform

I would like to begin with an issue that has surged and ebbed to the forefront of the derivatives market over the last decade: the erosion of the unsecured interbank term borrowing market.  This market underlies the world’s most prominent benchmark, the London Interbank Offered Rate (LIBOR), and as LIBOR has declined, we have witnessed rampant misconduct in the form of pervasive fraud, abuse, and manipulation.  Since June 2012, the CFTC has levied sanctions of more than $3.3 billion for LIBOR-related misconduct by individuals and the financial institutions that employed them.


What much of the public learned as a result of these enforcement cases is that LIBOR and other key IBORs are not merely financial tools for large institutions; the IBORs directly impact the everyday lives of retail customers across the globe.  For example, US dollar (USD) LIBOR is used in determining interest payments for over $200 trillion in derivatives, futures, corporate bonds, mortgages, retail and commercial loans and other financial products.  It has been estimated that over 15 million retail customers globally hold products such as mortgages, loans (student, auto, small business), and credit cards that reference LIBOR.  Since 2013, U.S. and international financial monitoring and advisory bodies have concluded that having hundreds of trillions of dollars of financial instruments referencing a rate based on judgements is a source of risk to the safety and soundness of the global financial system.[4]  As we move toward adopting risk-free rates, or “RFRs,” as alternatives to IBORs, our objectives should include both guaranteeing the reliability of viable benchmarks anchored in observable transactions and supported by appropriate governance structures and ensuring that such benchmarks are resistant to fraud and manipulation.


Our most recent call to action came in July 2017, when Andrew Bailey, Chief Executive of the UK Financial Conduct Authority (FCA)—which regulates LIBOR—acknowledged that despite significant improvements to LIBOR, the goal of anchoring LIBOR submissions and rates to the greatest extent possible to actual transactions cannot be achieved.[5]  The underlying market that LIBOR seeks to measure, the market for unsecured wholesale term lending to banks, is no longer sufficiently active. 

Further, under European Union benchmark regulations that LIBOR is subject to, regulatory authorities can only compel submissions to a critical benchmark for two years.  Recognizing the difficulties in transitioning towards an alternative reference rate, Andrew Bailey announced an agreement between the FCA and the panel banks to voluntarily sustain LIBOR until the end of 2021.  At that time, a critical number of panel banks will most likely stop making submissions, causing the FCA to determine that the LIBOR is no longer a representative benchmark.  Market participants have coined a new term for such a rate, “zombie LIBOR.” As a market regulator, it would be indefensible to allow hundreds of trillions of dollars of transactions to reference a zombie LIBOR after several years of lead time. 

Thankfully, the work to prepare for the adoption of alternative RFRs has been underway for more than five years.  Global regulatory authorities have been working closely with one another and with private sector entities on this effort.  This level of cooperation has been critical given the global nature of our markets and our shared interest in facilitating efficient cross-border transactions.  The CFTC, representatives from the Bank of Japan and the Japan Financial Services Agency (JFSA), and other regulators have been participating in the Official Sector Steering Group, the coordinating body set up by the Financial Stability Board (FSB) to drive this effort.  

To date, there has been strong mutual recognition that there are fundamental differences in the underlying market structures in the various jurisdictions.  Hence, we are moving away from a one-size-fits-all approach.  For example, in Singapore, the regulator and market participants have collectively agreed to take concrete steps to strengthen the existing rate, SIBOR.  The Hong Kong market is taking a similar approach.  On the other hand, here in Japan, as in the U.S., the U.K., and Switzerland, the focus has been on identifying or developing new alternative reference rates and then facilitating a transition to the new rate. 

There is good progress being made in Japan with TONA (Tokyo Overnight Average Rate), and progress is also being made in the U.S.  Thanks to a collaborative effort between the official and private sectors known as the Alternative Reference Rates Committee or ARRC, we have a new rate available to serve as a robust and reliable RFR: the Secured Overnight Financing Rate or SOFR.  SOFR is a fully transactions-based rate with the widest coverage of any U.S. Treasury repurchase rate available.[6]  The transactions underlying SOFR regularly exceed US $700 billion in daily volumes.  In contrast, based on statistics shared by the Federal Reserve Board, there are less than six to seven transactions per day at market rates to support the one- and three- month LIBOR across submitting banks.  For the three-month LIBOR, the standard reference rate in the derivatives markets, there is less than US $1 billion of borrowing among the largest banks.  On many days, that number drops below $100 million. 

SOFR futures began trading on the Chicago Mercantile Exchange (CME) in May, with both one- and three-month contracts offered.  Daily volume during August and September averaged more than 5,400 contracts per day with more than 75 global participants.[7]  In the five months since launching, SOFR futures have traded the equivalent of nearly $1 trillion in notional value.[8]  LCH began clearing SOFR-based over-the-counter (OTC) overnight index and basis swaps in July, and just a few weeks ago, CME announced that five market participants had cleared trades worth more than $200 million in notional of OTC SOFR swaps since October 1.[9]  

In view of the real threat that LIBOR might disappear post 2021, you should examine the fallback language in your financial contracts and update them to ensure that they will address the impact of LIBOR termination.  Fortunately, there are multiple efforts under way to develop alternative contract language for OTC derivatives and a range of cash securities and loan products.  In July, the ARRC issued a set of guiding principles for the development of fallback language for new financial contracts for loans, securitizations, and floating rate notes that reference USD LIBOR so they will continue to be effective in the event that USD LIBOR is no longer published.[10]  The principles provide a framework for the use of fallback rates, credit spread adjustments, and trigger events while stressing the urgency to incorporate replacement language into new contracts as a risk reducing measure.   

Separately, ISDA recently ended the comment period on an open consultation seeking comments on fallbacks for British pound, Swiss franc, and Japanese yen LIBOR, among others.[11]  ISDA is expected to launch a second consultation for the Euro and the USD.  I encourage market participants to actively participate in these and other public and private consultation efforts.  

Additionally, given the risks to the financial system presented by relying on a reference rate based on the judgements of a few rather than the robust, transparent trading by active market participants, to the extent you have USD exposure, I encourage you to start transacting in the new derivatives markets referencing SOFR.  Participant-led development of this market will help avoid consequences of dealing with a zombie LIBOR. It will help avoid liquidity fragmentation uncertainty, and possibly, litigation over weak or inadequate fall back language. 

The transition process, from identifying an alternate rate, coming up with a transition plan, and implementing it, is a huge coordination exercise among many market participants, many with competing interests.  While some participants might prefer that regulators force change through rule making, this is not the approach global authorities have taken.  Authorities do stand ready to facilitate these efforts by helping to avoid market dislocations, but our policies, mandates, and missions do not always support requiring compulsory industry standard setting or change through regulation.  Thus to achieve success, it is critically important that we have broad participation in these kinds of consultative efforts. 

Internally, if you have not already done so, mobilize a formal transition program in your firm—bundle your arrows.  In that bundle, include a budget with ample resources, a governance structure, and work streams with clear mandates to: conduct impact assessments; develop inventories of legacy exposures and contracts that mature after 2021; prepare for new products and financial instruments that will be linked to the new RFRs; and develop internal education and client outreach and communication plans. 

What’s next for the U.S.?  The ARRC’s published paced transition plan anticipates the adoption of the SOFR as the benchmark for interest rate derivatives in the first quarter of 2019.[12]  Given that futures and cleared OTC derivatives are now available and building liquidity, we are working towards a more secure future.  While many in my position have heard that there is some preference for continuing with LIBOR, regulators charged with ensuring that the markets provide for fair and efficient risk management that is free from fraud and manipulation are anticipating a clear and certain break from LIBOR. 

What’s next for me?  At the CFTC, each Commissioner sponsors an Advisory Committee to provide input and make recommendations to the Commission on a variety of regulatory and market issues that affect the integrity and competitiveness of U.S. markets.  I sponsor the Market Risk Advisory Committee (MRAC), which advises the Commission on matters relating to evolving market structures and the movement of risk across clearinghouses, exchanges, intermediaries, market makers and end users.  It examines systemic issues that threaten the stability of derivatives and other financial markets, and makes recommendations on how to improve market structure and mitigate risk.  MRAC members include representatives from clearinghouses, exchanges, intermediaries, academia, and market participants.  

In July, I convened the MRAC to focus on benchmark reform in an effort to unpack the myriad impending issues specifically related to the derivatives market.[13]  As a starting point, members of the ARRC and key market participants first discussed the role of interest rate benchmarks in the economy, the impetus for LIBOR reform, and the current status of global reform initiatives.  The discussion focused on the efforts of the FSB and the ARRC, as well as public and private sector coordination efforts in other jurisdictions.  A second panel of speakers addressed the development of SOFR, SOFR derivatives, and efforts to improve LIBOR. 


A final panel discussed the effect of LIBOR reform on the derivatives markets.  The discussion focused on LIBOR reform’s impact on legacy derivatives contracts, the development of fallback language, and key risk management and governance considerations for market participants.  End user and dealer representatives discussed the risks their firms and clients face with respect to LIBOR reform and how they or their clients are preparing to mitigate those risks.

Following the MRAC, the Commission voted to establish the Interest Rate Benchmark Reform Subcommittee to provide reports and recommendations to the MRAC regarding efforts to transition U.S. dollar derivatives and related contracts to SOFR and the impact of such transition on the derivatives markets.[14]  This subcommittee may consider the treatment of both existing derivatives contracts that are amended to include new fallback provisions or otherwise reference RFRs like SOFR and new derivatives contracts that reference RFRs.  It may also consider how liquidity in derivatives and related markets is impacted during the transition. 

My goal is to use the subcommittee to complement the work of the ARRC—as one more arrow in the bundle—by shedding more light on the potential challenges heading toward 2021, identifying the risks for financial markets and individual consumers, and, above all else providing solutions within the derivatives space. My expectation is that the subcommittee’s work—and that of the Commission itself—will recognize the critical importance of benchmarks while demanding integrity and reliability.

Initial Margin

Another challenge we are collectively facing is the impending final phases of the uncleared margin rules.  In October 2011, the Basel Committee on Banking Supervision (BCBS) and IOSCO, in consultation with the Committee on Payment and Settlement Systems and the Committee on Global Financial Systems, formed a working group to develop international standards for margin requirements for uncleared swaps, the “WGMR.”  The WGMR includes representatives from more than 20 regulatory authorities from Australia, Canada, the EU, Hong Kong, India, Japan, Korea, Mexico, Russia, Singapore, Switzerland, and the United States.  The U.S. is represented by the CFTC, the prudential banking regulators, the Securities and Exchange Commission, and the Federal Reserve Bank of New York. 

In September 2013, the WGMR published a policy framework establishing BCBS/IOSCO standards for margin for uncleared swaps to be recommended to regulatory authorities in member jurisdictions.[15]  The report was updated in March 2015 to revise the implementation timelines for the margin standards, extending the beginning of the five-step phase-in period for the exchange of initial margin, or “IM,” from December 2015 to September 1, 2016.[16]  

In 2016, WGMR created the Monitoring Group to ensure consistent implementation of the standards across products, jurisdictions, and market participants.  Since its inception, the WGMR Monitoring Group has submitted a series of non-public reports to the parent committees.  In April 2017, the parent committees re-authorized the WGMR, subsequently tasking the WGMR to monitor certain areas, including, in particular, the “IM big bang”: the end of the IM phase-in in September 2020 and its effect on the marketplace.  The WGMR Monitoring Group resumed activities in April 2018, putting forth a plan to conduct a new stocktaking exercise and produce a report on the implementation status of the margin standards, with a focus on the challenges of the 2020 phase-in.

The full phase-in of IM requirements by the September 2020 deadline raises a number of potential challenges for the marketplace.  Trade associations, including ISDA, estimate that over 1,100 additional counterparties and 9,500 relationships with new documentation requirements will result from the phase-in.[17]

Staffs at the CFTC and the U.S. prudential regulators agree that the WGMR should focus on 2020 concerns, and I want you to know that we are listening to these concerns.  We see the tip of the iceberg on the horizon and are doing our best to alert others.  At the same time, we are gathering information so that we can understand and confirm the depth and breadth of the situation and then engage further with industry to ensure that we avoid catastrophe: a plan is in motion.

Industry representatives, in particular ISDA and SIFMA (the Securities Industry and Financial Markets Association), have provided analyses indicating that the vast majority of the firms that will be impacted by a drop in the compliance threshold from $750 billion to $8 billion will post little or no IM because the size of their derivatives exposures fall below the $50 million IM exchange threshold.  Despite not posing enough of a systemic risk to require posting of margin, they argue that without a change to the $8 billion level, such smaller entities face compliance hurdles.  Accordingly, ISDA and SIFMA are advocating the following solutions: (1) increase gross notional thresholds for 2020 from $8 billion to an amount between $50 and $100 billion for a temporary period; (2) remove physically settled foreign exchange swaps and forwards from aggregate notional amount calculations; and (3) alleviate the burden of requiring custodial documentation when the $50 million IM threshold is crossed.[18]

As part of the Monitoring Group, staff at the CFTC will focus on addressing implementation and market developments through information gathering to further identify and evaluate implementation issues.  It will also work towards establishing a common understanding regarding potential gaps or challenges in the implementation framework.  A key goal of this exercise is providing the CFTC and prudential regulators an opportunity to engage further with one another and with industry to understand the various impacts of legal frameworks on effective segregation and collateral arrangements, on different derivative products, and on different types of entities.  Consideration of cross-border, substituted compliance and equivalence assessments will, of course, be another consideration as we collectively bundle our efforts and work towards appropriate recommendations and guidance.

Cross-Border Regulation

There has been much talk in our industry about the U.S. derivatives regulator’s potential plan to “rein in” its swaps trading rules,[19] but there is, as of yet, little consensus about the right way to accomplish that goal.  During the first half of September, Chairman Giancarlo traveled here to Tokyo to announce and promote his vision and upcoming proposal to update and improve the CFTC’s approach to applying its statutory authority over swaps activities to cross-border activities.[20]  At the time, he was completing work on his white paper, “Cross-Border Swaps Regulation Version 2.0: A Risk-Based Approach with Deference to Comparable Non-U.S. Regulation,” which I saw for the first time a day before it was released to the public on October 1, 2018.[21] 

This paper is an arrow outside of its bundle.  In the United States, when federal agencies seek public participation in the formulation of a regulatory change, they do not use white papers. Instead, federal agencies like the CFTC follow a statutorily mandated notice and comment process under the Administrative Procedure Act[22] that ensures that the public receives official notification, can comment on proceedings of, and have access to a record of Federal agency action.  And even if the agency is not quite ready to engage in a full rule-making, there are procedures for publishing a request for comments in the Federal Register, a daily publication of the Federal Government and the official repository for all such actions.  Following these procedures ensures that an agency can get its arrows together before completing regulatory change and creates a record of its path.

Thus to be clear, the Chairman’s release of his white paper was not action by the Commission, nor was it the first step in a statutorily mandated process towards taking a particular regulatory action.  Rather, the white paper expresses the views and ambitions of the Chairman—of one arrow—and neither binds nor bundles any other Commissioner or the Commission on the path forward.  As the Chairman himself acknowledges, the white paper is not quite a concept release and its proposals have not yet been presented to the full Commission for input, consideration, or consensus.[23] 

Our expectations of regulatory change should follow accordingly.  As I mentioned at the beginning of my remarks, the Chairman is authorized to direct the Commission’s agenda, and he has spoken publicly on plans to turn the proposals advocated in his white paper into Notices of Proposed Rulemakings, published in the Federal Register. However, the timing on these official steps is unclear.  The Chairman himself acknowledged that it will be “several quarters” to begin to make the sea-change and it remains unclear as to how the Commission will approach the rulemaking process within our existing set of regulations.[24]  This delay is just as well: certain aspects of the proposal represent departures from existing policy and may even conflict with our governing statute and prior Commission interpretations thereof or lead to gaps in certain protections afforded to U.S. persons transacting overseas.[25]  There are many issues that the Commission needs to work out to ensure that its arrows are collected into a bundle before it moves forward.

For my part, I agree that the Commission should address any problems resulting from its current approach to regulating swaps activities in the cross-border context.  But I also think that the Commission should build its internal consensus in accordance with formal, statutory procedures while appropriately considering its own mission in context with the needs of and affording deference towards our fellow global regulators.  Likewise, I disagree with the Chairman’s criticism of those who served the Commission before us and had difficult choices to make at a time of great crisis.  Our predecessors discovered the global breadth and depth of the derivatives markets only through feeling the acute pain of the 2008 financial crisis, and it was within that context that the relationships between the world’s many regulators took shape. 


In trying to address that crisis, the CFTC exercised its strength when it needed to while preserving the opportunity to change its approach as the derivatives markets recovered.  It was with deference to future CFTC leadership, such as the Chairman, and fellow foreign regulators that the Commission expressed its first cross-border approach in flexible “guidance,” or as a “non-binding policy statement.”  This adaptable regulatory tool can be fine-tuned by the Commission without engaging in lengthy, procedural rulemaking, and it was perhaps chosen for just that reason.  As stated by the Commission in the Federal Register release announcing its cross-border guidance, “The Commission understands the complex and dynamic nature of the global swaps market and the need to take an adaptable approach to cross-border issues, particularly as it continues to work closely with foreign regulators to address potential conflicts with respect to each country's respective regulatory regime.”[26]  The Commission further committed to periodically reviewing its guidance in light of future developments.[27]    


I agree that it is appropriate to take stock of our global reforms and work together towards mutually recognizing each other’s exercise of authority over activities that take place across one another’s borders.  I support the Chairman’s stated objectives of (1) increasing CFTC cooperation with global regulators to reduce duplicative regulation and redundant supervision; (2) reducing the operational burdens and complexity of overlapping regulations where appropriate; and (3) reducing market fragmentation and fostering deeper liquidity pools. I am looking forward to working with the Chairman and my fellow commissioners as we build consensus towards taking the next, stronger step in the process together.



In the immediate future, one area that we can and should look to meet those objectives as a collaborative team is around the United Kingdom’s (UK) impending exit from the European Union (EU).  Should no deal materialize, there will be a considerable amount of uncertainty surrounding what each phase of a derivatives trade—from connecting a salesperson with a client, to executing the trade, and processing the trade through a central clearing party (CCP)—will look like after Brexit.[28]  Where each of those actions takes place will be another question, and how market participants geographically shift those functions will carry substantial risks.[29]


Whatever the disposition between the EU and the UK, the reaction to those risks should not be a deviation from the current paradigm of regulatory deference.  As Chairman Giancarlo has mentioned,[30] having a healthy respect for regulations that ensure market transparency and stability, and which also respect local commercial custom, have become a mainstay of our global regulatory infrastructure.  Deference to comparably robust regulatory regimes prevents overly burdensome and conflicting regulatory requirements from reducing market efficiencies while ensuring that global markets are successfully protected. 


While we will continue to look for ways to build consensus across borders, the CFTC will not allow an adjacent regulator to upset that paradigm.  I look forward to working with both my fellow commissioners and foreign regulators to make sure that derivatives markets are prepared to deal with the complex implications of Brexit.



Before I close, I would like to briefly speak about fintech and share some of thoughts about new technologies in our markets.  I recently completed my first year as a Commissioner, and  looking back on that year, I am surprised by the amount of time I spent examining issues related to bitcoin, crypto assets, distributed ledger technology (DLT), artificial intelligence, and cloud-based programming.  As part of a self-directed listening tour, I met with designers, developers, providers, and marketers of both prominent and newer, perhaps less mainstream technologies.  I engaged with think tanks, academics, and practitioners focused on everything from cybersecurity to aiding the underbanked in the remotest parts of the world.  I had no single goal in mind, just a desire to avoid being the typical regulator on the tail end of technological advancement, scurrying to keep pace with swift innovations that capture market efficiencies, open markets to new products and participants, and often reward those willing to take risk. 

I could speak for another twenty minutes on what I’ve learned, my concerns, the risks, and all of the new questions I have…but I will keep it brief. 

I have come to understand that innovation at the edge allows others to be creative and pursue their dreams and missions.  Just take a moment to think about all the possible use cases for DLT from agriculture to healthcare, finance to art, CryptoKitties to Dogecoin.  These innovations are more than just technology: They inspire us to find solutions for every problem or hurdle we encounter—and sometimes, they are just fun.   

I believe that we as regulators must approach fintech with an open mind and a healthy respect for our role in the markets.  There is great regulatory uncertainty regarding how fintech fits into our existing rules and regulations.  Every innovator at the edges of what is permitted is hoping that his or her product will prove to be what is desired by the market and deemed compliant by the regulator.  Everyone wants a clear statement of support for what they are doing, and yet, most cannot describe—or maybe haven’t even considered—the risks.  And this is critical:  if innovators want access to financial networks, we regulators, whose job it is to ensure fair, safe, and transparent markets, need to understand how their technologies work and the risks that they bring into the world’s markets. 

Whether it’s a black box or a white box, we cannot afford to be awed by new technology: we need to comprehend it.  Though we regulators must balance the urgency to create new laws and regulation with our current lack of a full understanding of the promise and perils of fintech, we are nevertheless accountable to all those whom the markets affect, and we must ensure that the legal issues and risks presented by all technologies are identifiable and solvable before they cross the horizon.  As we move forward, market regulators will serve an essential role in fintech development by making sure that innovators are socialized into a culture of regulation and compliance.

The G20, which Japan will host in 2019, has acknowledged that, while fintech innovation is fundamentally reshaping the global economy in a positive way by improving efficiency and inclusiveness, the transition to digitalization presents new challenges for the public and private sectors.[31]  The G20 further noted in March and reiterated in July that, “Policy responses, including international cooperation, are needed to harness the opportunities and ensure the benefits are shared by all.”[32]  As we move forward, one of the challenges for regulators is that the risks and rewards of fintech are not always anchored within the organizational structure of supervised firms. However, regulators already have tools in their bundle that could serve as models for the future–we can take a horizontal view of the services provided by these companies to ensure that specific conduct requirements are met.  We can successfully mitigate the risks and uncertainties posed in this space if we collectively shoot arrows from our bundle and create a framework that continues to ensure market integrity and appropriate protections for all of our participants.  I look forward to Japan’s leadership in the G20 on these and other issues.


I hope I’ve given you more insight into how the Commission is facing the challenges to our markets, and how I view some of the hurdles we are all facing. I am optimistic by nature, and take my role as one arrow in the bundle very seriously.  We are all on course to solve the issues before us, and we should not be deterred from moving forward.  Thank you for having me, it’s been an honor.


[1] Commodity Exchange Act § 2(a)(2)(A), 7 U.S.C. § 2(a)(2)(A).

[2] Id.

[3] Commodity Exchange Act § 2(a)(2)(A) and 2(a)(6), 7 U.S.C. § 2(a)(2)(A) and 2(a)(6).  

[4] In 2013, the Financial Stability Oversight Council (FSOC), a collaborative body chaired by the U.S. Secretary of the Treasury that brings together the expertise of federal and state financial regulators, identified that reliance on reference rates such as LIBOR, with their weaknesses in governance and scarce underlying transactions, as a major theme affecting financial stability.  The FSOC recommended that U.S. regulators cooperate with foreign regulators, international bodies, and market participants to identify alternative interest rate benchmarks that are anchored in observable transactions and supported by appropriate governance structures.  FSOC also recommended that these agencies develop a plan to transition to new benchmarks while alternatives are still being identified.  Financial Stability Oversight Council, 2013 Annual Report 3, 6, 14 137-142 (2013),  In 2014, the Financial Stability Board (FSB) reviewed major interest rate benchmarks and concluded that having hundreds of trillions of dollars of financial instruments referencing a rate based on judgements is a source of risk to the safety and soundness of the global financial system.  Financial Stability Board, Reforming Major Interest Rate Benchmarks (2014),  Also in July 2013, the International Organization of Securities Commissions (“IOSCO”) published its “Principles for Financial Benchmarks: Final Report,” with the objective of creating an overarching framework of principles for financial market benchmarks commonly referred to as the “IOSCO Principles.”

[5] Andrew Bailey, Chief Executive, Financial Conduct Authority, Speech at Bloomberg London: The Future of LIBOR (July 27, 2017),

[6] SOFR has been published daily by the Federal Reserve Bank of New York since April 3, 2018.  See, e.g. Federal Reserve Bank of New York, Reference Rates (2018),

[7] CME Group, October Rates Recap (data as of October 5, 2018),  

[8] Id.

[9] Press Release, LCH, LCH Clears First SOFR Swaps (July 18, 2018),; Press Release, CME Group, CME Group Announces First OTC SOFR Swaps Cleared (Oct. 9, 2018),

[10] Alternative Reference Rates Committee, ARRC Guiding Principles for More Robust LIBOR Fallback Contract Language in Cash Products (2018),

[11] International Swaps and Derivatives Association, Consultation on Certain Aspects of Fallbacks for Derivatives References GBP LIBOR, CHF LIBOR, JPY LIBOR, TIBOR, Euroyen TIBOR and BBSW (July 12, 2018),

[12] See Alternative Reference Rates Committee, Presentation by Sandra O’Connor, Chair (2017),

[13] Press Release Number 7752-18, CFTC, CFTC’s Market Risk Advisory Committee Announces Agenda for July 12 Public Meeting (July 10, 2018),

[14] Press Release Number 7819-18, CFTC, CFTC Commissioner Behnam Announces the Establishment of New Subcommittee of the Market Risk Advisory Committee and Seeks Nominations for Membership (Oct. 3, 2018),

[15] Basel Committee on Banking Supervision and Board of the International Organization of Securities Commissions, Margin Requirements for Non-Centrally Cleared Derivatives (July 2013),

[16] Basel Committee on Banking Supervision and Board of the International Organization of Securities Commissions, Margin Requirements for Non-Centrally Cleared Derivatives (March 2015),  The revisions also included a six-month phase-in of the requirement to exchange variation margin, beginning September 1, 2016. 

[17] Letter from ISDA, et al. to the Secretariats of the BCBS and IOSCO Re: Margin Requirements for Non-Centrally Cleared Derivatives – Final Stages of Initial Margin Phase-In (Sept. 12, 2018),

[18] Id.

[19] See, e.g., Philip Stafford, US Regulator to Unveil Plans to Rein in Swaps Trading Rules, Financial Times, Sept. 30, 2018,

[20] See J. Christopher Giancarlo, CFTC Chairman, A New Approach to Cross-Border Swaps Reform: One Market, One Regulator, One Set of Rules, Remarks by Chairman J. Christopher Giancarlo at FIA Japan, Tokyo, Japan (Sept. 11, 2018),

[21] Press Release Number 7817-18, CFTC, Chairman Giancarlo Releases Cross-Border White Paper (Oct. 1, 2018),

[22] Administrative Procedure Act, 5 U.S.C. § 500 et seq.

[23] See Press Release Number 7817-18, supra note 21; Robert Mackenzie Smith, Q & A: CFTC’s Giancarlo on the Race to Overhaul Cross-Border Rules,, Oct. 4, 2018,

[24] Smith, supra note 23.

[25] See, e.g., Rostin Behnam, A Decade After the Financial Crisis: Remaining Challenges and New Approaches for the Next Ten Years and Beyond, Keynote Remarks of CFTC Commissioner Rostin Behnam at the Federal Reserve Bank of Chicago’s Fifth Annual Conference on CCP Risk Management, Chicago, Illinois (Oct. 16, 2018),

[26]Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations, 78 Fed. Reg. 45292, 46297 (July 29, 2013).

[27] Id.

[28] Lukas Becker, Day One of a No-Deal Brexit: Swaps and Chaperones, (Oct. 9, 2018),

[29] Phillip Stafford, European Banks Worry about Clearing in No-Deal Brexit, Financial Times (Oct. 9, 2018),

[30] J. Christopher Giancarlo, Chairman, Commodity Futures Trading Comm’n, Remarks at FIA Expo, Chicago Illinois (Oct. 17, 2018),

[31] G20, Communiqué Finance Ministers & Central Bank Governors (Mar. 19-20, 2018),

[32] Id.; G20, Communiqué Finance Ministers & Central Bank Governors (July 21-22, 2018),