Keynote Address of Chairman Rostin Behnam at the ABA Business Law Section Derivatives & Futures Law Committee Virtual Winter Meeting
January 27, 2022
As prepared for delivery
Good afternoon. I am delighted to join you virtually today for my first keynote as CFTC Chairman. I want to thank Katie Trkla and the Vice-Chairs and Conference Chairs for holding this important event and for including me and so many of our key CFTC leaders.
In preparing for this first opportunity to share my vision for the Commission as its Chairman, Katie shared the conference’s draft agenda with me. As I scrolled down, I paused at the highlighted and italicized note at the bottom of the first page, “Subject to Change.” Always a good reminder when putting these types of remarks together—and beyond. If I have learned anything during these last years as a CFTC commissioner and Acting Chairman, it’s the importance of having a strategic, mission-driven agenda supported by a sound -- but flexible -- infrastructure.
A few years back, I was asked to remark on what I thought success looked like for a CFTC Commissioner. This was before our daily actions were informed by the global pandemic, the proliferation of DeFi and FinTech, the rise of retail participants, more frequent and extreme global climate related events, and the increased recognition of inequity and inequality within our markets and our day-to-day lives.
In answering that question, I considered what success for the Commission looks like. At the time, I said, “I believe[d] 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 also remarked that success requires vigilance so as not to become overconfident in the systems we’ve built. I stressed that we must remain nimble in our reconsideration of past policies and practices as we prepare for the challenges to come.
In short, I endorsed our mission, rooted in the findings and purposes of the Commodity Exchange Act (CEA), and observed that defining the goals and objectives we pursue in executing that mission remains perpetually “subject to change.”
At the time, I believed that my success as a Commissioner would therefore be defined by my ability to ensure that interested parties were incentivized to work collectively in addressing issues, moving beyond differences in our preferred approaches, and collaboratively identifying and addressing new and emerging risks with knowledge gained from a decade of recovery and almost a century of history.
It’s been a few years since then, and a lot has happened. And while the Commission is currently down to a dynamic duo, my views on success for the Commission and myself as the Chairman have not been the subject of change -- only the goals, strategies, and plans for getting there have. With that, I would like to share my vision and preview the strategic plan for how the Commission will pursue its mission and the issues at the forefront of the policy agenda.
The Innovative Elephant in the Room
As many in the industry and the media are quick to bring to our attention, there is a growing concern that key areas of CFTC oversight have been so impacted in recent years by rapid technological innovation that there is a growing divergence between our regulations and the current marketplace. Associated with this view is often criticism that regulators cannot push ourselves past our own inertia. The quick to judge point to regulatory turf battles or the battleground itself, riddled with procedural potholes and abandoned, underdeveloped ideas awaiting resuscitation. However, those of us who are in the trenches have a different perspective and silence ought not always be mistaken for the sound of retreat.
Rest assured, we do know how to do hard things, and we are comfortable doing them as part of our core mission. Congress granted the CFTC broad authorities within the CEA to both regulate and define the scope of entities and activities that may fall within our jurisdiction. One such authority extends to cash market transactions. It is understood that the Commission may review cash market operations of exchanges and their members, and prevent and act against fraud or manipulation by any person in such markets. The Commission’s broadest authority in such an instance resides in the power to investigate in order to implement and enforce the CEA and Commission regulations.
The Commission more generally exercises its authority through the issuance of rules and regulations. While the Commission has historically refrained from exercising its cash market authority to its full potential as a policy of restraint, the Commission’s exercise of enforcement authority and resulting judicial interpretation has provided a meaningful, albeit sometimes imperfect, means of protecting customers and market integrity. However, I view the use of our enforcement authority to crystalize our law through judicial interpretation more as a feature of the system than a bug. Our Federal Court system is built on the idea of finding the truth of the matter—it is a proven process both for protecting customers and for giving accused wrongdoers the opportunity to be heard. The process provides certainty, not uncertainty.
I say all of this because the Commission’s exercise of its enforcement authorities to address misconduct that has a direct impact on CFTC jurisdictional markets, affects the larger economy, causes public harm, or interferes with market integrity is just one facet of our approach in innovation and evolution in the financial markets. I have persistently advocated for a more direct conversation regarding how innovative products and services fit within current legal and regulatory frameworks. Further, how can the Commission best serve technologists, market participants, customers, and the public in determining the need for additional rules or policy? And, should Congress step in? Our goal in this regard is to work collaboratively with all stakeholders to establish appropriate principles and structures in furtherance of well-reasoned and targeted regulation.
As more institutional traders migrate from bilateral trading to electronic platforms, there is a presumption that the rulebooks follow. However, the transition isn’t always direct, and unique attributes can be lost. And further adding to the complexities, a new set of market participants in the marketplace are finding their way—often without a clear understanding of traditional market structures. We all know from experience that institutional traders and participants follow well-established rules of exchanges and the CFTC, and while a few may stray and have the book thrown at them, a presumption of compliance is entrenched. However, as new participants and infrastructure providers gain easy access to the automated aspects of our markets, I have greater concern that in this environment— which can be game-like —active adherence to built-in limits and supervision, and constant monitoring for risky behaviors— and risk generally may not be so endemic.
To be clear, individual accountability and due diligence cannot be marginalized simply because the regulatory fit is not perfect. This is especially so where we operate within the flexibility of a principles-based regime deeply rooted in the public rulemaking process.
I am committed to ensuring that the rise of retail participation and the exchanges, intermediaries and innovators who are eager to meet demand for products and services are appropriately brought into the regulatory fold. Whether under the CFTC or another regulator, they must be incentivized or required to prioritize compliance and risk management. As barriers to access recede and there may be fewer traditional intermediaries, regulators will be increasingly tasked with evaluating existing regulatory programs, architectural features, and underlying infrastructure to ensure they are fit for purpose and require responsible behavior.
We must also remain vigilant and consider how any decisions we make could apply to new and emerging risks. And as always, whatever interpretation we pursue must not run counter to clear Congressional intent.
As such, we have included in our upcoming strategic plan a goal of encouraging innovation and enhancing the regulatory experience for market participants in the U.S. and abroad. Strategies towards achieving this goal include: increasing stakeholder engagement; leveraging principles-based regulation towards ensuring our regulatory approach is calibrated with the risks presented; ensuring adherence to well-defined, transparent, and consistent processes; harmonizing regulations for market participants subject to concurrent CFTC and SEC jurisdiction; and addressing risks and opportunities arising from significant emerging trends in derivatives markets, including DeFi, environmental, social, and governance (ESG) investing, digital assets, and event contracts.
Re-evaluation, Rectification, and Reformation
We can never assume that our work is done. There are always new issues to tackle and some issues that are not so new, but should have been addressed much earlier in our development. While our priorities will always rest with our core markets, that universe is forever expanding. We will continue to re-evaluate the reforms put in place in the wake of the financial crisis and will reconsider whether they remain fit for purpose. We will address new and emerging issues and risks. This cycle will continue as our goals will include strengthening the resilience and integrity of the derivatives markets while fostering their vibrancy, and doing so in a manner that promotes the interests of all Americans.
Meeting these goals includes reducing global market fragmentation while maintaining the high standards that have supported the U.S. central counterparties being among the soundest in the world, and advancing policies that deepen liquidity and increase transparency without reducing the risk-mitigating benefits of regulation. We will continue working with our international counterparts and participating in international standard setting bodies to advance thoughtful policy and discourage the appeal of racing to the regulatory bottom in individual jurisdictions. We will focus on keeping pace with emerging markets in the Middle East and Asia, especially as we consider the varying degrees to which there is adoption of policies relating to DeFi and crypto assets as well as ESG investing and climate-related product and markets. As well, the markets are still adjusting to Brexit and the global transition away from LIBOR remains on course, but there is still much to be done.
Meeting these goals also includes ensuring the derivatives markets remain an effective risk management tool for end-users and addressing the unique role played by agricultural community stakeholders and smaller financial institutions and market intermediaries within the market ecosystem. It means answering the President’s global call to tackle climate change by reinforcing the role of derivatives in confronting climate-related risks and supporting innovation that addresses these risks and supports capital allocation. The CFTC’s mission focused on risk mitigation and price discovery puts us on the front lines as we will need to use our wide-ranging and flexible authorities to address the impact of increasingly severe and frequent weather events as well as the orderly transition to a low carbon or net zero economy.
Underlying much of this is a strategy aimed at improving the agency’s collection, use, analysis, and protection of data. Regulators cannot afford to be awed by innovation; we need to comprehend it, and have meaningful dialogue with stakeholders. The realization of the promise and perils of innovation within our markets requires consideration of market utility, appropriately tailored oversight, customer protections, and accountability. At the CFTC, we are moving beyond the incubation stage. Real applications require us to move out of the sandbox and apply a more immediate and deliberate approach across the agency, and I am looking forward to the work ahead.
We are Subject to Change for the Better
Earlier this month I was pleased to introduce the CFTC’s very first Chief Diversity Officer as one of my first announced hires. I spent the last several years at the CFTC raising concerns regarding diversity, equity, and inclusion at the Commission. The creation of the Chief Diversity Officer position and the reorganization of the Office of Minority and Women Inclusion (OMWI) and equal employment opportunity (EEO) functions mark the beginning of the next chapter for the CFTC. We are at a break-through moment and we are primed for long-term structural change that I strongly believe will benefit the agency and our stakeholders.
If we are to operate as a Commission that is not only a good steward of taxpayer dollars, but is a genuine source of support for all of our valued team members, we must apply more than a band-aid to address wounds that are running deep. I understand that the problems to be solved require substantial internal and external input over time, and that they are further complicated by the ongoing pandemic. We are moving towards creating a more united workforce driven by strategically embracing and embedding diversity, equity, inclusion, and accessibility principles and best practices and equal opportunity into Commission culture and operations. I simply ask for patience and a little tolerance, because while this level of change may not be completely smooth, it is most definitely necessary.
A key part of the overall strategy, and one that is close to my heart, is to ensure the CFTC is a source of future leaders. Looking at our organizational chart, we are lacking not only diversity at our highest ranks, but we are lacking an entire population of junior staff members. To resolve this imbalance, I am directing an agency-wide strategic approach to human capital management to better attract, develop, retain, and promote a diverse workforce whose expertise will serve as a hallmark in the derivatives industry. As I said above in my conversation about the changing marketplace, this will require us to think, work and operate differently than we have before. This will not be easy, but I am motivated by the challenge, and I’m excited to get to work on this.
To Be Continued…
In closing, I want to thank you again for providing me a venue to deliver my first remarks as Chairman. Let me again remind you that there is much to come, especially as the confirmation process begins for four new CFTC Commissioners. Accordingly, while there is much I can say about my own vision and goals and the agenda I plan to set, because of the dynamic, ever changing markets we have the privilege of stewarding, it still may be “subject to change.”
 Rostin Behnam, Commissioner, CFTC, Our Collective Strength, Remarks of CFTC Commissioner Rostin Behnam at the 2018 ISDA Annual Japan Conference, Shangri-La Hotel, Tokyo (Oct. 26, 2018), Remarks of CFTC Commissioner Rostin Behnam at the 2018 ISDA Annual Japan Conference, Shangri-La Hotel, Tokyo | CFTC.
 See CEA section 3, 7 U.S.C.§ 5.
 Behnam, supra note 1.
 Rostin Behnam, Commissioner, CFTC, Statement of Commissioner Rostin Behnam Regarding COVID-19 and CFTC Digital Assets Rulemaking (Mar. 24, 2020), https://www.cftc.gov/PressRoom/SpeechesTestimony/behnamstatement032420 ..