Opening Statement of Commissioner Brian Quintenz before the CFTC Technology Advisory Committee
October 5, 2018
Good morning and welcome to our second meeting of the reinvigorated Technology Advisory Committee (TAC or Committee). Before we begin, I would like to thank all of the Committee members for so generously giving their time to participate today. The CFTC is lucky to have such a robust and esteemed group advising us, but the flip side of that coin is that such an esteemed group is undoubtedly one with many demands on their time, so I appreciate you all making this Committee’s work a priority.
At the conclusion of the February TAC meeting, the Committee voted to establish four subcommittees on crypto-assets, DLT, cybersecurity, and the automated algorithmic trading environment. Those subcommittees have been formed, populated, and meeting, and I would like to extend a warm welcome to all of the members of our subcommittees present today and thank those who aren’t here for their work. I look forward to your presentations regarding potential work streams to be advanced over the next year. I would also like to thank Dan Gorfine, the Acting Chair of the Committee and the Director of LabCFTC, as well as Jorge Herrada, for their tireless efforts to make this meeting a success.
As many of you know, this meeting follows a fascinating and incredibly successful two day fintech conference, called FinTech Forward, hosted by the CFTC. I am pleased this meeting builds on that exchange of information and dialogue.
We have an ambitious agenda for today. We will hear presentations from three of the TAC subcommittees outlining their progress to-date, as well as their plans for the future. We also have the pleasure of hearing from experts regarding the potential uses of RegTech solutions to facilitate compliance.
Virtual Currencies Subcommittee Presentation & Digital Asset Security Discussion
First, the Virtual Currencies subcommittee will present on the evolving cryptocurrency landscape, including questions surrounding the appropriate regulatory framework for various crypto-assets and trading platforms. Issues revolving around cryptocurrency volatility, custody, cybersecurity, taxonomy, and trading practices are all ripe for further discussion. The presentation should spur further discussion about how the CFTC, other regulators, spot platforms, and market participants can all contribute to enhancing this market’s credibility and safety.
Automated and Modern Trading Markets Subcommittee Presentation
Next, the Automated and Modern Trading Markets subcommittee will discuss its planned work over the next year to assess the true risks of the modern trading environment. At the last TAC meeting, I highlighted my hope that the TAC could assist the Commission in understanding whether exchanges and market participants are following best practices with respect to automated and algorithmic trading. To the extent market participants are not currently incentivized to follow best practices, or to the extent best practices are failing to adequately address certain risks posed by automated trading, the TAC can advise on whether regulation can play a constructive role in alleviating those risks.
We are fortunate that the International Organization of Securities Commissions (IOSCO) recently published eight recommendations to assist trading venues and regulatory authorities in implementing practices to manage extreme volatility and preserve orderly trading. With those overarching principles in mind, Bryan Durkin from the CME Group will present how CME has implemented trading and volatility controls that complement, and in some cases exceed, the recommendations put forth by IOSCO. I hope this presentation facilitates a broader discussion regarding whether U.S. exchanges’ trading controls meet the principles outlined by IOSCO, as well as what risks may exist beyond those controls’ impact.
RegTech and Robo-Rulebooks
The Committee will also hear from a panel about the feasibility of regulators issuing machine-readable and executable regulatory rulebooks to facilitate market participants’ RegTech compliance solutions. Although the financial markets are now largely digitized, the regulatory landscape has remained largely inaccessible from a digital perspective for a number of reasons: antiquated data formats, like PDFs, or the common practice of embedding regulatory requirements and relief in no-action letters, guidance, or preamble language, rather than rule text. I look forward to hearing from presenters about whether regulators have the tools to make their regulatory frameworks more digitally accessible. My hope is that conversations such as this one raise awareness and motivate agencies to make the conscious effort to publish their regulatory requirements to machine-readable formats.
Distributed Ledger Technology and Market Infrastructure Subcommittee Presentation
Finally, the TAC will hear a presentation from the Distributed Ledger Technology (DLT) and Market Infrastructure subcommittee regarding DLT’s potential for trade reporting. DLT’s potential to transform how firms handle execution, processing, reporting and recordkeeping of derivatives transactions is already being developed and tested. However, like most opportunities, using DLT for regulatory purposes also presents challenges. For example, in order to fully realize the efficiencies of DLT, regulators and market participants must move together to adopt interoperable technologies. A precondition for such widespread adoption involves individual firms deciding for themselves that there is a business case for DLT and choosing to invest in DLT infrastructure, rather than their existing back office processes. I look forward to hearing about these and other large questions raised by using DLT for trade reporting.
Taking a second to look ahead, we hope to schedule our next full meeting of the TAC in January 2019. At that time, we anticipate each subcommittee will present either additional analysis or some concrete recommendations regarding its particular subject matter area for the TAC’s consideration.
With that, I would now like to recognize Chairman Giancarlo and my fellow Commissioners to make their opening remarks.