Statement of CFTC Commissioner Dawn D. Stump on Data Protection Initiative

March 1, 2019

Santa Barbara, CA – Commodity Futures Trading Commission (CFTC) Commissioner Dawn D. Stump issued the following statement after announcing a Data Protection Initiative at the Managed Funds Association’s MFA West 2019 Conference:

“Today, I am proposing a pathway to enhancing the Commodity Futures Trading Commission’s data protection measures. Unfortunate realities in our current environment require regulatory agencies to contemplate the scope of our data intake needs while also considering the sensitivity of the data and the potential for unauthorized access.

My aim is to audit the current state of affairs at the CFTC and ensure that we only collect data required for our regulatory responsibilities, remove duplicative reporting streams, explore alternative mechanisms for accessing sensitive information, enhance internal controls for interacting with data, examine response procedures to cyber incidents, and update data retention best practices.

As a regulatory agency with both legacy and recently expanded oversight responsibilities, it is time for the CFTC to comprehensively evaluate our approach to data collection and implement consistent policies and procedures across the many functions required to carry out our mission. Over the course of the past few months I have benefited from many conversations with agency staff and am pleased to know that these matters are front of mind for many of my colleagues.     

The effort I seek to initiate today is a beginning step in evaluating our strengths and vulnerabilities, in an attempt to develop a meaningful policy adapted to ever-evolving threats and advances in data security.”

Remarks of CFTC Chairman J. Christopher Giancarlo at the DerivCon 2019 Conference, New York, NY

February 27, 2019

Keynote Address of Commissioner Dan M. Berkovitz at DerivCon 2019, New York, New York

Improving Swap Market Regulation:  Four Reforms

February 27, 2019

Thank you ISDA for hosting this conference and for offering me the opportunity to speak with you about our swap markets and potential reforms.

Before I begin, I am obligated to remind you that the views I express today are my own and do not represent the views of the Commission, its staff, or any of my fellow Commissioners.

I am going to talk today about the original policy goals for swap execution facilities (“SEFs”), how well the existing SEFs have achieved those goals, and some changes I believe will improve swap trading.

I support a fact-based approach to market regulation.  Rules governing our financial markets should be based on objective facts and data about how the markets are functioning.  We should not make fundamental changes to our regulations where the data indicates that the regulations and markets are functioning well and achieving their intended purposes.

I am very happy to report to you today that according to the data, SEFs are achieving many of the goals for which they were established.  Just over ten years ago, there was almost no electronic trading of swaps and little visibility into the swaps markets.  Although SEFs have only operated for about five years, ISDA’s most recent annual data show that about 55% of interest rate swaps and 97% of the main index credit default swaps were traded on SEF.[1]

This is a remarkable achievement.

There is even more progress to report.  The CFTC’s swap trading rules have led to more competition, more electronic trading, better price transparency, and lower spreads for swaps traded on regulated platforms.  SEFs and the market participants that trade on the SEFs – including many of you in this room – deserve the lion’s share of the credit for these accomplishments.

As I will explain, the methods of trading may not have turned out exactly as envisioned by the drafters of the SEF legislation and regulations.  The drafters anticipated much more exchange-like trading of swaps, where dealers and customers could trade together electronically with posted bids and offers. 

Yet in large part, the policy goals for the rules are being met.  The current regulations and markets are working for the benefit of end-users.  This is something we all should recognize and applaud.

So, where do we go from here?  In my view, it would be a mistake to overhaul a system that is achieving many of its objectives.  Instead, we should continue to look for ways to improve on this already strong foundation.  Later in my remarks I will identify four specific reforms that would further enhance the system now in place.

I had the privilege to serve as General Counsel of the CFTC during Congress’s consideration of the Dodd-Frank Act (“Dodd-Frank”).  It was exhilarating to work with the Congress, the new Administration, and industry to create an entirely new regulatory framework for our financial markets; to make them stronger, safer, and better able to serve the nation’s economy.  I continued in that role at the CFTC for the next few years as we developed the implementing regulations.  As many of you may remember, this too was an intense experience.

After I left the CFTC, I spent over four years in the private practice of law.  During that time, I advised SEFs, swap dealers, brokers, and end users on how to comply with the CFTC swap trading regulations.  I saw how much work it takes to develop a SEF, create a rulebook, develop products, understand the cross-border rules, comply with reporting and recordkeeping requirements, and—yes—respond to many CFTC requests for information.

I recognize that it is through the dedication and hard work of you and your colleagues in this industry that the SEF markets today in many respects are accomplishing the purposes of the Dodd-Frank Act and the CFTC’s regulations.  You deserve credit for and we should be proud of this progress.

WHAT WAS INTENDED

People often ask me: what did Congress really intend in Dodd-Frank for the trading of swaps?  And do the CFTC’s SEF regulations meet that intent?

I strongly believe that they do.  The swap trading provisions in the Dodd-Frank Act were intended to establish a trading framework consistent with the commitments made in September 2009 at the G20 summit of world leaders in Pittsburgh.  The Pittsburgh Summit was convened in the wake of the global financial crisis to set forth principles that the nations of the world should follow to make the global financial system safer and prevent future crises.

With respect to swaps trading, the G20 leaders declared:  “All standardized OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate . . . .”[2]  Where did this language come from?  It came from the United States Treasury Department.

Let me explain.  A few months before the Pittsburgh Summit, the Treasury Department sent to Congress a comprehensive proposal for financial regulatory reform.[3]  Regarding the trading of OTC derivatives, the Treasury advocated “moving the standardized part of these markets onto regulated exchanges and regulated transparent electronic trade execution systems . . . .”[4]  The world leaders in Pittsburgh adopted the Treasury’s language practically verbatim.

The Dodd-Frank legislation was designed to meet this commitment.[5]  Congress understood that swaps are different from futures and therefore did not prescribe that swaps be traded exactly like futures.   

But the drafters of the legislation specified that many of the principles that applied to futures exchanges, which worked well during the crisis, should apply to the swaps market, particularly for standardized swaps that are more like futures.  These principles included pre-trade transparency, electronic trading, and the ability of participants to interact with each other, not just a single dealer.  The legislation was not specific as to how to accomplish these objectives.  That was left to the CFTC’s discretion.

The SEF rules adopted by the CFTC in 2013 were designed to bring these principles of exchange trading to the swaps market.  Part of this design includes required methods of execution for liquid swaps.  The expectation was that if the SEF regulations mandated impartial access, order books, and RFQs, then those mechanisms would eventually be adopted, at least for the more liquid and cleared swaps.  The CFTC regulations do not require bespoke swaps to be traded on a SEF.  If they are, any method of execution may be used.

WAS THE ORIGINAL INTENT ACHIEVED?

As I mentioned earlier, the drafters of the CFTC’s regulations pictured a market structure that would be somewhat different from the current evolution.  The order book is used less than expected.  RFQ is used more than expected.  There are still major markets where dealers trade only with other dealers.  Proprietary traders have generally not entered the market.  The universe of swaps made-available-to-trade has achieved a steady-state, rather than continued to expand.

Nonetheless, I think many of the drafters would agree that we have made tremendous progress towards accomplishing the goals of the legislation and regulations.  For example, the RFQ system is working for many interest rate and index credit default swaps that are traded on SEF.  RFQ trading is providing better pricing for swap customers.

Studies by the Bank of England, economic academics, and the CFTC’s own economists have documented the benefits of the current regulations and market structure, in terms of tighter spreads and lower transaction costs.  I encourage you to review my dissenting statement to the proposed SEF rule amendments where I identify and summarize these studies.[6]

THE PROPOSED SEF REGULATIONS

The proposal issued by the Commission last November to overhaul the SEF rules (“Proposal”) is inconsistent with the swap trading provisions of the Dodd-Frank legislation and our G20 commitments.  The Proposal would abandon the methods of execution requirements that ensure that SEFs enable market participants to trade highly liquid standardized swaps with each other openly and competitively.  The Proposal would gut the impartial access requirement and instead permit SEFs to discriminate against entire classes of market participants.

In tandem, the removal of the requirements for impartial access and competitive methods of execution for sufficiently liquid standardized swaps would revert the swap markets to the pre-crisis, pre-reform era when markets were opaque and nearly all swaps were traded with dealers through voice brokers or on single-dealer platforms.  Although the Proposal repetitively claims that new flexible methods of execution will suddenly appear and reduce costs, the Proposal does not provide a single example of a new method of execution that will provide better swap pricing than the RFQ or Order Book.  This Proposal will darken the markets and increase prices for swap customers.

These are not the only major changes called for by the Proposal.  In fact, the Proposal amends nearly every provision in the SEF regulations.  Though I do not have time today to catalogue all of the issues this presents, I will mention just a few more.

The Proposal would mandate that all cleared swaps – even the illiquid ones – be traded on a SEF, which would impose considerable new requirements and costs upon market participants without commensurate benefits.  The Proposal would mandate all pre-trade communications to be on-SEF, even for highly bespoke products that may require pre-trade structuring.  The Proposal would dismantle requirements for straight-through processing that are necessary to make trading efficient and impartial.  Nearly all introducing brokers for swaps now would have to register as SEFs themselves or become “SEF trading specialists,” a new category of market participant.

These are all fundamental changes to the market.  As a practical matter, the Proposal would disrupt the SEF trading framework that has been working and that the industry has invested substantial sums of money in building.  It would require significant new expenditures by SEFs and market participants to retool trading infrastructures, procedures and strategies.  Not only is the proposed overhaul unnecessary and costly, but from a public policy perspective, the Proposal would drag the SEF platforms and trading structure further away from the original policy goals.

WHERE DO WE GO FROM HERE?

As we move forward, we should build on our progress, not tear it down.  We should broaden participation in these markets, not restrict it.  And we should foster competition, not impede it.

I propose an alternative path forward to increase participation, promote competition, and reduce concentration within the existing framework.  These changes would lead to better prices, smaller spreads, and healthier markets.

One of the unforeseen developments in the swaps market since the passage of Dodd-Frank has been the increase in concentration in both trading and clearing.  Although the Dodd-Frank reforms may have helped increase competition in the swaps market, there are still not enough competitors.  The CFTC’s swap data shows that swap trading and clearing is concentrated in the largest bank dealers and futures commission merchants (“FCMs”).

For swaps trading, the five largest registered swap dealing financial institutions were party to 70% of all swaps and 80% of the total notional amount traded.[7] 

Large Swap Dealer
Market Concentration^[8]

Concentration in swap clearing is also increasing.  The five largest FCMs—all of which are affiliated with large banks—provide clearing services for about 80% of cleared swaps.[11]  The eight largest firms clear 96% of cleared swaps.  A single FCM clears over 27% of cleared swaps.

The Financial Stability Board says the concentration in clearing may be a source of systemic risk.[12]  Observing that the provision of clearing services for swaps is “generally concentrated,” the FSB warns: 

[C]oncentration in clearing service provision could amplify the consequences of the failure or withdrawal of a major provider.  In particular, concerns have been expressed about the ability to port client positions and collateral in this situation.[13]

IMPROVING SWAP TRADING:  FOUR REFORMS

Rather than rewrite the SEF trading Regulations, I favor a targeted, data-based approach to increase liquidity and competition.

One of the purposes of the Commodity Exchange Act is to “promote . . . fair competition.”[14]  I am not proposing to inhibit large dealer activity in competitive markets.  I recognize their important role in the swap markets.  Rather, we should take steps to encourage new sources of liquidity that will increase competition and price discovery, and will also reduce systemic risks.  The changes I am proposing will increase the diversity of liquidity providers in the swap markets, increase competition, and increase the availability of clearing without disrupting the existing system. 

I support four specific reforms:  expand floor trader registration, abolish name give-up, enable average pricing, and fix the leverage ratio.

Expand Floor Trader registration.  Many proprietary traders make markets in swaps without the traditional dealer-customer relationships.  CFTC studies have shown that in times of market stress, principal trading firms have remained in other markets as an important source of liquidity.[15] 

To accommodate this type of market making, which provides substantial liquidity and price discovery, the Commission provided a simpler floor trader registration as an alternative to full swap dealer registration.

Many of these proprietary traders act as market makers in futures, equities, and FX markets and have expressed interest in doing so for liquid swaps.  Unfortunately, the current floor trader rule has proven to be overly restrictive and not a viable way to gain entry into our markets.  The Commission should amend the floor trader provision so that the proprietary market makers can become an alternative source of liquidity for standard swap trading on SEFs.

Abolish Name Give-Up.  The Commission should prohibit the practice of name give-up for certain anonymously traded and cleared swaps.  Name give-up is a major deterrent to non-dealer market makers and buy-side firms who would like to participate in what are now dealer-only markets.  Name give-up provides the dealers valuable information about a counterparty’s positions.  It is unnecessary for cleared swaps traded anonymously for which pre-trade credit clearance occurs.  We should eliminate name give-up for the cleared interest rate and credit default swaps that are made available to trade on SEFs and DCMs.

Enable average pricing.  Investment managers use average pricing, which is available in futures markets, to allocate trades to different funds under management.  Average pricing is not available for many swaps traded on SEFs.

These investment managers provide significant sources of liquidity.  The Commission should work with market participants and SEFs to enable average pricing for buy-side swap trades.  

Revise bank capital requirements impacting bank FCMs.  The bank capital requirements imposed by the prudential regulators include a provision called the supplemental leverage ratio, or “SLR.”  The SLR requires banks to hold an amount of highly liquid capital determined by the total assets held by the bank.  The greater the amount of assets, the greater the amount of required capital.

The SLR regulations, under both current law and the prudential regulators’ proposed revisions to how the SLR is calculated, require a bank FCM that is holding a customer’s initial margin to count the margin as bank assets subject to the SLR even though these funds cannot be used as leverage.  The SLR capital requirements therefore increase the cost of clearing without a commensurate benefit.

As currently drafted, the SLR works at cross-purposes with the provisions of the Dodd-Frank Act that encourage swap clearing.  The Commission should continue to work with the prudential regulators to ensure that bank capital requirements are adequate from a risk perspective, but do not discourage the provision of clearing services by bank FCMs.[16]

CONCLUSION

Some of you may be familiar with the legal concept of “stare decisis.”  In Latin, this means “to stand by things decided.”  In other words, a court should not overturn a prior decision without good reason.  I’m not a judge, but it seems to me that a similar principle should guide regulatory agencies.  We should not overturn existing rules without good objective reasons.  You can imagine the upheaval to industry and the public if rules were changed every time a regulator had a new idea about how the markets “should” work.

In preparing these remarks I looked up the phrase “stare decisis.”  It is part of a longer Latin phrase:  stare decisis et non quieta movere, which means “stand by the thing decided and do not disturb the calm.” 

Here in America, we don’t need to speak Latin.  We have a perfectly good expression that captures the same idea:

“If it ain’t broke, don’t fix it.”

I look forward to reading your comments on the SEF Proposal and to working with you on targeted reforms that enhance the safety and competitiveness of our markets. 

THANK YOU.

[1] ISDA, SwapsInfo Full Year 2018 and Fourth Quarter of 2018 Review, at 2-4 (Jan. 2019),   http://isda.informz.net/z/cjUucD9taT03MjYwNzA2JnA9MSZ1PTg0MzU0Nzk3MyZsaT01NTMwNDMyMQ/index.html.

[2] G20, Leaders’ Statement: The Pittsburgh Summit, at 9 (Sept. 24-25, 2009), https://www.treasury.gov/resource-center/international/g7-g20/Documents/pittsburgh_summit_leaders _statement_250909.pdf (emphasis added).

[3] U.S. Dep’t of the Treasury, Financial Regulatory Reform, A New Foundation:  Rebuilding Financial Supervision and Regulation (June 17, 2009), https://www.treasury.gov/initiatives/wsr/Documents/FinalReport_web.pdf.    

[4] The Treasury’s proposal also addressed clearing and reporting:

Market efficiency and price transparency should be improved in derivatives markets by requiring the clearing of standardized contracts through regulated CCPs as discussed earlier and by moving the standardized part of these markets onto regulated exchanges and regulated transparent electronic trade execution systems for OTC derivatives and by requiring development of a system for timely reporting of trades and prompt dissemination of prices and other trade information.

Id. at 48.  At his confirmation hearing in January 2009, Secretary Geithner first articulated the new Administration’s goal of moving the trading of standardized swaps onto exchanges:  “We want to make sure that the standardized part of those markets moves into a central clearinghouse and on to exchanges as quickly as possible . . . .”  Hearing Before the S. Comm. on Finance, Nomination of Timothy Geithner, 111th Cong. 52 (Jan. 21, 2009) (testimony of Timothy Geithner), available at https://www.finance.senate.gov/download/2009/01/21/nomination-of-timothy-f-geithner.  Similarly, Gary Gensler, the Administration’s nominee to be Chairman of the CFTC, stated in his confirmation hearing, “[W]e must now urgently develop a broad regulatory regime for over-the-counter derivatives.   Standardized products need to be brought onto mandated clearing and mandated exchanges.”   Hearing Before the Senate Committee on Agriculture, Nutrition and Forestry, Nomination Hearing to Consider Gary Gensler to be Chairman of the CFTC, 111th Cong 10. (Feb. 25, 2009) (statement of Mr. Gensler), available at https://www.agriculture.senate.gov/hearings/nomination-hearing-to-consider-gary-gensler-to-be-chairman-of-the-cftc.  In a letter dated March 26, 2009 to Senate Majority Leader Harry Reid, Secretary Geithner more specifically stated the Administration’s objectives on regulatory reform for the derivatives, using language identical to that which later appeared in the June document (available in author’s files).

[5] The Conference Report on the legislation contains language similar to the G20 commitments:  “Mandatory trading on an exchange or [swap execution facility] should the transaction be cleared and a facility will accept it for trading.”  Dodd-Frank Wall Street Reform and Consumer Protection Act, Conference Report To Accompany H.R. 4173, H.R. Rep. No. 111-517, 111th Cong., at 869 (June 29, 2010).

[6] See Dissenting Statement of Commissioner Dan M. Berkovitz, 83 Fed. Reg. 61946, 62144.  See also Evangelos Benos, Richard Payne & Michalis Vasios, Centralized trading, transparency and interest rate swap market liquidity: evidence from the implementation of the Dodd-Frank Act, Bank of England Staff Working Paper No. 580 (May 2018); Pierre Collin-Dufresne, Benjamin Junge & Anders B. Trolle, Market Structure and Transaction Costs of Index CDSs (Sept. 12, 2017); and Lynn Riggs (CFTC), Esen Onur (CFTC), David Reiffen (CFTC) & Haoxiang Zhu (MIT, NBER, and CFTC), Swap Trading after Dodd-Frank:  Evidence from Index CDS (Jan. 26, 2018).

[7] There are about 60 distinct corporate families that have registered swap dealers.  Of those 60 swap dealers, 5 are party to 70 percent of all reported swap transactions and 80 percent of the notional value of all swaps reported. 

[8] Swap Data Repository data for calendar year 2017.  For more details on the data set used, see Notice of Proposed Rulemaking, De Minimis Exception to the Swap Dealer Definition, 83 FR 27444, 27449-50 (June 12, 2018).   A recent report by Greenwich Associates makes similar findings.  See Top Dealers Continue to Dominate Swaps Business, Greenwich Associates (January 31, 2019), https://www.greenwich.com/fixed-income/top-dealers-continue-dominate-swaps-business-0.

[9] CFTC registered swap dealer data aggregated by corporate family (i.e., a number of financial institutions register more than one subsidiary as swap dealers.  The swaps for the family are aggregated for this table.)  The “5 largest” institutions represent the five corporate families that were party to the highest aggregate gross notional amount (“AGNA”) of swaps per family in 2017.  The “10 largest” institutions represent the top 10 families by AGNA.

[10] A swap trade is counted for the five largest or ten largest cohorts if at least one swap dealer in the cohort is a party to the swap.  The trade or notional amount is counted only once for the cohort to eliminate double counting within the cohort.  For example, if both parties to a swap were in the same cohort (e.g., the first and third largest institutions were parties to the same swap transaction), then the notional amount is counted only once for the “5 largest” cohort. 

[11] Concentration numbers for clearing services are calculated from data reported by FCMs and released in CFTC’s Financial Data for FCMs, as of December 31, 2018, under entry “Customer Account Cleared Swap Seg Required,” available at https://www.cftc.gov/sites/default/files/2018-12/12%20-%20FCM%20Webpage%20Update%20-%20December%202018.xlsx.  

[12] Financial Stability Board, Incentives to centrally clear over-the-counter (OTC) derivatives: A post-implementation evaluation of the effects of the G20 financial regulatory reforms—final report (Nov. 19, 2018), http://www.fsb.org/wp-content/uploads/R191118-1-1.pdf.    

[13] Id. at 3.

[14] 7 U.S.C. § 5(b).

[15] U.S. Dep’t of the Treasury, Bd. of Governors of the Fed. Reserve Sys., Fed. Reserve Bank of New York, U.S. Sec. and Exchange Comm’n, U.S. Commodity Futures Trading Comm’n, Joint Staff Report: The U.S. Treasury Market on October 15, 2014, at 21 (July 13, 2015), https://www.treasury.gov/press-center/press-releases/Documents/Joint_Staff_Report_Treasury_10-15-2015.pdf (“During the event window, the data show that the relative share of PTF trading activity increased as prices and volumes rose sharply (9:33 to 9:39 ET), comprising about 73.5 percent and 68.4 percent of trading volume in 10-year note cash and futures markets, respectively, while the relative share of bank-dealer trading activity declined to 21.4 percent and 14.1 percent.”); see also CFTC Staff Report, Sharp Price Movements in Commodity Futures Markets, at 13 (June 2018), https://www.cftc.gov/sites/default/files/2018-06/SharpPriceMovementsReport0618.pdf (“[T]his work appears to dispel at least one contemporary narrative: the notion that recent changes in market structure, particularly the growing presence of principal trading firms and high frequency trading, has in some way made markets less stable. DMO staff’s research does not support this narrative.”).  

[16] On February 15, 2019, Chairman Giancarlo, Commissioner Quintenz, Commissioner Benham and I submitted a comment letter to the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, and Federal Deposit Insurance Corporation on the proposed rulemaking to implement a new approach for calculating the exposure amount of derivatives contracts under the agencies’ regulatory capital rules, urging that initial margin not be included in the calculation of the SLR.  Our letter is available at:  https://www.cftc.gov/sites/default/files/2019-02/SA-CCRCommentLetter021519.pdf.

CFTC Spokesperson Statement on DRW Case

February 27, 2019

Washington, DC – A spokesperson for the Commodity Futures Trading Commission (CFTC) issued the following statement regarding the decision not to appeal the 2018 decision in CFTC v. Wilson et al., which followed a bench trial that concluded on December 7, 2016:

 "After careful consideration of the issues, as well as discussions with agency staff and Commissioners, Chairman Giancarlo has decided that the agency will not appeal the district court’s decision in CFTC v. Wilson et al.," said CFTC Director of Public Affairs Erica Elliott Richardson. "While the agency will not move forward with this case, it will continue to vigorously enforce the Commission’s anti-manipulation provisions and prosecute cases through trial where necessary."

Remarks of CFTC Commissioner Brian D. Quintenz at DerivCon 2019

February 27, 2019

Introduction

Thank you for that very kind introduction.

Before I begin, let me quickly say that the views contained in this speech are my own and do not represent the views of the Commission.

The game of Polo was created 2000 to 2500 years ago during the Persian Empire and was first conceived as a training tool for the military cavalry.  It quickly developed into a formal competition among nobles, and Persians adopted it as their national sport around 600 AD.  Polo spread through various regions in Asia before taking root in India in the 13th century.  It wasn’t until the mid-1800s during the Colonial Era when it was embraced there by the British, who brought the sport back to the British Isles, formed clubs, and established rules.

One rule, established in the 1930s, outlawed playing left-handed.  Polo mallets should only be held and swung with the right hand, the logic went, since, if two players approached the ball from opposing sides while using opposing arms, their horses would collide.

Imagine for an instance how it would change baseball if batters could only bat right-handed. Switch hitters would no longer serve any purpose, nor would left-handed hitters for that matter. Obviously, rules are tailored to the games.  Rules created for the safety of one sport may, if unilaterally transposed, undermine another.

The same is true for market regulation.  The rules governing trading must reflect the players, their objectives, the markets, and the products; marketplaces are not one-size-fits-all.  Neither should be our rules.

The current SEF Proposal[1] would eschew many of the prescriptive requirements of the current regime transposed from the futures “pitch” in favor of a principles-based approach better suited to the swaps “field.”  It does so in part by allowing SEFs to compete based upon offering the most efficient, cost-effective means of execution that are most attuned to the trading needs of its customers.  I believe this greater freedom to innovate will ultimately foster liquidity, attract more participants onto SEFs, lower transaction costs, and promote trade transparency.

In particular, I wanted to emphasize how critical I believe the Proposal’s embrace of flexibility and heterogeneity in execution methods is for the health and growth of SEF trading.  While some swap products are standardized and highly liquid, many other swap products are bespoke, thinly traded, and prone to episodic liquidity.  Yet, the 2013 SEF framework adopted by the Commission relies heavily upon the regulatory framework for futures markets – markets known for their standardization and continuous liquidity.  Indeed, in the 2013 SEF Final Rule, the Commission stated that one of its goals was “to harmonize the final SEF regulations with the DCM regulations in order to minimize regulatory differences between SEFs and DCMs….”[2] This Proposal seeks, for the first time, to stop trying to squeeze the swaps market into a regulatory model designed for futures and acknowledges the unique needs of swap market participants to have access to a diverse range of trading methods and protocols that reflect the diversity and complexity of the products traded.

I want to focus on a few aspects of the Proposal that are intentioned to promote competition and innovation among SEFs to the benefit of market participants by removing some of the more prescriptive elements of the current SEF framework.  In particular, I would like to focus on (i) gradually bringing more swap products onto SEFs, (ii) expanding the modes of execution available on SEFs consistent with the Commission’s statutory mandate, and (iii) reviewing how we think about pre-trade communications.

I am also mindful that, in the Commission’s efforts to improve upon the current regime, we need to recognize how and why transparency, liquidity, and competition have increased in swaps trading since 2013 as well as understand that liquidity’s vulnerability or resiliency to additional policy changes.  Indeed, over the past five years, a significant amount of swaps trading has moved from the OTC markets to regulated SEFs.  In the first few months of 2019, approximately 62% of total IRS traded notional occurred on-SEF, about 53% of which was voluntarily traded.[3]  This is an impressive achievement and we should seek to build upon it where appropriate.  With that goal in mind, there may be aspects of the Proposal – some of which I will touch upon today – that should be implemented or adjusted to better promote price discovery and liquidity on SEFs and create a vibrant, competitive swaps trading marketplace that works for all market participants.

Bringing More Swaps onto SEFs

First, the Proposal would significantly expand the types of swaps required to be traded on SEFs—so-called “Required Transactions”—to be coextensive with the clearing requirement, in line with the statute.[4]  In order to facilitate this broader trading mandate, as noted above, the Proposal would also eliminate any required methods of execution – allowing firms to choose the method most appropriate for their trading.  I will come back to this point later – but first, more on expanding the trade execution mandate.

Generally, the Commodity Exchange Act (CEA) provides that swaps that are subject to the clearing mandate must also be traded on-SEF if at least one SEF makes the swap “available to trade.”[5]  In 2011, when the Commission was first considering what it means for a SEF to “make a swap available to trade,” some market participants expressed concern that a SEF might list an illiquid swap for trading in order to establish a monopoly in trading for that swap.  In other words, a SEF could have an incentive to be a “first mover” to list a swap, regardless of whether it could effectively be executed on the SEF under one of the restrictive, required execution methods, because, once the swap was listed, all market participants would have to execute it on that SEF until other SEFs caught up.

The Commission tried to address some of those concerns by adopting the current “made available to trade” (MAT) process, which requires SEFs to consider a swap’s liquidity before determining that the swap should be “made available to trade.”[6]  However, it is now clear that the MAT process is broken.

Beyond the initial set of MAT determinations made over five years ago, the Commission has not received any filings for additional swaps – even despite the subsequent expansion of the clearing mandate.  Instead of a rush to file MAT applications, SEFs have been reluctant, partially because, as I understand it, some SEFs do not want to be in the business of making determinations applicable to the entire market about what swaps should be mandatorily exchange-traded.

The Proposal would address this problem by eliminating the current MAT process, which is not required or contemplated by the statute.  In doing so, I believe the Proposal more faithfully adheres to the CEA’s language that ties mandatorily cleared products to mandatory platform execution.

Indeed, many of the swaps subject to the clearing requirement are already being listed and actively traded on SEFs through flexible execution methods, despite the lack of a MAT determination.  In 2018, 54% of all SEF trades were non-MAT trades that were voluntarily traded on-SEF.[7]  Many of these trades are currently subject to the clearing requirement and are highly standardized, liquid products, like forward rate agreements (FRAs) and overnight indexed swaps (OIS).[8]  Extending the statutory trade execution mandate to these products should pose little cost given their liquidity profile and should also achieve the benefits of increased transparency, competition, and platform oversight.  Of course, even with highly liquid products, I think market participants and SEFs should be provided with appropriate transition time to implement any technological upgrades and onboarding processes necessary in order to avoid causing any market disruption.

I have also heard from some market participants that there is a subset of swaps subject to the clearing mandate that are not yet, and may never be, sufficiently liquid to be mandatorily SEF-traded.  I recognize that the liquidity necessary to support clearing is not necessarily the same as the liquidity necessary to support trading.  I believe there are ways to address these concerns in any final rule, for example, perhaps by providing that a swap must be listed by a minimum number of SEFs before becoming subject to mandatory trading.  There are likely other solutions as well.

I am interested to hear from market participants about how they think the SEF trading mandate can be appropriately expanded in line with the statute while also being implemented in an orderly and effective manner.

Methods of Execution

Of course, bringing these additional products onto SEFs is only made possible because the Proposal would abandon the prescriptive execution methods for Required Transactions under the current regime.  Currently, Required Transactions must be executed on a SEF by either (i) placing a bid or offer through a CLOB that is available to all SEF participants; or (ii) sending a “request for quote” to three other SEF participants.[9]  These limitations were established despite the CEA’s clear directive that SEFs can facilitate swaps trading “through any means of interstate commerce.”[10]

By dictating how Required Transactions are executed, the current regime forecloses any number of alternatives that could create liquidity on-SEF and better address the highly variable, bespoke nature of many swaps. Moreover, given that Order Books have not evolved to be a popular mode of SEF execution, requiring all SEFs to maintain and operate such trading functionality imposes an unnecessary, significant cost on the platforms.[11]

Under the Proposal, the only minimum trading functionality a SEF must have on an ongoing basis is directly tied to the definition of SEF under the CEA, which states that a SEF must operate a “trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by other multiple participants … through any means of interstate commerce ….”[12]  Thus, under the Proposal, so long as the SEF offers “multiple-to-multiple” trading, it may offer any mode of execution it wishes for any swap, regardless of whether it is voluntarily or mandatorily traded on-SEF.  Execution methods designed to help create liquidity for bespoke or episodically liquid swaps, like auction platforms or flexibly conducted trade work-up sessions, would be permissible.  And if a SEF wishes to continue to offer a CLOB or RFQ-3, it may do so.

Irrespective of the statutory requirement to allow for any means of interstate commerce, some have expressed concerns that eliminating the current restrictive set of execution methods could promote dealer hegemony, resulting in a return to a pre-Dodd-Frank Act world of swaps trading where end-users could even lose access to basic forms of execution like RFQ-3.  Instead, they argue in favor of mandating the form and manner of the competitive environment, by restricting the only two forms of acceptable “multiple-to-multiple” trading on SEFs to the CLOB or RFQ-3 for Required Transactions.

These two policy approaches, both supposedly aimed at “promoting” competition, are strikingly different.  In my view, one seeks to provide SEFs the flexibility and freedom to innovate and experiment with new methods of “multiple-to-multiple” trading that could be tailored to each product; the other seeks to restrict those methods to a small subset, creating a one-size-fits-all execution regime. The latter approach will inevitably lead to market stagnation, maintenance of the status quo, and disincentives from conducting certain trades on SEFs.  In contrast, the Proposal’s approach will allow SEFs to actually compete based on the merits of their trading functionality and ability to provide participants with liquidity and competitive pricing.

As a reminder, the CEA as amended by Dodd-Frank makes no mention of Required or Permitted Transactions, nor of the necessity of executing MAT swaps by CLOB or RFQ-3.  Instead, the statute, like the Proposal, only requires that SEFs offer platforms that facilitate multiple-to-multiple trading “through any means of interstate commerce.” Congress did not dictate the means by which sophisticated market participants should execute their swap transactions. In my view, the Commission’s 2013 decision to prescribe execution methods substituted its judgment over the expertise and judgment of market professionals, and, more importantly, is not supported by the statute.

I am interested to hear from others about their views on this topic, and, more broadly, on what the Commission should and should not view as “multiple-to-multiple” trading functionality.

Pre-Trade Communications

Lastly, given the expansion of swaps required to be traded on-SEF under the Proposal, I want to briefly address concerns about pre-trade communications.  Currently, counterparties can pre-negotiate the terms of MAT trades, so long as they bring the swap back onto the SEF prior to execution.[13]  As a result, a substantial amount of pre-execution negotiation and price formation is currently occurring away from SEFs, only to be brought back onto the SEF immediately prior to execution.  The Proposal aimed to move this price discovery and formation process onto the SEF by requiring all pre-execution communications for MAT transactions to occur through SEF facilities – meaning that parties can no longer negotiate terms bilaterally or through brokers.

I have heard concerns that this prohibition could disrupt dealer-to-client trading in certain products due to the nature of negotiations between clients and their preferred dealers on the swap terms prior to execution on-SEF.  Understandably, some clients have longstanding relationships with certain dealers and wish to continue to be able to communicate with them directly.  I do not think it was the intent of the Proposal to disrupt these traditional trading relationships.  That is why the proposal asks many questions on this issue to gain a better understanding.  I am also interested to hear from market participants about how pre-execution communications for MAT transactions could be accommodated in a way that would not impede liquidity formation and pre-trade price discovery on-SEFs.

Conclusion

In closing, I look forward to working with all of you to ensure our SEF regulatory framework supports a competitive, vibrant trading environment that works for all market participants.  Thank you so much for having me here today.

Remarks of Chairman J. Christopher Giancarlo at the U.S. Department of Agriculture (USDA) 95th Annual Outlook Forum

February 21, 2019

Introduction

Secretary Perdue, Deputy Secretary Censky, USDA Chief Economist Rob Johanssen, USDA staff, my CFTC colleagues and other distinguished guests: thank you for the opportunity to speak to you tonight at United States Department of Agriculture’s 95th Outlook Forum.

For almost a century, this forum has brought together thought leaders to consider critical issues facing agriculture.  I applaud the Department for this enduring institution.  It is tremendously important.

I am very honored to be speaking to you.  You know, the chances were pretty slim that a guy like me from New Jersey, would ever become chairman of the U.S. Commodity Futures Trading Commission.  The odds were even thinner that two people, Commissioner Russ Behnam and I, from the same country in New Jersey would serve together at the CFTC, as we do today.

Believe me, the odds were almost impossible that a Jersey guy would be the dinner speaker at the USDA’s big annual event!

But, again this is America, where amazing things happen all the time.

Depth and Diversity of American Agriculture

And, you know, there’s a reason New Jersey is called the “Garden State.”  It is a top producer for such items as cranberries, blueberries, peaches, bell peppers, spinach and tomatoes. Its diversity of agriculture production compares favorably with America’s largest fruit, vegetable and nursery-stock producing states.  It is notable that, based on highest dollar value per acre, New Jersey is the most productive farmland in the United States.[1]

And, I know that Secretary Purdue is aware of this, because he just spent a few days touring New Jersey farms and meeting its producers. Our state and our country is fortunate to have such an Agriculture Secretary who is so tireless in understanding the concerns of American farms – from the smallest patch to the largest expanse – and fighting for their success.

Back in 2014, when President Obama nominated me to the Commodity Futures Trading Commission, I made a commitment to the Senate Committee on Agriculture that I would travel the country and meet with farmers and ranchers.  I promised to learn about their businesses and see first-hand the challenges they face.

In 2017, when President Trump nominated me to be Chairman of the CFTC, I renewed that pledge to keep agriculture and its challenges front and center at the agency.

During my term, I have travelled the country and visited farm country in over two dozen states from Montana, Texas, Arkansas, Louisiana and Iowa to Minnesota, Missouri, New York, Georgia, Mississippi and Oklahoma.  I have walked in wheat fields and harvested soybeans, tramped through rice farms and beneath pecan groves, milked dairy cows and toured feed lots, visited grain elevators and viewed cotton gins.  Throughout, I have been moved by the diverse beauty of this country.  I have come to love its farming families.  I know what a blessing that has been.

And, what an education for a kid from Jersey.  I was struck by the creative and innovative approaches underway in American agriculture.  They reflect fortitude and drive required to meet the challenges of the 21^st century.  It is clear that producers are first and foremost business owners who must stay focused on developments in their industry both technologically and commercially.  Food production in the 21^st century requires enormous ingenuity, technological savvy and expertise.  Staying competitive in today’s global economy requires new tools to keep up with growing world food demands while protecting the environment, managing costs and risk.

And, as we all know, agriculture is a risky business – which I believe is why I am here with you tonight.

Commodity Derivatives Help Manage Production Risk

For more than a century, American farmers have relied on U.S. derivatives markets to manage risk.  These markets allow farmers, ranchers, and producers to hedge production costs and delivery prices so that consumers can always find plenty of food on grocery store shelves.  They are one reason why American consumers enjoy stable prices, not only in the supermarket, but in all manner of consumer finance from auto loans to household purchases.

Derivatives markets influence the price and availability of heating in American homes, the energy used in factories, the interest rates borrowers pay on home mortgages, and the returns workers earn on their retirement savings.

Commodity derivatives markets provide a critical source of information about future harvest prices.  A grain elevator uses the futures market as the basis for the price it offers local farmers at harvest.  In return, farmers look to exchange prices to determine for themselves whether they are getting fair value for their production.  USDA uses that same information to make price projections, determine volatility measures, and make payouts on crop insurance.[2]

More than 90% of Fortune 500 companies use derivatives to manage commercial or market risk in their worldwide business operations.[3]  These markets allow the risks of variable production costs, such as the price of raw materials, energy, foreign currency, and interest rates, to be transferred from those who cannot afford them to those who can.

In short, derivatives serve the needs of American society to help moderate price, supply and other commercial risks to free up capital for economic growth, job creation and prosperity.  While often derided in the tabloid press as “risky,” derivatives – when used properly – are tools for efficient risk transfer and mitigation.  It has been estimated that the use of commercial derivatives added 1.1% to the size of the U.S. economy between 2003 and 2012.[4]

US Commodity Futures Are a Global Product

Today, American derivatives markets are the world’s largest, most developed, and most influential.  They are relatively unmatched in their depth and breadth, providing deep pools of trading liquidity, low transaction cost and friction and participation by a diverse array of global counterparties.  They are also some of the world’s fastest growing and technologically innovative.

U.S. derivatives markets are also unmatched in efficient and undistorted price discovery.  The value of many of the world’s most important agricultural, mineral, and energy commodities is reliably established in U.S. futures markets.  And those prices are set in U.S. dollars.  Dollar pricing of the world’s commodities provides an enormous and unparalleled advantage to American producers in global commerce.  The advantage being that, with dollar pricing, both producers and consumers do not need a currency hedge on top of their commodities hedges.

We cannot take for granted having the world’s leading futures markets.  There have been serious new entrants, like China, the world’s largest consumer of oil and fuel and a major global purchaser of iron ore for its world leading steel production.  China is opening its domestic futures markets to international participation.  It is also seeking to develop Chinese commodity futures markets as viable regional price benchmarks for key industrial commodities.[5]  Slower growing economies, like Europe’s, also seek to increase their competitiveness against U.S. Dollar pricing of global commodities.[6]

These moves challenge us to ensure that America’s well-regulated derivatives markets remain open, orderly and highly liquid.  We must do everything we can to ensure that they continue to provide domestic and international participants with the world’s most accurate price discovery, lowest friction execution and the deepest trading liquidity.  To borrow this forum’s theme – America’s futures markets are grown locally and used globally.  Let’s keep it that way.

Independent and Effective Market Regulation

American derivatives markets are also the world’s best regulated.  The United States is the only major country in the Organization for Economic Co-operation and Development to have a regulatory agency specifically dedicated to derivatives market regulation: the CFTC.  There is a connection between having the world’s most competitive derivatives markets and effective Federal regulation.  For over forty years, the CFTC has been recognized for its principles-based regulatory framework and econometrically-driven analysis.  The CFTC is respected around the world for its depth of expertise and breadth of capability.

The combination of regulatory expertise and competency is one of the reasons why U.S. derivatives markets continue to serve the global need to hedge price and supply risk safely and efficiently.  It is why well-regulated U.S. derivatives markets, by allowing low-cost and effective hedging, are of great benefit to American producers and consumers and to the rest of the world.

As some of you might know, the Commission was established as an independent agency in 1974, assuming responsibilities that had previously belonged to the Department of Agriculture since the 1920s with regulatory authority over the commodity futures markets. These markets have existed since the 1860s, beginning with agricultural commodities such as wheat, corn, and cotton.  Over time, these commodity futures markets have grown to include those for energy and metals commodities such as crude oil, heating oil, gasoline, copper, gold, and silver. The agency now also oversees trading platforms for financial products such as interest rates, stock indexes, and foreign currency.  On the heels of the 2008 financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act ( Dodd Frank Act ) giving the agency oversight of the more than $400 trillion swaps market, which is about twelve times the size of the futures market.

Yet, the agency’s value proposition is less about the enormous size of the markets it regulates, but the effectiveness of its work and independence from political control.  The framers of the U.S. market regulatory structure wisely made the CFTC an independent agency, not under the direct control of the executive branch, but subject to thoughtful oversight by Congress.  The effect is to shield it from the political tempests of the times, to regulate in the best interest of markets and not in furtherance of a broader political agenda.

Having served under both the Obama and Trump Administrations, I have witnessed a consistent abstention from interference in the CFTC’s regulatory mission.  And that is right.  It is a credit to U.S. political institutions.  Society may choose to address such concerns as climate change, poverty or gender discrimination, but they are properly addressed through legislative and executive initiative.  The job of regulators is to oversee trading markets that fairly value those concerns, not promote or institute them.

I believe that insulation from political control and singular, dedicated regulation are among the key reasons why U.S. markets remain the world’s preeminent.  And interestingly, despite being the most venerable, U.S. futures markets are today among the fastest growing markets in the world.  Their continued ability to attract global capital and investment reflects their universally-recognized integrity and independence from particular government social, monetary or political policies.

Renewed Focus on Market Evolution

Upon becoming Chairman, I made some institutional changes designed to refocus the agency on better understanding the current evolution of markets.  In 2017, we set up the Market Intelligence Branch as part of the CFTC’s Division of Market Oversight.  The work of the new branch is important.  It is to understand, analyze and communicate current and emerging derivatives market dynamics, developments and trends – such as the impact of new technologies and trading methodologies. The Market Intelligence Branch is set up to increase the Commission’s knowledge of evolving market structures and practices in order to inform sound policymaking at the Commission.

Market Intelligence staff provide a brief summary of market news twice daily, and every Friday they provide a report of key market developments to the Commissioners and senior staff.  They also brief other U.S. financial regulators, like the SEC, the Federal Reserve and the Treasury.  In these briefings they cover the full range of derivatives markets: financial markets, energy markets, and, of course agricultural markets.  Staff discuss the spectrum of issues affecting markets, from weather to global trade.  In addition, about once a month, Market Intelligence and other CFTC staff present their findings on a major research topic.  In the agriculture space these briefings have covered such matters as the impact of high frequency trading on futures markets and the effect of new block trading in grains markets.

In April of 2017, we also launched the CFTC’s first annual agricultural futures conference in Kansas City.  The CFTC, along with Kansas State University, conducted a first-of-its-kind conference called, “Protecting America’s Agricultural Markets:  An Agricultural Commodity Futures Conference.”  I am proud to say that USDA Under Secretary Bill Northey was the keynote at our conference last year.  Panelists discussed current macro-economic trends and issues affecting our markets, like market speculation, high frequency trading, trade data transparency, novel hedging practices and market manipulation.  Participants looked at problems in convergence between cash and futures prices and volatile storage rates and heard about advances in distributed ledger technology, algorithmic trading and other emerging digital technologies, as well as current regulatory activities in protecting participants from manipulation, fraud and other unlawful activities.

 Our common purpose was to hear from end users who use our markets to hedge risk and to consider and address issues of emerging market structure and trading practices to ensure that these markets remain the world’s most robust, dynamic and liquid for decades to come.

We will hold our second Ag futures conference on April 11-12, 2019.  The program is excellent.  I hope to see many of you there.

Renewed Commitment to Free Markets

As we focus our regulatory energies to better understand the changing dynamics of our commodity derivatives markets, we cannot deny that much is changing, and changing rapidly.  New emerging digital technologies are pulling our farmers and ranchers into a virtual future, often beyond comprehension, with a powerful, gravitational pull. They are entering this virtual world with worries about trade, commerce, costs, and competition.  And, as regulators, we needed to listen, and continue to listen.  The greater the pace of change, the greater must be our capacity to keep pace, understand and harness it.

Yet, amidst all this change, I want to reassert for you tonight an enduring and true value.  That is, the value proposition of free market capitalism.  The proposition that broad and sustained prosperity generally occurs wherever in the world there are open and competitive markets, free of political interference, combined with free enterprise, personal choice, voluntary exchange and legal protection of person and property.

This value proposition is a source of human expression, aspiration and creativity. Freedom of choice is a social good in its own right, a moral and economic imperative.  Life, liberty and the pursuit of happiness are about the freedom of the individual – not just moral or political freedom - but economic freedom as well, freedom to live in a self-directed manner and conduct commerce as one may determine.

Under free market capitalism, well-regulated and well-ordered trading activity is considered a forum of human self-expression and economic advancement.  Freedom to act in the marketplace is a part of freedom itself.  Billions of consumers, following their own self-interests and individual needs, make the decisions that direct the future, not have it directed for them.

For an emerging generation fascinated by crowd sourcing, free capital markets are the ultimate in crowd sourced decision making.  Free markets should be the natural choice of today’s youth, who today and always, aspire to bright and self-actualized futures – something that is no more freely and openly chosen than under free market capitalism.

Conclusion: A Future of Human Potential

I personally hope that we can renew faith in free markets for ourselves and our children.  We must not be afraid or be intimidated.  We must renew our confidence in the value of our free market model.  In so doing, we best encourage and reward the initiative, productivity, drive and dreams of everyone on this planet…not just for soybean growers in White Cloud, Kansas, dairy farmers in Melrose, Minnesota or cotton producers in Bardwell, Texas, but also for commodity traders in Chicago, swap dealers in New York and London and pension managers in Tokyo.  We must do so for the sakes of the tomorrow’s citizens here at home and abroad, in developed economies and developing ones, in places that lack infrastructure, or nations with growing needs like the Congo or facing economic crisis like Venezuela.

We must confidently encourage the world to continue to follow this model of free market capitalism – a model that is unmatched in alleviating global poverty and unlocking human potential.  We welcome others to join us in a future of untethered aspiration.  A future where creativity and economic expression is a social good all by itself – and a good for us all.

With the proper balance of sound policy, regulatory oversight and private sector innovation, new technologies and global trading will allow our markets to evolve in responsible ways, and continue to grow the economy and increase prosperity.

Thank you again for the opportunity to talk with you this evening.

[1] Farm Flavor, New Jersey Agriculture Overview, December 10, 2013, at: https://www.farmflavor.com/new-jersey/new-jersey-family-farms/new-jersey-agriculture-overview/

[2] E.g., USDA, Informational Memorandum: PM-17-012, 2017 Crop Year (CY) Common Crop Insurance Policy and Area Risk Protection Insurance Projected Prices and Volatility Factors; Malting Barley Endorsement Projected Price Component and Volatility Factor; and Hybrid Seed Price Endorsement -Hybrid Seed Corn Prices (Mar. 1, 2017), available at https://www.rma.usda.gov/bulletins/pm/2017/17-012.pdf.

[3] See International Swaps and Derivatives Association, 2009 ISDA Derivatives Usage Survey, ISDA Research Notes, No. 2 (Spring 2009), at 1-5, available at https://www.isda.org/a/SSiDE/isda-research-notes2.pdf.

[4] The Milken Institute found the following economic benefits to the U.S. economy from derivatives: “[b]anks’ use of derivatives, by permitting greater extension of credit to the private sector, increased U.S. quarterly real GDP by about $2.7 billion each quarter from Q1 2003 to Q3 2012; [d]erivatives use by non-financial firms increased U.S. quarterly real GDP by about $1 billion during the same period by improving their ability to undertake capital investments; [c]ombined, derivatives expanded U.S. real GDP by about $3.7 billion each quarter; [t]he total increase in economic activity was 1.1 percent ($149.5 billion) between 2003 and 2012; [b]y the end of 2012, employment had been boosted by 530,400 (0.6 percent) and industrial production 2.1 percent.”  See Apanard Prabha et al., Deriving the Economic Impact of Derivatives, Milken Institute, at 1 (Mar. 2014), available at http://assets1b.milkeninstitute.org/assets/Publication/ResearchReport/PDF/Derivatives-Report.pdf.

[5] In the first quarter of 2018, the Shanghai International Energy Exchange launched a yuan-denominated crude oil contract allowing non-Chinese market participants to trade directly for the first time in the Chinese commodity markets. Shortly following this new contract, China opened yuan-denominated iron ore and bunker fuel oil contracts to international traders.  There is also talk of China allowing international market participants to trade Chinese futures contracts in rubber, copper and even soybeans.

[6] Francesco Guarascio & Dmitry Zhdannikov, Reuters, EU Brings Industry Together to Tackle Dollar Dominance in Energy Trade, February 13, 2019, at: https://www.reuters.com/article/us-eu-oil-usa/eu-brings-industry-together-to-tackle-dollar-dominance-in-energy-trade-idUSKCN1Q21WB

Statement of Chairman J. Christopher Giancarlo on Passage of FY2019 Appropriations

February 15, 2019

Washington, DC - Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo released the following statement regarding the funding increase for the agency contained in the FY2019 appropriations legislation:

“I am grateful to members of the House and Senate Appropriations and Agriculture Committees, especially the House Agriculture and Senate Financial Services Appropriations Subcommittees for their support for the CFTC and its increased funding.  I am also thankful to the Administration for recognizing the agency’s critical oversight of America’s financial and commodity derivatives markets.

“Vibrant, liquid and well-regulated derivatives markets are a tremendous national advantage.  They must not be taken for granted.  Our task as market regulators is to set and enforce rules that encourage innovation while promoting market integrity and confidence.  This funding increase is an essential step in making the CFTC a 21st Century regulator for modern digital markets. It provides the resources and tools to fulfill our mission to foster open, transparent, competitive, and financially sound U.S. derivatives markets that remain the envy of the world

I would also like to thank my fellow Commissioners, who have been vocal in their support of our budget request. Even more, I want to acknowledge the hard work of the agency staff through the last several years of flat funding. I have been amazed at their ability to keep pace with changes in our markets while monitoring emerging regulatory opportunities, challenges and risks, all in spite of limited resources. Their public service has greatly benefited the agency, our markets and our country.”