CFTC Chairman J. Christopher Giancarlo Response to Bollettino

July 21, 2018

Congregation for the Doctrine of the Faith
Dicastery for Promoting Integral Human Development
Vatican City, Holy See
Attention: Secretary

Oeconomicae et Pecuniariae Quaestiones:
Considerations for an Ethical Discernment
Regarding Some Aspects
of the Present Economic Financial System

Your Eminences,

The Congregation for the Doctrine of the Faith recently published the above-referenced Bollettino on economic and financial issues.[1]  Building on the premise that “no area of human action” is outside ethical principles, the document lays out ethical foundations to govern economic and financial systems, including in the usage of derivatives (paragraph 26). We thank you for such a thought-provoking reflection.

We write to you as finance professionals striving to lead moral lives.  One of us, Chairman J. Christopher Giancarlo, is a practicing Roman Catholic.  We are also senior regulators of the world’s largest derivatives markets and officials of the U.S. Commodity Futures Trading Commission (CFTC), the world’s only derivatives-specific regulatory agency.  The CFTC has overseen the U.S. exchange-traded derivatives markets for over 40 years.  The agency is recognized for its principles-based regulatory framework and econometrically-driven analysis, as well as its depth of derivatives expertise and breadth of regulatory oversight.

We encourage market participants, particularly leaders in the business, academic, and government communities, to read and seriously consider the contents of the Bollettino.  It is an important and caring commentary on modern finance.  Yet, we also feel obligated to respond and defend derivatives and, in particular, credit default swaps, from various censures in the Bollettino.  The Bollettino’s criticisms have received outsized attention in the popular press, despite the fact that the relevant section of the Bollettino is limited to a few paragraphs.  Our response to these criticisms is made in the spirit of honest dialogue (so eloquently promoted and encouraged by Blessed Pope Paul VI) and we hope it will lead to greater discernment and understanding.

Social Utility of Derivatives

It is important firstly to recognize the social utility of derivatives.

Derivatives products 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.  They serve the needs of society to help moderate price, supply and other commercial risks to free up capital for economic growth, job creation and prosperity.

For example, derivative products allow farmers and ranchers to hedge production costs and delivery prices.  They are the reason shoppers 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 homes, energy used in factories, interest rates borrowers pay on home mortgages, and returns workers earn on retirement savings.  In short, derivatives stabilize the cost of day-to-day living.

Even those not actively participating in derivatives markets are affected by the prices generated by them.  Commodity derivatives markets provide a critical source of information about future harvest prices.  For example, a grain elevator uses the futures market as the basis for the price it offers local farmers at harvest.  In return, farmers look to prices set on futures exchanges to determine for themselves whether they are getting fair value for their crop.  Governments use that same information to make price projections, determine volatility measures, and make payouts on crop insurance.

Derivatives Impact on Most Vulnerable Populations

While often derided in the tabloid press as “risky,” derivatives – when used properly – are tools for efficient risk transfer and mitigation.  This is especially so for the world’s poorest farming communities.  A recent feature article[2] in the Financial Times about the price boom in Madagascar’s vanilla crop explains how the absence of a functioning market for vanilla futures underpins a violent boom and bust cycle in cash prices for the vanilla crop, exacerbating poverty and gang activity on the African island.

Four years ago, the United Nations Food and Agriculture Organization issued a report called “The State of Food Insecurity in the World.”[3]  The report estimates that about 800 million people around the world today are undernourished – that is, roughly, one in nine of the world’s 7.2 billion people.[4]  It is a staggering shortfall. Now, consider that the US Census Bureau estimates that there will be another two billion people on earth in the next 30 years.[5]  Even if those projections are only half accurate, we will have another one billion people on earth by 2048. How will all of these people be fed?

Clearly, the world’s agricultural exporting nations, including the United States, will play a big part in feeding the globe in the decades to come. Yet, they can only do so with the critical support of well-functioning financial and derivatives markets. Efficient and well-regulated cash and derivatives markets play a crucial role in controlling costs and facilitating return on capital to support essential investment in farming equipment and agricultural technology necessary to meet increased global food demand.

Markets for agricultural futures and other derivatives in the United States and elsewhere serve at least two critical roles in helping to feed the world’s growing population. First, they allow markets to resolve imbalances dispassionately and efficiently by providing reliable and fair benchmarks for prices.[6]  Second, they reduce price volatility in a resource-constrained world by removing the economic incentive to hoard physical supplies.[7]  They allow farmers to quantify and transfer risks they want to avoid at a reasonable price to persons willing and able to hold that risk.[8]  Provision of this risk protection to the farmer reduces earnings volatility and thus price volatility, benefiting all parties, including consumers who may never get involved in derivatives markets in the first place.[9]

In many ways, the greatest beneficiaries of global derivatives activities may well be the world’s hungriest and most vulnerable.  These are the people that Pope Francis has so powerfully advocated for by calling our attention to the “peripheries” of the world. They would certainly suffer the most from the extreme price volatility in basic food and energy commodities that would result if derivatives trading were to suddenly cease.

Credit Default Swaps (CDS): Definitions and Uses

It is important to understand how particular types of derivatives work, especially credit default swaps (CDS), which are the subject of analysis in the Bollettino.

A CDS “protection buyer” pays periodic “premiums” in exchange for a payout that is sufficient to make a bondholder whole in the event of a corporate default. For example, a CDS protection buyer might pay $1 per year in premiums against the default of $100 face amount of XYZ Corporation’s bonds. Then, if XYZ Corporation defaults and the value of its bond falls to $40, the protection buyer would collect $60, so as to be made whole relative to the bond’s $100 face amount.

A CDS “protection seller” takes the opposite position as the protection buyer. In exchange for collecting periodic premiums, the protection seller agrees to make payments that are sufficient to make bondholders whole in the event of a default.

Market participants use CDS in many ways. Here are some common examples:

• The owner of a corporate bond decides provisionally to protect itself from the credit risk of that particular corporation. Rather than sell the bond, the bondholder might buy CDS protection.
• An asset manager, insurance company, or pension fund that invests in corporate bonds decides to increase or decrease its exposure. Because corporate bonds have limited liquidity, however, the desired exposure is achieved immediately by selling or buying protection in CDS. Subsequently, over time, the CDS positions are replaced by corporate bond purchases or sales.
• A relatively small company is very dependent on its business dealings with a larger corporation. The small company buys CDS protection on the corporation to protect itself against the loss of business that would result if the corporation were to default.
• An investor would like protection against significant investments in a bank that is located in a financially challenged country. While there is no trading of CDS on the bank’s credit, the bank and the country are likely to prosper or struggle together. The investor, therefore, buys CDS protection against the country’s government.
• After conducting significant research on the business of a particular corporation, a hedge fund concludes that the corporation will struggle or even fail. The hedge fund buys CDS protection on that corporation so as to profit in the event of its decline.

The Bollettino would probably not object to scenarios 1) through 3), in which CDS are used to manage exposures to the credit market. The Bollettino certainly does seem to object, however, to scenario 5), in which a hedge fund uses its superior information to bet that a corporation will struggle or fail.

The position of the Bollettino with respect to scenario 4) is less clear. On the one hand, the investor is using CDS to hedge the exposure of its investments to the credit of the bank. On the other hand, the investor winds up taking a position that profits from the troubles of an entire nation.

It seems, therefore, that the Bollettino’s censure of CDS markets can be distilled down to three issues: information asymmetries, speculation, and profiting from the ruin of others. We now turn to each of these, in turn.

Information Asymmetries

The Bollettino views it as unethical to “take advantage of a lack of knowledge” of a trading counterpart.[10]  Furthermore, “regulations must favor a complete transparency regarding whatever is traded in order to eliminate every form of injustice and inequality.”[11]

These comments are not about stealing information and then trading, as in the case of a corporate or government insider that has access to and uses non-public information for private gain. Of course, all people of good will know that such unethical behavior is abhorrent. The Bollettino is referring here to information asymmetries that are “an inherent element of the system itself.”[12]

The difficulty with broadly applying this ethical position to financial markets can be illustrated with an old joke. The owner of a car with engine trouble visits a mechanic. The mechanic opens the hood and carefully examines the engine. After some time, the mechanic takes out a hammer and bangs on one part of the engine. To the joy of the owner, the engine seems to be working as good as new.

“That will be $100,” says the mechanic.

“$100?” asks the owner. “Just for one bang on the engine?”

“Oh, no,” says the mechanic. “It’s only $1 for the bang. But it’s $99 for knowing where to bang.”

The mechanic incurred great time and expense over years to gain expertise. Surely, he is entitled to earn a living from this investment of his time and experience.  And the mechanic used that experience to examine the car and determine the cause of the problem. Certainly, ethical behavior in this scenario does not require the mechanic to explain the workings of the engine to the car owner and to demonstrate exactly where to bang before setting the price of the service. It must be ethical for the mechanic to serve his customer and earn a fee, even if the customer admittedly lacks knowledge of engine mechanics equal to that of the mechanic.

This joke is relevant to financial markets because the generation of information is costly. The economy at large benefits from high-quality information about the credit quality of corporations. As the Bollettino itself points out, “A healthy financial system… requires the maximum amount of information possible, so that every agent can protect his or her interests in full, and with complete freedom.”[13]

But who is to become an expert in matters of economy and credit, collect raw data, analyze all of the relevant factors, and come to conclusions about the creditworthiness of a particular corporation or government? The answer, of course, is professionals, in the expectation of profiting thereby.

More precisely, while consensus in many societal contexts is achieved by reading, writing, and debate, consensus in financial markets is encapsulated in price and achieved by trading. Those who think the price too low, buy. Those who think it too high, sell.

From this perspective, the hedge fund in scenario 5), along, in fact, with all of the other market participants in the other scenarios, is generating information and trading. They are all hoping to earn superior financial returns but, in the process, also disseminate the information they have generated to the broader market.

Speculation

The Bollettino disparages “speculation,” but, like many others commentators, does not define the term. Stating, for example, that it is “morally illegitimate” to take “undue risk” with “predominantly… speculative purposes”[14] is not helpful as a practical guide to differentiating between acceptable and unacceptable activities.

Debate about the role of speculation is likely as old as markets themselves and will not be resolved here. Let the following, therefore, suffice:

First, whatever its definition, speculation contributes to the societally beneficial generation of information and the dissemination of that information to the public at large.

Second, whatever uses of CDS are considered appropriate and unobjectionable require a counterparty on the other side of the trade. A “speculator” that sells CDS protection, for example, may very well be the only facilitator of a pension fund’s purchase of CDS protection to hedge the credit risk of its bond holdings.  Without such a speculator, the pension fund would be unable to hedge and acquire the bond in the first place, which would thwart economic activity.

Profiting from the Ruin of Others

The Bollettino objects to the use of CDS in scenario 5), which “permit[s] gambling at the risk of the bankruptcy of a third party... creates a unique case in which persons start to nurture interests for the ruin of other economic entities… [and] shapes an event… of a kind of economic cannibalism.”[15]

But profiting from the misfortune of others is not at all unique to the case of “naked” buying of CDS protection, i.e., buying protection on a corporation’s bonds without holding any of those bonds.

A particularly unobjectionable example is an annuity. In an annuity contract, an insurance company accepts money from a customer in exchange for making payments until the customer’s death. Customers like these contracts because they can safeguard a particular income even if they live a lot longer than expected. Nevertheless, the insurance company does make a greater profit if the customer dies sooner rather than later.

Another very common example of profiting from the misfortune of others is when investors “short” stocks or bonds, that is, sell assets first and re-purchase them later, in the hopes of price declines.

Short sellers of stock and bonds are often subject to the same sort of opprobrium as naked buyers of CDS protection. But discouraging short positions is counterproductive in the context of information generation: allowing people without pre-existing positions to buy but not to sell skews the voting of the marketplace toward higher, though very possibly unjustified valuations.

The Bollettino reserves special reproach for naked purchases of protections on sovereign nations, that is, for “gambling” that a nation will default. Such purchases are considered “extremely immoral actions,” from which “can derive enormous damage for entire nations and millions of families,” and which call for sanctions of “maximum severity.”[16]

The problem with this posture is that governments actually benefit from the availability of CDS on their sovereign securities. Recent research has shown that the initiation of CDS trading on sovereign bonds lowers countries’ cost of debt and increases the information efficiency of their bond markets. In fact, the greatest reductions in debt cost are enjoyed by the countries with the highest risks of default[17] hedged through the use of sovereign CDS. Without such availability, bond holders would demand that governments pay higher interest payments to offset the additional risk to bondholders that in a crisis the only participants in CDS markets would be limited to other sovereign bondholders.

Furthermore, it must be acknowledged that national governments do not always conduct their financial affairs in the best interests of their people or with the highest degree of fiscal competence or integrity. The prices of government bonds, or of CDS on sovereign nations, are an important check on poor fiscal management.  Removing this market check on government policy might very well delay and worsen the day of reckoning.

Conclusion

“Oeconomicae et Pecuniariae Quaestiones” is a document worthy of consideration by all participants in financial markets who strive to lead a moral life. In a very small corner of the very large issues raised by the document, we have argued that derivatives help stabilize the price of global commodities and financial rates in a manner that is particularly beneficial to the world’s poor. In particular, we maintain that CDS have an important and respectable place in today’s financial system. CDS markets generate and disseminate valuable information about credit to the broader economy. And market participants use CDS to hedge their business risks, which, in turn, allows them to expand production, provide additional services, or increase lending.

We do not claim that the CDS market is free from both economic and ethical challenges. We agree with the Bollettino in being skeptical of overly complex derivative products, like CDS tranches on mortgage-backed securities, which traded in great volume in the run-up to the 2007-2009 financial crisis. And we also agree that buyers of CDS protection, who stand to gain from defaults, must not be allowed to conspire to cause those same defaults or make them more likely. Such activity has recently drawn our regulatory scrutiny and censure.[18]

As officers of the CFTC, we are committed to policing CDS markets, along with all other derivatives markets, with the view, in the words of the Bollettino, of advancing liberty, truth, and justice.

We thank you for your consideration of the points we have set out in this letter. We would be very pleased for the opportunity to meet with members of the Dicastery as convenient to discuss these very important matters. We often travel to Europe for regulatory meetings so a quick stopover to your office would be entirely possible.

Most respectfully yours,

J. Christopher Giancarlo, Chairman

Bruce Tuckman, Chief Economist

Written Testimony of Daniel S. Gorfine before the U.S. House Committee on Agriculture

Cryptocurrencies - Oversight of New Assets in the Digital Age

July 18, 2018

Thank you Chairman Conaway, Ranking Member Peterson, and members of the Committee for the opportunity to testify before you today on fintech innovation, Blockchain, and new assets in the digital age.  I am Chief Innovation Officer and Director of LabCFTC at the U.S. Commodity Futures Trading Commission (CFTC).  The testimony presented here reflects my own views and does not necessarily reflect the opinions or views of the Chairman, Commissioners, or the Commission.

The mission of the CFTC is to foster open, transparent, competitive, and financially sound markets.[1]  The agency oversees markets vital to supporting the transfer of risk between market participants and by extension to the stability and reliability of real-world economic activity, ranging from the production and provision of gasoline for our cars, to the availability of credit for our purchases, and the offering of produce in our grocery stores.[2]

As one might expect, the agency’s work has always included a focus on agricultural products like wheat and corn, and even precious metals.  It is worth asking how do we now find ourselves here making the jump from traditional commodities and risk transfer to fintech topics like DLT and bitcoin?

The answer is that our financial markets are fast-evolving due to technology-driven innovation and this has changed the way market participants interact, trades are formulated and processed, risk is assessed and hedged, and business operations are executed.  No longer do market participants rely on face to face interactions and telephones.  Instead, markets have become increasingly electronic, digital, and interconnected.  This new world in turn creates new market and regulatory opportunities, challenges, and risks.

Much of this dynamic derives from three identifiable threads around fintech innovation.  The first centers on speed, both in terms of innovation and subsequent adoption.  The speed phenomenon derives from the profound impact of increased computing power in the development of products, services, and markets, and the internet in their adoption.  The concept of Moore’s Law[3] – which roughly suggests that computing power will expand exponentially over time – has allowed for the development of increasingly powerful, and low cost, computer systems that enable rapid iteration and development of new business models, as well as the capability to do more with increasingly available data.  This means that markets and regulators are faced with a constant barrage of innovations and not much time to grasp their implications before inter-connected computers permit their ready adoption.

The second is that innovation largely seeks to either disintermediate traditional gatekeepers or change the way they operate.  Current financial regulatory frameworks are centered on the intermediaries or gatekeepers that manage the access to our markets or financial services activity.  To the extent that innovators are seeking to disintermediate or substantially transform traditional models in order to increase efficiencies, regulators will need to proactively identify how rules and regulations conform or will need to change.

Finally, the increasing complexity of technology-driven business models requires significantly more focus on technological literacy at all levels of leadership, including within business and government.  It is simply not enough to all agree to high level platitudes that items like cybersecurity are of great importance – instead it is imperative that we have deep understanding of the details of security protection in order to avoid bad outcomes, including cyber breaches.  Indeed, I would suggest that a key emerging risk in our markets is a potential lack of required literacy in the face of increasingly technology-driven business models and processes.

LabCFTC: Building a 21^st Century Regulator

Given these market dynamics, and related emerging regulatory challenges, we believe thoughtful 21st century regulatory approaches are needed.  This is why last summer, CFTC Chairman Chris Giancarlo announced with bipartisan Commission support the launch of LabCFTC.[4]

LabCFTC is the CFTC’s effort to help create a replicable model for regulatory engagement and modernization.  The mission of LabCFTC is to facilitate market-enhancing innovation, inform policy, and ensure we have the technological and regulatory tools and understanding to keep pace with changes to our markets.  LabCFTC was launched out of our Office of General Counsel so that it can leverage its deep bench of expertise to help manage the interface between technological engagement and innovation, regulatory modernization, and existing rules and regulations.

The building blocks of the effort are engagement, testing and experimentation, education, and collaboration.  The core LabCFTC team works closely with subject matter experts from the Agency’s operating divisions, who form the LabCFTC liaison network.  Through this approach, we can gain a better understanding of emerging risks, technologies, and trends, modernize our regulatory tools and operations, engage with innovators early in the development of new business models, and support better informed policymaking that facilitates market-enhancing innovation.

The effort seeks to involve both internal and external stakeholders through three primary work streams.  First, ‘Guide Point’ provides a dedicated point of contact for fintech innovators to engage with the CFTC, learn about the CFTC’s regulatory framework, and obtain feedback. Such feedback and discourse may provide innovators with valuable information that can help them save time and resources, or allow for the identification of potential friction or uncertainty in existing rules.

Since the beginning of its formation, LabCFTC has met with approximately 200 organizations and discussed a range of technology-related issues, including those involving machine learning and artificial intelligence, DLT and capital markets infrastructure, virtual currencies, smart contracts, RegTech, cloud, and algorithmic trading.  LabCFTC ‘office hour’ meetings have been held in Silicon Valley, Chicago, New York, Boston, and Washington, D.C. And in response to common questions raised through these sessions, LabCFTC published its first fintech educational primer in October 2017.  The primer, leveraging a format which will be applied to a range of innovations going forward, involved discussion of technology use-cases, CFTC jurisdiction, and potential risks and challenges.

Second, ‘CFTC 2.0’ fosters the testing, understanding, and potential adoption of new technologies that can improve markets or make the Commission a more effective and efficient regulator.  We are currently crowdsourcing ideas for future innovation competitions,[5] which may involve, for example, novel ways to visualize CFTC published data, develop market surveillance tools, make our rules more readily machine-readable, or build a more dynamic, digital, and “smart” notice-and-comment platform.

We further believe that it is through developing proofs of concept and truly kicking the tires on new innovations that agency staff can properly understand the application of new technologies, which will subsequently drive more informed policymaking and technology strategies.  In some instances, existing law may be an obstacle to participation in this type of testing, research, and proofs of concept.  For this reason, the Chairman appreciates the current efforts of members of this Committee to suggest ways to provide the CFTC with the authority to fully engage with, research, and test emerging technologies.[6]

Finally, ‘DigitalReg’ is designed to support the Commission’s effort to build a 21st century regulator and regulatory approach. Internally, DigitalReg serves as a CFTC-wide resource to help inform the Commission and staff on fintech-related developments.  Externally, DigitalReg acts as a hub to help the Commission collaborate with other U.S. and international regulatory authorities in order to share best practices around fintech engagement.  We were accordingly pleased earlier this year to enter into a CFTC-first fintech cooperation arrangement with the UK’s Financial Conduct Authority (FCA),[7] and look forward to ongoing constructive engagement with our domestic and international regulatory peers.

DLT, Blockchain, and Digital Assets

The topics of DLT, blockchain, and digital assets[8] have been prominent areas of engagement and exploration for the CFTC over the past year.  When LabCFTC views the space, we are interested both in private or permissioned ledger networks (also sometimes considered “blockchain-inspired” technologies) that can be deployed by market participants to improve market infrastructure and in public blockchains that require use of a virtual currency to incentivize participation in maintaining the ledger system.

Developments across this spectrum have society re-thinking the nature of money, how people transact, and how we can more efficiently engage in regulatory, economic, and market activity.

On the private or permissioned side of the spectrum, new innovations hold promise in improving clearing and settlement processes, facilitating regulatory reporting and compliance, and even transforming information capture, delivery, and analytics capabilities.  The CFTC is also very interested in better understanding their potential ability to power smart (or self-executing) contracts, which can incorporate compliance provisions and potentially decrease execution risks.  To be clear, however, this area of innovation is quite distinct from the realm of public distributed ledgers and virtual currencies, and has its own unique set of challenges including around security, scalability, and broader adoption.[9]

On the public distributed ledger side of the spectrum, it may be helpful to level-set.  Virtual currencies are a digital representation of value and may function as a medium of exchange, a unit of account, and/or a store of value.  Virtual currencies generally run on a decentralized peer-to-peer network of computers, which rely on certain network participants to validate and log transactions on a permanent public distributed ledger visible to all.  The virtual currency serves as the required incentive for miners or validators.[10]

Proponents note that these virtual ecosystems unlock digital scarcity, enable the efficient transfer of ownership, and power the execution of relatively autonomous application platforms all without the need for a trusted, central party that was traditionally needed to verify that each party to a transaction has – and does – what it promises.[11]  In addition to providing new ways to transact over the internet, these advancements could allow for decentralized platforms or applications that provide consumers with desired goods and services absent a central gatekeeper.[12]  Some further note the potential inspiration that virtual currencies may provide Central Banks in the future creation of digital fiat currencies.[13]

Many, however, appropriately worry that virtual currencies and tokens are prone to fraud, manias, and bubbles driven by misunderstandings and myths regarding their scalability, utility, and intrinsic value.[14]  Indeed, over time bad actors have commonly invoked the concept of innovation in order to engage in fraudulent activities that target the general public.[15]  Additionally, as we are reminded by recent events,[16] concerns regarding the use of cryptocurrencies to facilitate illegal activity are well-founded and require government efforts to ensure that Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements are effectively applied.

With recent hype around virtual coins and tokens there has also been a proliferation of so-called “Initial Coin Offerings” or ICOs, which frequently refers to the sale of virtual tokens to the public that are intended to raise capital for a venture and may bear the hallmarks of a securities offering.[17]  Our colleagues at the Securities and Exchange Commission (SEC) have been thoughtfully addressing related challenges,[18] and providing additional clarity to the marketplace.[19]  And from the CFTC’s perspective, given the potential to tokenize a broad range of economic assets, it is important to remind the public that digital assets can also be derivatives or commodities, depending on their terms and how they are structured.

Given the potential and challenges of this space, CFTC Chairman Giancarlo has made clear that the proper response by regulators and policymakers is not to dismiss the entire movement as misguided or foolish, but rather to take the time to learn, facilitate the promise, and guard against risks and bad actors.[20]

As part of this effort, LabCFTC published its first fintech primer on the topic of virtual currencies in October 2017.[21]  The goal of the primer was to help educate the public about potential use-cases of the technology, CFTC jurisdictional considerations, and relevant risks, including around investment speculation, cybersecurity, and platform operations.

After the self-certification and launch of bitcoin futures in December 2017, LabCFTC was then able to continue providing support in the areas outlined below to the Commission and operating divisions based on our engagement and study of DLT and virtual currencies.

Digital Assets and CFTC Jurisdiction

In 2015, the Commission determined that certain virtual currencies, such as Bitcoin, met the definition of “commodity” under the Commodity Exchange Act (CEA).  This means that the CFTC’s jurisdiction is implicated from an oversight perspective if a commodity-based future or swaps product is offered to the market and from an enforcement perspective if there is fraud or manipulation involving such products or their underlying commodity markets.

In December 2017, two CFTC regulated futures exchanges self-certified and launched Bitcoin futures products.[22]  Under the CEA and Commission regulations and related guidance, futures exchanges may self-certify new products on twenty-four hour notice prior to trading.  This type of framework encourages market-driven innovation and has made America’s listed futures markets the envy of the world.  Both CME and CBOE worked with the CFTC for months before launching Bitcoin futures in December 2017.  As detailed in our Chairman’s prior Congressional testimony, due to the complexity of issue, the CFTC conducted a “heightened review” of CME’s and CBOE’s responsibilities.

Chairman Giancarlo has outlined six elements regarding CFTC oversight of the virtual currency-related futures and swaps markets.  These elements include: (1) staff competency; (2) consumer education through our Office of Customer Education and Outreach; (3) interagency cooperation including with the SEC, the Department of Treasury’s Financial Crimes Enforcement Network known as FinCEN, and through the Financial Services Oversight Council (FSOC); (4) CFTC exercise of its regulatory oversight authority; (5) strong enforcement efforts to deter and prevent fraud and manipulation; and (6) heightened review of virtual currency-related product self-certifications.

With respect to heightened review, in May of this year, our Division of Market Oversight and Division of Clearing and Risk issued a joint staff advisory that gives exchanges and clearinghouses registered with the CFTC guidance for listing virtual currency derivative products.  The advisory highlights key areas that require particular attention in the context of listing a new virtual currency derivatives contract, including: enhanced market surveillance; close coordination with CFTC staff; large trader reporting; outreach to member and market participants; and, Derivatives Clearing Organization risk management and governance.

Commission staff further noted at the time that since the Agency found virtual currencies such as Bitcoin to be commodities in 2015, it has taken action against unregistered Bitcoin futures exchanges; enforced the laws prohibiting wash trading and prearranged trades on a derivatives platform; issued proposed guidance on what is a derivative market and what is a spot market in the virtual currency context through an interpretation of ‘actual delivery’[23]; issued warnings about valuations and volatility in spot virtual currency markets; and, addressed a virtual currency Ponzi scheme.

On the topic of enforcement, it is worth mentioning that the CFTC is working closely with the SEC and other fellow financial enforcement agencies to aggressively prosecute bad actors that engage in fraud and manipulation regarding virtual currencies.  The more cops we can have on the beat, the better.

Moving Forward

One thing is certain: none of us are able to predict exactly where innovation is heading, and, accordingly, it is incumbent on us as a 21^st century regulator to continue studying, learning, and keeping pace with change.  For our part, LabCFTC looks forward to ongoing engagement with a broad range of innovators, including the likes of those on today’s panel, to be sure we are skating to where the puck is heading.  We can best facilitate market-enhancing innovation and ensure sound policy through sound understanding.

Additionally, we look forward to ongoing close collaboration with our regulatory peers, including through the FSOC digital asset working group spearheaded by our colleagues at the Treasury Department.  We all have the shared goal to bring clarity and certainty to the market, but also need to be sure that we are thoughtful in our approach and do not steer or impede the development of this area of innovation.  Indeed, while some may seek the immediate establishment of bright lines, the reality is that hasty regulatory pronouncements are likely to miss the mark, have unintended consequences, or fail to capture important nuance regarding the structure of new products or models.

In thinking about the future of a broad range of emerging technologies, it is perhaps informative to harken back to the policy approach that helped facilitate the development of the internet and the rise of new internet-based business models.  Noting the rapid pace of innovation and technological transformation, then senior policy adviser Ira Magaziner stated in 1997 that given “the breakneck speed of change in [ ] technology . . . [g]overnment attempts to regulate are likely to be outmoded by the time they are finally enacted.”[24]

Given this dynamic, the government largely avoided a prescriptive approach in favor of principles, focused on educating and empowering law enforcement to target bad actors, and allowed this area of innovation time and space to develop, all while maintaining the ability and vigilance to act to ensure market integrity.  While particular areas of innovation may require different treatment, generally this approach seems like the right one when dealing with new technologies, which are, of course, agnostic as to their use.  The role of the regulator is to facilitate the use of new technologies that benefit markets and the public more broadly, while deterring and pursuing those who seek to use technology to do harm.

Thank you. I am happy to answer any questions that you have.

Opening Statement of Commissioner Brian D. Quintenz before the CFTC Market Risk Advisory Committee Meeting

July 12, 2018

Thank you Commissioner Behnam for convening today’s meeting of the Market Risk Advisory Committee (MRAC).  I am delighted to join you and Chairman Giancarlo, and all of the new and returning members of this Committee, for the first meeting of the MRAC under its renewed charter.  I look forward to hearing from MRAC members about the priorities and initiatives they wish to address during their two-year term.  

I am also pleased that today’s meeting is devoted to addressing the reform of London Interbank Offered Rates, otherwise known as LIBOR.  This is a timely matter and one that has a wide-ranging effect on the derivatives markets.  I support the ongoing benchmark reform initiatives and the development of alternative risk-free rates (RFRs), in particular the efforts of the Alternative Reference Rate Committee (ARRC) to establish the Secured Overnight Financing Rate (SOFR) as a new benchmark rate for U.S. dollar-based business.  It is essential to the vitality and stability of the global derivatives market that participants trust the integrity of global financial benchmarks. 

I would like to take a moment to commend the Division of Enforcement’s aggressive prosecution of those who sought to manipulate LIBOR and other benchmarks that are critical to the functioning of our financial markets.  Those who seek to subvert the accuracy of these benchmarks for their own financial gain should be held accountable, and I support the Commission’s relentless efforts to pursue bad actors and restore public confidence in the integrity of these benchmarks.   

Over $300 trillion of financial products, ranging from interest rate derivatives to home mortgages, are tied to LIBOR or other interbank offered rates.[1]  It is therefore critical that these reference rates reflect an honest assessment of the costs of borrowing unsecured funds in the interbank markets.  Since 2013, banks have worked to improve the governance surrounding their LIBOR submissions so that the rate is more closely tied to transactions rather than subjective judgements.[2]  However, given the decline in activity in the unsecured bank funding market, and the absence of an FCA mandate for LIBOR submissions post-2021, firms should seriously consider the long-term sustainability of solely relying on LIBOR.  Although LIBOR may continue to exist into the future, if participation continues to decline, questions may arise as to whether the rate continues to accurately reflect market conditions.  The development of alternative RFRs that are based on actual transactional data from robust, underlying markets will provide a transparent, viable alternative to LIBOR for market participants.    

I appreciate the hard work of the ARRC to develop a market-based alternative, SOFR, which represents the cost of borrowing money secured by Treasury securities overnight.  I think it is incumbent upon the the Commission, our international counterparts, and the markets themselves to carefully consider how the widespread adoption of SOFR and other RFRs could be accomplished in a manner that avoids unnecessary confusion, fragmentation, and disruption.

The introduction of RFRs poses a number of significant challenges for the derivatives markets.  For starters, the markets must develop a forward-looking term structure for overnight rates like SOFR.  New cash and derivative products referencing alternative RFRs must be created and robust markets for those products must be cultivated, so that market participants continue to have access to liquid, efficient trading.  On that front, the launch of SOFR futures this past May is a first step toward creating a market for such products; additionally, these futures contracts may be useful as the markets build a forward-looking term structure.

For market participants transitioning to RFRs, much work lies ahead.  Each firm must develop its own individual implementation plan, including assessing its exposures tied to LIBOR-based products and determining how to amend legacy contracts to reflect an alternative RFR.  Risk management models must be updated to incorporate RFRs and take into account the basis risk that will exist between LIBOR and the various RFRs across jurisdictions during any transition period.  I would also encourage all firms to understand the fallback language that would govern their contracts in the event that LIBOR, at some point in the future, is no longer used. 

For its part, the Commission can provide market participants with regulatory certainty regarding the treatment of legacy LIBOR-based contracts that are amended to reference new RFRs – including how margin, trading, and clearing requirements would apply to such amended contracts.     

I would also like to note something we are not addressing today: the European Union (E.U.) Benchmarks Regulation, which took effect this past January and sets forth a comprehensive regulatory regime for benchmarks administrators.[3]  Proposed amendments to this regulation could impact U.S. firms.[4]  These amendments could result in yet another example of extraterritorial overreach by E.U. authorities, analogous to the proposed amendments to the European Markets Infrastructure Regulation (EMIR) regarding the regulation of third-country CCPs.[5] 
 

The U.S. has not issued regulations analogous to the E.U. Benchmarks Regulation.  Instead, U.S. regulators have encouraged U.S. benchmarks administrators to abide by the Principles for Financial Benchmarks published by the International Organization of Securities Commissions (IOSCO) in 2013.[6]  Given the cross-border implications of the E.U.’s proposed amendments, I hope that U.S. regulators and their counterparts can coordinate on this issue so that benchmark administrators do not become subject to conflicting requirements across jurisdictions and that regulatory deference is respected.

In closing, I am eager to hear from the presenters on our panels today and MRAC members about how benchmark reform can be supported and what additional steps the Commission can take to foster the development of active derivatives markets referencing RFRs.  I look forward to the robust two-year agenda that this Committee will develop today, and I thank Commissioner Behnam and his staff for their hard work in planning today’s meeting.  

Opening Statement of Chairman J. Christopher Giancarlo before the Market Risk Advisory Committee Meeting, Washington, D.C.

July 12, 2018

Thank you, Commissioner Behnam.

Good morning, everyone.

A warm welcome to the MRAC Committee members and today’s presenters and participants, both here and on the telephone.  Welcome to the CFTC.

All meetings of CFTC advisory committees are important.  But, today’s meeting is particularly important.

The discontinuation of LIBOR is not a possibility.  It is a certainty.  We must anticipate it, we must accommodate it and we must adapt to it.

The transition from LIBOR to SOFR and the other risk-free rates requires thoughtfulness and preparation in order to support and not jeopardize financial stability.

It requires dialogue and planning - such as that we will conduct today under the rightful auspices of the market risk advisory committee, sponsored by Commissioner Behnam.

Some brief and selected history of this issue:

In July 2013, the Financial Stability Board established an Official Sector Steering Group, which includes senior officials from central banks and regulatory agencies, including the CFTC Chair.  The OSSG serves to focus the FSB’s work on the interest rate benchmarks that are considered to play the most fundamental role in the global financial system.

The FSB published its recommendations in July 2014 and called for the development of alternative interest rate benchmarks.

In November 2014, the Alternate Reference Rates Committee or ARRC was convened by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York.  The ARRC consists of a group of banks, market participants, industry associations, and other U.S. financial regulators.

The ARRC also includes the CFTC, first under my predecessor, Chairman Timothy Massad.  I have been pleased to continue that work.

The ARRC was tasked with two primary goals:

• identify an alternative reference rate to replace LIBOR; and
• develop a market strategy and make the transition.

After deliberating for over two years, in June 2017, the ARRC selected the Secured Overnight Financing Rate (or SOFR) as the replacement for LIBOR.  SOFR’s publication began in April of this year.

Trading in SOFR futures began in the United States in May and the initial trading volumes and liquidity are quite promising.

“ARRC 2.0” is now busy with the education and implementation of the transition from LIBOR to SOFR.

Yet, prior to all of this, LIBOR was well in the headlines of the mainstream press.  In large part that was due to the CFTC’s vigorous enforcement efforts initiated under Chairman Gensler.

The CFTC’s leadership in policing benchmark manipulation has continued through to his successor and the current commission, where it remains bipartisan in importance and continues to set a global standard for enforcement of benchmark integrity.

It is undeniable that a major contributor to LIBOR’s ability to be manipulated was its weakening foundation.  Simply put, money center banks no longer rely on unsecured inter-bank lending to finance their daily operations.  As a result, LIBOR is a widely utilized benchmark that is no longer derived from a widely traded market.  It is an enormous edifice built on an eroding foundation – an unsustainable structure.

Yet because LIBOR is so widely used in a broad range of financial products and contracts, including derivatives such as swaps and futures, we must not - we cannot - stand still.

Insuring that LIBOR and other such benchmarks are not readily susceptible to manipulation is a key part of the statutory mission of this agency.

That is why the CFTC supports the transition from LIBOR to SOFR and the other risk-free rates.

That is why we continue to serve on the ARRC Committee through the change in administration.

It is why we continue to cooperate closely with our fellow U.S. financial regulators, in particular the Federal Reserve, regarding benchmark reform.

We also work closely with the FCA that has regulated LIBOR since 2013 when the ICE Benchmark Association took over the administration of the LIBOR.

A year ago, FCA Chief Executive Andrew Bailey signaled loud and clear that there is a fair amount of uncertainty about whether we will be able to keep the banks in the panel making submissions for the LIBOR through the transition period (that’s that eroding foundation I mentioned).

Last week, Andrew Bailey, David Bowman (of the Fed) and I along with senior CFTC staff, including Sayee Srinivasan, met in New York to discuss next steps in the transition away from LIBOR.

The three agencies are unified in determination to move forward.

This morning, Andrew Bailey gave a powerful speech stating that:

• The underlying weakness of LIBOR cannot be remedied.
• LIBOR’s discontinuation of LIBOR is NOT something that MAY happen, but is something that WILL happen; and
• Market participants MUST prepare accordingly.

It is for these reasons that the work of the ARRC and the other risk-free reference rate working groups is so important.

It is why MRAC’s discussion today is so important.

We are going to be hearing from the experts on the current state of play, the plans for the months ahead, the many complex issues to be addressed, and the hopes and challenges for both market participants and the official sector.  It is an excellent program.

Clearly, we are in some uncharted territory.  There is still a lot to be done.

Yet, the forward course is clear – it is away from LIBOR.

The means of travel is also clear.  It is a market-driven one – led by the private sector, with participation by both the buy-side and the sell-side.

The official sector will assist and stay close by the course, helping coordinate and encourage, prod and explain and, if appropriate, give a shove or two.

On this side of the Atlantic, the Federal Reserve and we at the CFTC remain committed to working with the market participants, with the ARRC and the various trade associations, and global regulatory authorities to facilitate a smooth transition.

We also recognize ISDA for their work, specifically the recent consultation on the functioning of derivatives contracts through LIBOR discontinuation.

As I said at the beginning, this is an important issue.  Fortunately, it is one that has always been and continues to be nonpartisan.  There are Republican and no Democrat issues when it comes to benchmark integrity.

I want to particularly commend Commissioner Behnam for taking up such an important topic.  I anticipate that he, Alicia Lewis and all the members of MRAC will bring an impressive level of thought leadership and intelligence to the discussion.

Your work will also help educate the market about the transition from LIBOR to its chosen replacement.  That, in itself is an important public service.

Thank you again for participating.

Let’s get to work!

Opening Statement of Commissioner Rostin Behnam before the Market Risk Advisory Committee Meeting

July 12, 2018

Introduction

Good morning and welcome to the CFTC’s Market Risk Advisory Committee’s (MRAC or Committee) second meeting of 2018.  Since our last meeting in January, I renewed the Committee’s charter for another two-year term and reconstituted the membership.  I am pleased to welcome each and every one of our new and returning members to the MRAC.

The Committee members represent a balanced and diverse cross-section of interested derivatives market participants, including dealers, exchanges, clearinghouses, public interest groups, academics, and swap execution facilities.  In selecting among the candidates, I committed to ensuring that each member have demonstrable experience in the areas I envision addressing in the next few years, and a point of view from which to engage.  I believe the membership demonstrates these qualities and will bring depth and breadth to a public forum designed to tackle a full spectrum of critical market risk issues.  

Before we move into the substance of today’s meeting, I want to thank Chairman Giancarlo and Commissioner Quintenz for being here today and for their contributions to this discussion.  

I also want to thank today's moderator, Tom Wipf, Vice Chairman of Institutional Securities at Morgan Stanley.  Tom has more than forty years of experience as an industry leader, and has served in multiple capacities in New York, London, and Tokyo.  Tom has always willingly shared his time and expertise here in Washington.  He currently serves as a member of the Alternative Reference Rates Committee (ARRC) sponsored by the Board of Governors of the Federal Reserve System (Federal Reserve Board), which will be particularly relevant to today’s conversation. 

I want to thank each of the panelists for their willingness to travel to Washington in the middle of summer and contribute to this important conversation today.  We have gathered a distinguished group of speakers, and their readiness to participate is greatly appreciated and critical to today's discussion.

I want to thank Alicia Lewis, the Committee's Designated Federal Officer.  As Alicia demonstrated during the MRAC’s first meeting in January, her discipline, intelligence, and hard work, are the reasons why these meetings are executed with ease.  

This advisory committee is tasked with critical responsibilities that can have profound effects on the health, transparency, and strength of our financial markets.  I believe it is important that all of us, as a unit, embrace this responsibility and use the opportunity to provide the Commission with thoughtful recommendations, directed at core principles, including identification and reduction of systemic risk; market safety, transparency, and efficiency; and prioritizing customer protections.  The task is not easy; but, with focus, and an all hands on deck approach, I believe the MRAC can add value to an effort that is greater than each of us individually.

The Agenda

Our first order of business today will be an open discussion of the MRAC’s priorities and agenda.  MRAC’s agenda has and will continue to be shaped by what members identify as the most pressing market risk issues.  I look forward to hearing from all of our members today.

Thereafter, we will begin a Committee discussion on an issue that has moved in surges and ebbs at the forefront of our market over the last decade: the erosion of the unsecured interbank term borrowing market, which underlies the world’s most prominent benchmark, the London Interbank Offered Rate (“LIBOR”), and the rampant misconduct incited by the decline.  LIBOR has been subject to pervasive fraud, abuse, and manipulation.  Since June 2012, the CFTC has levied sanctions of more than $3.3 billion for LIBOR-related misconduct. These important enforcement actions, initiated by prior CFTC leadership, not only addressed the bad actions of numerous individuals, but also a failure of financial institutions to properly police employees.  

What much of the public also learned, as a result of these enforcement cases, is that LIBOR is not merely a financial tool for large institutions; LIBOR directly impacts the everyday lives of Americans across our nation.  From the terms of the most basic home mortgage, to student loan agreements, auto financing contracts, and credit card purchases, LIBOR is pervasive throughout our real economy.  At the expense of millions of Americans, a few individuals intentionally manipulated LIBOR to enrich themselves.  These actions, however discrete, are a cautionary tale that shows how important today’s exercise is to not only fix benchmarks, but ensure this type of fraud never happens again.

Our first panel will discuss the role of interest rate benchmarks in the economy, the impetus for LIBOR reform, and the current status of global reform initiatives.  The discussion will focus on the efforts of the Financial Stability Board (“FSB”) and the ARRC, as well as public and private sector coordination efforts in other jurisdictions.

Our second panel will do a deeper dive into current initiatives.  Specifically, the discussion will address efforts led by the ICE Benchmark Administration Limited (IBA) to improve LIBOR, and the development of the Secured Overnight Financing Rate (SOFR), and SOFR derivatives. 

Our third panel will discuss the effect of LIBOR reform on the derivatives markets.  The discussion will focus on LIBOR reform’s impact on legacy derivatives contracts, the development of fallback language, and key risk management and governance considerations for market participants.  Finally, end-user and dealer representatives will discuss the risks their firms and clients face with respect to LIBOR Reform and how they or their clients are preparing to mitigate those risks.

Closing

I want to recognize the tremendous work of the ARRC, and also the work done overseas by the UK’s Financial Conduct Authority, the Bank of England, the European Central Bank, and other key stakeholders.  The timeline of events since the financial crisis is a compelling story of recognition and reform as well as collaboration and innovation in the benchmark space.  We have a few years to reach a consensus and lay the foundations for the next generation benchmarks. 

Working today with several members of the ARRC, my goal is to use this venue, this advisory committee, as a solutions-oriented body that sheds light on the challenges ahead, identifies the potential risks for financial markets and individual Americans, and seeks to support the ongoing work of the ARRC through deliverables that both recognize the critical importance of benchmarks, but also demand integrity and reliability. 

The derivatives markets play an integral role in benchmarks, and as I am sure we will hear throughout today, finding solutions to the many issues and concerns about benchmark reform and transition rest within the markets overseen by the CFTC.  I am certain the Market Risk Advisory Committee can play an important role in supporting all of the work that has been done dating back more than five years, but also in the few years ahead.  I look forward to today’s discussion. 

Remarks by Chairman J. Christopher Giancarlo at the Salzburg Global Seminar, Salzburg, Austria

June 24, 2018

Good afternoon.

It is a pleasure to greet all of you here at historic Schloss Leopoldskron in beautiful Salzburg.

Welcome to the 2018 Salzburg Global Seminar’s Finance Forum on “The Promise and perils of Technology: Artificial Intelligence, Big Data, Cybercrime and Fintech.”  It is going to be a terrific program. I look forward to being with you over the next 38 hours.

This year we celebrate two anniversaries.  The first was the creation of the Salzburg Global Seminar in 1947 by three Harvard students: one Austrian and two Americans.  Like many, they were concerned about the war-time destruction of the European economy and society. They were alarmed at the predations of Stalinism in post-war central Europe.  Europe had barely escaped one tyranny and now was facing another.  The Harvard students sought to launch a “Marshall Plan of the Mind” to promote the values of free enterprise and liberal democracy.  Miraculously, Max Reinhardt’s widow gifted them the use of Schloss Leopoldskron with its own illustrious history as a prewar center of culture and its location secure in the American zone of occupied Austria.  Thus, the Salzburg Global Seminar was born.

The second anniversary is of the creation in 1948 of the world’s first stored program computer, the “Manchester Baby”.  It was designed as a test platform for the first true random-access computer memory. The Baby had been constructed in a separate building at the University of Manchester and housed in a room that was roughly the same size as Palmer Hall, the room in which much of today’s Salzburg Global Seminar takes place.

Clearly, so much as changed in the 70 years since these two events – so much change in the course of one human lifetime.  The post- world war chaos, gave way to the cold war, then the “new world order” and now, perhaps, a return to global threats and multi-polarism.  Meanwhile, the average contemporary smart phone now has 500 million times the storage capacity of the Manchester Baby and the average modern laptop computer has 30 million times the processing speed.  Today’s digital technology puts us on the verge of what many are calling the 4th industrial revolution, a melding of science and technology with human life and society.

Yet, the more politics evolve and technology advances, the more essential it is for people of goodwill to come together to explore different perspectives and search for common ground.  And, as the world’s wealthiest nation, America still had a role to play in supporting such efforts, as it did at the beginning of this one here in Salzburg.  For that reason, I am honored to symbolize American commitment to international forums such as this through my service as co-chair of this program.

I am also here in my official capacity as Chairman of the US Commodity Futures Trading Commission (CFTC), the world’s oldest and most experienced regulator of derivatives trading markets. Not only do we oversee the world’s largest futures markets, we are also the world’s only derivatives-specific, national regulatory body.

At the CFTC, we see emerging financial technology as not only a great challenge, but also a great opportunity.  Our policy response might be summarized in “five As”:

• Adapt Rapidly
• Adopt Widely
• Analyze Deeply
• Administer Principally
• Advocate Rarely

These responses are simple in concept.  Adapting rapidly means keeping pace and not falling behind technological evolution.  Adopting widely means seeking to utilize new technology advances in the course of regulatory activity.  Analyzing deeply means increasingly effective big data collection and analysis.  Administer principally means staying true to the CFTC’s long-standing practice of principles based regulation, especially in a time of rapid technological transformation.  Perhaps most importantly, advocating rarely means avoiding any temptation to champion any particular form of technology, market structure or innovation over any other, but to allow market forces and technical innovation to evolve organically.

Let me review our two day program.  It begins this afternoon with a great address by Hal Varian, Google’s Chief Economist, followed by dinner and then a fireside chat about the impact of technology on economics and society.  Monday will have a series of well-arranged panels, including a discussion of the impact of digital technology on financial services, the challenges it presents for public policy.  Then, after lunch, some break out groups will consider individual technological areas.  Following our gala dinner on Monday, there will be an engaging debate on the proposition that “technology is tearing trust apart.”  Then, on Tuesday morning, we will have a final panel, followed by reports of the break out groups and my closing remarks.

Undoubtedly, our conversations over the next few days will identify a range of concerns over the future of financial markets as well as human society.  It may even cause us to consider the future of human nature.  This would be for the good.  In prior times of rapid technological change - the first three industrial revolutions - the technological innovators were often not the ones concerned with social impact.  Meanwhile, the social reformers were often not the technologists.  That was unfortunate.

The opportunity for today’s leaders in the current industrial revolution, such as those gathered here together, is to be both prophets of change and protectors of the human condition.  As program co-chair, I challenge you to take time in your deliberations over the next 48 hours to consider the impact of emerging technology, not just on financial markets, but on humanity itself.

The first Salzburg Global Seminar took place in a rapidly changing Europe, with a devastating war behind it, threats on its flanks and the computer age on its horizon.  The Seminar’s essential purpose was then to champion the cause of economic liberty and human dignity against tyranny and oppression.

Seventy years later, the Salzburg Global Seminar again takes place amidst a changing and turbulent world with a new technological revolution underway.  Let us put our minds to work, as our predecessors did seventy years ago, to consider how best to enhance the human spirit amidst the perils and promises of an ever changing world and ever constant technological transformation.