CFTC and FIA Officials Address Market Volatility, Digital Assets and Disintermediation

At the FIA 2022 International Futures Industry Conference, CFTC Chair Rostin Behnam and FIA President and CEO Walt Lukken addressed current global market volatility due to the war in Ukraine, and recent developments concerning digital assets, disintermediation and derivatives.

CFTC

In a speech at the conference, Mr. Benham highlighted recent CFTC priorities.

• Market Volatility. Mr. Benham stated that the ongoing tragedy in Ukraine has caused both "extreme volatility" and "record trading volume on global markets." He said the CFTC will resist the urge to make "ad hoc decisions" to circumvent the natural outcomes of market forces, noting the CFTC is working with OFAC and FIA to manage the recent layering of sanctions.
• Monitoring Reforms. Mr. Benham stated that CFTC commissioners and staff will continue to (i) monitor reforms that were put in place in response to the financial crisis and (ii) begin to evaluate whether they remain "fit for purpose."
• Migrating to the Cloud. Mr. Benham reported that he directed the Division of Data to transform the agency’s analytics toolkit to create an automated system that will help find bad actors. He also noted that the CFTC will remain mindful of the risks associated with migrating to the cloud, to include the threat of cyber breaches.
• Disintermediation. Mr. Benham noted that disintermediation should be seen as a "the harbinger of a global shift" and that it is the "cornerstone for our latest era." Citing a recent proposal to amend a DCO registration order, Mr. Behnam said that - if approved - it would introduce a new model of registration whereby a registered DCO that offers margined products to retail participants would not have to rely on an FCM intermediary.
• Crypto. Mr. Benham asserted that the CFTC will take a proactive approach to its existing enforcement authority and develop a regulatory framework for the cash digital asset commodity market.
• Climate. Mr. Benham announced the creation of a Climate Risk Unit to support the agency’s mission by focusing on the role of derivatives in mitigating climate-related risk and supporting the orderly transition to a low-carbon economy through market-based initiatives.
• Diversity. Mr. Benham emphasized the need for new strategies to develop a workforce that will reflect the diversity of the markets and of the people they serve. He said that this calls for investing in human capital management.

FIA

In his remarks, Mr. Lukken stated that FIA will continue to focus on strengthening resiliency in the cleared derivatives markets. He highlighted the following key areas of focus:

• Digital Assets. Mr. Lukken stated that "cryptocurrencies are not a fad" and that neither are crypto derivatives products. He noted how "everyone seems to have an opinion" on how crypto markets should be developed and regulated, adding that (i) last week the CFTC put out a request for information about an innovative clearing proposal of one crypto exchange and that the FIA welcomes this request, and (ii) President Joseph R. Biden issued an executive order which sought a "wholesale government review of digital assets" (see related coverage).
• Core Market Principles. Mr. Lukken stressed the importance of (i) safeguarding all market users with protections against fraud, abuse, and manipulation, (ii) maintaining integrity so that price discovery and hedging can help drive commerce and allocate capital, and (iii) maintaining fairness.
• Promoting Competition and Innovation. Mr. Lukken spoke to the need to promote innovation in a way that is fair, responsible and transparent. He said that "promoting innovation and competition is not unbridled." Mr. Lukken added, however, that the CFTC's "principles-based regulatory structure" is well-suited to address risk in innovation because the agency is able to go beyond labels and focus on underlying risks and activities.