Senators Question CFTC Commissioner Candidates (with Delta Strategy Group Summary)
Commentary by Bob Zwirb
Senate Agricultural Committee members questioned two nominees for CFTC Commissioner. The nominees were Christopher James Brummer and Brian D. Quintenz.
According to the Delta Strategy Group summary of the nomination hearing:
- both nominees agreed that the CFTC should work closely with agricultural end users to address their hedging needs;
- the nominees agreed that due process and confidentiality should not be violated in circumstances where the CFTC acquires a firm's source code without a subpoena (with respect to Regulation Automated Trading); and
- the nominees agreed that cross-border rulemaking is important for functioning markets, and recognized that other jurisdictions may have different rulemaking processes and incentives.
Dr. Brummer testified that the U.S. role in international coordination should be that of "lead[ing] by example," and a commitment to "the highest standards." He stated that the U.S. should find those "who are like-minded in implementing a cross-border regulatory environment." Mr. Quintenz stated that "[r]egulatory arbitrage always hurts someone" with regard to the U.S. moving forward on proposed margin requirements for uncleared swaps when other countries have delayed their margin rules.
Commentary
Although both nominees (along with members of the committee) place a large value on reaching harmony with non-U.S. regulatory regimes, there appears to be a little daylight between them. While Dr. Brummer clearly favors the CFTC leading "by example" (aka as leading from the front), Mr. Quintenz appears to be more willing to lead from behind given his concern with avoiding "timing gaps" that may encourage "regulatory arbitrage."
This bipartisan focus on regulatory harmony and avoiding regulatory arbitrage, however, misses the larger issue, which is whether the rules that we or Europe adopt make economic sense. In other words, the focus should be on the comparative costs and benefits of different regulatory regimes, not who goes first. If Europe adopts a more sensible (i.e., less costly or less burdensome) set of rules than the U.S., then we should follow their example. Conversely, if the U.S. adopts rules that make more sense, then our example should be followed. Neither Congress nor our regulators, however, should seek to restrict the flow of capital across national boundaries in the name of regulatory harmony. This is, after all, what regulatory competition is all about.