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Most Read Contributor in United States, August 2018
CFTC Commissioner Rostin Behnam provided his perspective on 2018
priorities for the Market Risk Advisory Committee
("MRAC").
In an address before the FIA/SIFMA Asset Management
Group at the Asset Management Derivatives Forum on February 8,
2018, the MRAC Chair highlighted the CFTC's regulatory
self-certification process for new products and the CFTC's
authority under Part 40 of its regulations, including the listing
of the first Bitcoin futures contracts. He expressed unequivocal
support for the self-certification process, though he stated that
"specifically with respect to the Bitcoin contracts, the CFTC
should have exercised its existing authority to accept voluntary
product submissions for review and approval – by the entire
Commission, instead of self-certification."
Echoing former CFTC Chair Timothy Massad and former Commissioner
Sharon Bowen, Commissioner Behnam stated that while he strongly
opposed any rollbacks of Dodd-Frank initiatives, a
"principles-based approach to implementation can be suitable
in certain instances." He added that such an approach will not
succeed absent (i) clear guidance from regulators, (ii) adequate
means to measure and ensure compliance, and (iii) willingness to
enforce compliance and punish those who fail to ensure compliance
with the rules.
Mr. Behnam highlighted MRAC's Priorities for 2018,
including:
Reg. AT ("Automated
Trading") and the MRAC's proposals to establish pre-trade
risk controls. Mr. Benham stated that the CFTC must take
action before an automated trading system runs amok, causing harm
to market participants through a flash crash or other system
failure. "In this age of technology-driven financial
markets," he warned, the "question of a flash crash or
automated trading system failure is not a question of if, but
simply when."
Asset Managers' concerns over
the loss of pre-Dodd-Frank Part-4 exemptions. Commissioner
Behnam stated that "it would be difficult to support a
wholesale restoration" of the exemptions previously
incorporated in Part 4 to their breadth prior to the 2012
amendments, and that the "Commission has a regulatory interest
in overseeing entities that actively engage in the derivatives
markets, and even more significantly, provide retail customers
exposure to these markets."
Self-reporting. The
CFTC's Enforcement Division continues to employ its
self-reporting strategy to incentivize disclosure of violations,
ensure the CFTC's enforcement division remains vigilant in
policing the markets, and encourage the members of the community to
assist in bringing others to justice while teaching the younger
members, i.e., the new market entrants, appropriate
behavior. Commissioner Behnam stated that the CFTC must provide
greater visibility to the markets regarding the background and
rationale for enforcement settlements with wrongdoers.
Commentary / Bob Zwirb
Commissioner Behnam's survey of the CFTC regulatory policy
contains at least one positive and one less than positive
suggestion. The positive one is Mr. Behnam's insistence that
the Division of Enforcement more clearly describe the misconduct
and how that conduct runs afoul of the law in settlements that it
reaches with respondents. Too often, the language that appears in
such settlement documents is so formulaic and legally obtuse that
it fails to give the public a clear idea of what went wrong and
why. (see, e.g.,
CPO/CTA to Pay $250,000 for Supervisory Failures Related to
Spoofing Violations, and
Texas-Based Energy Company Settles CFTC Charges of Acting as
Unregistered CPO).
The more problematic suggestion is the Commissioner's
dismissal of Asset Managers' concerns over the loss of many
pre-Dodd-Frank Part 4 exemptions. Subjecting SEC-regulated
Registered Investment Companies to CFTC regulation, for example,
which was the direct result of ending such exemptions, was never a
good idea notwithstanding such funds' use of derivatives. Prior
to the CFTC's abrupt change in policy, such funds, which were
not implicated in the 2008 financial crisis, were more than
adequately regulated by the SEC. Duplicative regulation didn't
make sense when the CFTC changed that policy several years ago, and
it doesn't make sense today.
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