A party change in the White House triggers cascading changes at the level of federal agencies, including within the Commodity Futures Trading Commission (the "CFTC" or the "Commission"). This article addresses what policy priorities the CFTC should and likely will focus on for the next four years.
I. SUMMARY
- The CFTC should consolidate, codify or cancel as obsolete its no-action letters guidance to the extent possible (e.g., relating to "commodity pools" and Commodity Pool Operator ("CPO") registration. Numerous letters are of temporary nature and are issued to specific market participants, which creates dubious guidance and uncertain legal status for many of market structures (e.g., a multibillion-dollar securitization market);
- The CFTC should revisit its proposed, identified and unfinished rules and either complete them or withdraw;
- Re-establish a cooperative relationship with the Securities and Exchange Commission ("SEC") and the U.S. prudential regulators ("USPRs") to participate in joint working groups with fellow regulators toward regulatory goals consistent with public interest and in the interest of promotion of U.S. businesses' global competitiveness;
- The new chairman of the CFTC should articulate CFTC's priorities and strategy in the short term and the long term;
- Several previously enacted regulatory actions should be rescinded, such as the proposed event contacts rule and the voluntary carbon credit ("VCC") guidance;
- The CFTC will assess whether the term "commodity" can be either further defined, or whether a formal process for designating certain goods and articles as commodities (or conversely removing them from such designation) should be implemented to minimize uncertainty;
- In the event that the new crypto/digital assets legislation is enacted in the near term to amend the Commodity Exchange Act of 1936 (the "CEA"),2 the CFTC should commence implementation of the provisions of this new law and either amend its existing rules or promulgate new rules; however, if it is unlikely that the new legislation will pass in the near term, the CFTC should implement a number of exemptions for new digital products and new forms of business (e.g., decentralized autonomous organizations "DAOs");
- The CFTC will need to implement a series of rules to improve the customer and retail participant protection regime with respect to crypto and digital assets to remain on par with the SEC;
- There will be greater emphasis on ensuring that CFTC's division of enforcement is enforcing existing law, not making new law (i.e., no regulation by enforcement);
- For example, in a series of enforcement actions CFTC's division of enforcement has created new and expansive disclosure requirements for swap dealers under § 23.431 relating to pre-trade market marks and other pre-trade disclosures (e.g., hedging). Instead of regulation by enforcement, the CFTC should either amend its rules or provide clear guidance on what would constitute an acceptable market practice for disclosures under § 23.431;
- CFTC should finalize existing regulations, such as relating to: cross-border, position limits (economically equivalent swaps, or the aggregation rules focusing on actual control and not merely passive ownership), Future Commission Merchant ("FCM")s' accounts and investment of customer assets, collateral management and the use of U.S. Treasuries, conflicts of interest and vertical integration, e.g., FCMs and Designated Contract Markets ("DCM"s), Swap Execution Facilities ("SEF"s) etc.;
- Most importantly, the CFTC should review and significantly revise it reporting regime to provide clarity, avoid duplication and ensure efficiency and certainty of compliance;
- Update its 2012 products and entities definitions and guidance consistently with existing market practices and provide clear guidance on product classification (e.g., spots, forwards, trade-options) and regulated activities and participant categories and respect for registered entities (to avoid confusion between SEFs, Commodity Trading Advisors ("CTA"s), Introducing Broker ("IB"s), FCMs);
- The National Futures Association ("NFA") should be encouraged to revise its enforcement program to make it more independent of its regulatory and supervisory function (e.g., regulatory filings should not be used as a tool for discovery for an enforcement action) and to provide the ability for market participants to challenge NFA's rulemaking process to ensure that such rulemaking stays within the boundaries of NFA's jurisdictional grant and does not "gold plate" existing CFTC regulations; and
- Through roundtables and by sponsoring working groups encourage the industry to design global or industry codes (similar to the global FX code) in areas where the CFTC may not have exclusive regulatory jurisdiction (e.g., in spot commodity markets).
II. ADMINISTRATIVE PRIORITIES
A. The New Commission Agenda
Generally, the new Chairman would lay out the agenda for the new Commission for the next four years. Given that under the Administrative Procedure Act (the "APA"),3 any change or amendment to any enacted federal rule published in the Federal Register must also be made under the APA, i.e., by a rule proposal, the opportunity for the public to comment and then the enactment of a new rule usually takes one or two years. Likewise, if any new rules were introduced, the Commission would need to start work immediately.
Acting Commission Chairman Caroline Pham has outlined her new agenda in a series of presentations, and most recently in a keynote address at the Futures Industry Association ("FIA") Boca 2025 conference on March 11, 2025 (the "Boca 2025 Address").4 This paper responds to the policies and the feedback requested in the Boca 2025 Address.
B. Completion of the KISS Project
The CFTC should complete the administrative and regulatory efficiency project that was started under Chairman C. Giancarlo.5 The purpose of this project was to assess comprehensively all of the rules that the CFTC has implemented and determine if there is any redundancy, any overlap or if the rules have become outdated. There were hundreds of rules implemented after the enactment of the Dodd-Frank Act in 2010 (the "Dodd Frank Act" or "DFA");6 with 15-year hindsight, many of the rules will need to be streamlined (as further discussed below).
For example, at the time of the enactment of the Dodd Frank Act, there were no cryptocurrencies commonly traded and there were no decentralized finance ("DeFi") platforms, or digital commodities transferred via the distributed ledger technology ("DLT"). The CFTC must update their rules and regulations towards this new reality (see below regarding competitive pressures on DCMs and SEFs from the DeFi platforms).7
C. Staff No-Action Letters and Guidance
Under CFTC Chairman H. Tarbert, the Commission implemented a policy to limit staff no-action letters ("NAL") and focus on making the rules more transparent and comprehensive so there will be less need to issue NALs or other forms of staff guidance.8 The CFTC should further implement this policy and where practical, codify the NALs into federal rules and update its website to give clear notice to the industry regarding which NALs and guidance is no longer effective.9
D. Commission Committees
CFTC commissioners sponsor several subject matter committees (e.g., the market risk advisory committee, the global markets advisory committee, the technology and agriculture committees, or the energy and environmental markets advisory committee).10 The committees should be more involved with the industry and have greater accountability and report the results of their work (e.g., written recommendations on a subject matter).
E. Coordination between the CFTC, SEC and USPRs
1. The Merger of the CFTC and the SEC
During the change in administration, it has become almost a tradition to discuss a potential merger of the CFTC and the SEC into one regulatory entity. Administratively, this can certainly be done, provided that U.S. Congress consents and enacts appropriate legislation and Congressional supervisory committees reach a compromise on the oversight. Given that there are different congressional committees overseeing the CFTC and the SEC, a merger will likely prove to be a very contentious process and thus is very unlikely. Even if this were to happen, the savings will only be at the level of support staff (e.g., the human resources department and computer systems). While the federal acts that each agency has been created to enforce (i.e., the securities laws and the CEA) will still remain separate. The federal rules enacted under these acts will also be enforced separately. This being the case, a merger is less likely to happen with no efficiencies realized, and CFTC's budget being infinitesimal compared to other federal expenditures.
Having said this, if instead of subsuming the CFTC into the SEC, a separate federal agency were created (e.g., similar to U.K.'s Financial Conduct Authority), while preserving the independence of and separateness between commodities and securities regulatory regimes, such combined regulator may foster greater coordination and contribute to the increased clarity in U.S. financial markets. Maintaining the separateness of the SEC and the CFTC ensures that market participants have a choice between SEC's and CFTC's regulatory and jurisdictional regimes when they design novel products. This ensures robustness of the U.S. regulatory regime and a greater possibility for innovation.
2. Coordination between CFTC, SEC and USPRs
As a separate matter, even without the merger, the CFTC and the SEC should be encouraged (if not outright mandated) to work more cooperatively and collaboratively on solving common problems (e.g., a potentially overlapping crypto regulation), and joint working and coordinating committees will be reinstituted (as was required in the Dodd Frank Act of 2010).
Further, in addition to reconciliation of all CFTC rules, the CFTC and the SEC should form a working group to reconcile and where necessary to foster substituted compliance between their rulebooks.
Likewise, the CFTC, the SEC and USPRs (collectively, the "Agencies") should undertake a thorough review of their rules relating to derivatives, e.g., capital, margin and cross-border. While there are substituted compliance orders issued for non-U.S. regulators, the agencies should coordinate substituted compliance at their national level as well.
F. Implementing the Chevron Doctrine
In the wake of the repeal of the Chevron doctrine under the Loper Bright Enterprises v. Raimondo decision,11 both the SEC and the CFTC should be more judicious with their rulemaking to remain within the boundaries of their jurisdictional grant. For example, SEC's rulemaking on ESG disclosures12 and CFTC's proposed rulemaking on event contracts and the VCC guidance for commodity exchanges13 should be further scrutinized and possibly withdrawn.
G. Mutual Recognition with Foreign Regulators and Substituted Compliance
The CFTC should review and assess its mutual recognition, substituted compliance and other agreements with foreign regulators and determine whether, and to what extent, the interests of U.S. businesses and U.S. participants in futures and swaps markets are protected. It is likely that many of these matters will be revisited to ensure that U.S. market participants are not unfairly disadvantaged and are operating at the level playing field.
As discussed further below, this review comes in tandem with the assessment of the definition of "U.S. person" and the circumstances when a transaction is overseas, or not in the United States.
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Footnotes
2. See 7 U.S.C.A. §§ 1a et. seq, as amended.
3. 5 U.S.C.A. §§ 500 et seq.
4. https://www.cftc.gov/PressRoom/SpeechesTestimony/opapham13.
5. https://www.cftc.gov/PressRoom/PressReleases/7555-17.
6. The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. Law 111-203 (2010).
7. See paragraph XI.C below.
8. https://www.cftc.gov/PressRoom/SpeechesTestimony/tarbetstatement102720.
9. See e.g., paragraph X.F below.
10. See, e.g., § 2(a)(15) of the CEA.
11. See Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 144 S. Ct. 2244, 219 L. Ed. 2d 832, Fed. Sec. L. Rep. (CCH) P 101887 (2024).
12. See The Enhancement and Standardization of Climate-Related Disclosures for Investors, 89 F.R. 21668 (Mar. 28, 2024).
13. https://www.cftc.gov/PressRoom/PressReleases/8969-24.
Originally published by Futures & Derivatives Law Report.
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