Steps Closer to Functioning Oversight

The CFTC has begun staffing up, after a long period of thinning leadership.

Jim Rundle
The appointment of new commissioners may usher in a wave of activity at the CFTC.

From 2010 to 2011, Belgium didn’t have an elected government. It seems remarkable, particularly given that the country is one of the hosts of the European government, and the name of its capital, Brussels, acts as a metonym for the European Union, but for 589 days, the state’s political and decision-making apparatus was, to put it lightly, a bit of a mess.

The US Commodity Futures Trading Commission (CFTC) has been facing a similar problem, having lacked a full complement of five commissioners since 2014, when Gary Gensler, Bart Chilton and Scott O’Malia resigned from the commission over the course of the year.

The situation became acuter with the election of President Donald Trump, who assumed office in January 2017, prompting the departure of chairman Timothy Massad. That left J Christopher Giancarlo as acting chair and Sharon Bowen as the only other commissioner.

Since then, the CFTC has been largely relegated to theoretical work, with very little lawmaking. The launch of LabCFTC, its fintech initiative, has been one of the few concrete moves made by the regulator—despite much fanfare, Giancarlo’s Project KISS (Keep It Simple Stupid), which is designed to solicit comment on how to improve post-crisis rulemaking, has so far attracted little in the way of serious contributions.

“It’s been functioning, in terms of enforcement and the various tasks it undertakes, but if you’re looking for big, banner announcements then it’s clear to see that the CFTC has been in a holding pattern,” says one Washington, DC-based lobbyist, who asked not to be named due to the sensitivity of the subject.

Giancarlo, who has long criticized elements of the Dodd–Frank Act, notably through a lengthy whitepaper discussing perceived flaws in swap execution facility (SEF) rules, has continued to suggest further initiatives. This includes a full revamp of reporting requirements, which the CFTC wants to complete by 2019.

The situation has been clearly frustrating and came to a head in June, when Bowen announced her resignation from the CFTC, citing the fact that the regulator was unable to get anything done while being so understaffed at the senior levels. Even Giancarlo was still fulfilling the role of chairman in an acting capacity.

“Having just two Commissioners makes routine business difficult, but makes important policy decisions almost impossible,” she said in a statement announcing her future departure. “Without a full complement of commissioners to consider the far-reaching implications of our decisions, we are frozen in place while the markets we regulate are moving faster every day.”

The picture began to change yesterday when the US Senate confirmed Giancarlo’s elevation to full chairman and also confirmed two commissioners—Brian Quintenz and Rostin Behnam.

Benham joins from the Senate Committee on Agricultural Nutrition and Forestry, where he serves as senior counsel, while Quintenz joins the CFTC from the industry, where he is the founder, managing principal and chief investment officer of Saeculum Capital Management.

Dawn Stump, the former head of government affairs for the Futures Industry Association, is also awaiting confirmation as a commissioner. Both Quintenz and Stump are not lawyers, but have worked in government—the former as a congressional aide, and the latter as a staffer for Senate committees.

If Stump is confirmed, that will leave Giancarlo—once Bowen departs—one short of a full Commission. That Commission could have its work cut out for it, if his tendency toward reforming regulations continues, particularly with at least three former industry veterans now in the top seats, and if the current administration continues its focus on deregulation.

Either way, the years-long deadlock at the CFTC is now broken, but what this means for the new normal of the derivatives market is anyone’s guess. Extraordinary times, indeed.

This week on Buy-Side Technology:

  • I am not a physicist. Luckily, I work with intelligent people who have masters degrees in astrophysics, but even then trying to wrap my head around quantum mechanics gave me a migraine for days. Still, if that’s your thing, then you should absolutely check out this exquisitely written feature from our Hong Kong-based reporter, Wei-Shen Wong, on quantum computing.
  • The CFTC isn’t the only one in the spotlight this week, as a senior senator writes to Securities and Exchange Commission (SEC) chairman Jay Clayton about Reg SCI, and how he doesn’t feel it’s transparent enough regarding who is subject to the rules. The email I received back from the SEC when I contacted them about it, which simply read “decline comment,” might suggest he’s on to something.
  • This is slightly more sell side in nature, but my colleague Aggelos Andreou has an in-depth interview with the Vienna Stock Exchange, or to its friends, Wiener Börse, where he talks to its CTO about what its technology upgrade means for speed traders and others.
  • In an attempt to cut through the hype, US editor Anthony Malakian also spoke with Brown Brothers Harriman’s new fintech czar, Michael McGovern, about what’s actually being explored in the weird and wonderful work of regtech, robotics and everything else. The answer is perhaps not what you might think.
  • Finally, AcadiaSoft expanded into consultancy. Which was a bit of a strange thing to read at first, but kind of makes sense when you take into account the intricacies of margin requirements for non-cleared derivatives and … look, it’s just best if you read it.
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