As the Trump Administration came to power in 2017 with a promise of turning the tide of over-regulation and deconstructing the administrative state, J. Christopher Giancarlo, then the sole Republican commissioner, stepped into the CFTC chairman’s office and proclaimed "financial market regulators, like the CFTC, must pursue their missions to foster open, transparent, competitive, and financially sound markets in ways that best foster American growth and prosperity." Accordingly, the CFTC’s FY 2017 Agency Financial Report reflects a significant shift in priorities at the Commission during the year.
In 2017, the CFTC also saw dramatic changes in the composition of the Commission itself. Timothy Massad, the former chairman, departed on inauguration day in January. Giancarlo served as acting chairman until he was unanimously confirmed as chairman by the Senate on August 3. Brian Quintenz was sworn in as a commissioner on August 15, followed by Rostin "Russ" Behnam on September 6. Sharon Bowen’s resignation became effective on September 30. Two vacancies currently remain on the Commission.
Some facts and figures. Under Chairman Giancarlo’s leadership, the Commission engaged in an active and ambitious agenda during the year. At the same time, the multi-trillion-dollar markets the CFTC regulates continued to expand both in terms of volume and new users as new complexities and challenges emerged. Before examining some of the Commission’s key priorities, it is useful to look at some relevant numbers:
- estimated notional value of the U.S. swaps markets was $243 trillion in 2017, a 21 percent increase over the prior year;
- U.S. futures trading notional value was $23 trillion—a 9 percent increase in trade volume over the prior year;
- customer funds held in FCM accounts amounted to $274.8 billion (as of September 2017);
- total cleared margins were $315 billion (compared to $306 in prior year);
- appropriations for the CFTC totaled $250 million, including 689 full-time equivalents (FTE);
- 49 enforcement actions were filed (compared to 68 in the prior year); and
- $400 million in enforcement sanctions were ordered (compared to $1.3 billion in the prior year).
Shift in key regulatory priorities. In describing A New Direction Forward, the report identifies a number of discrete changes in policy or undertakings that are intended to further the Commission’s newly articulate objectives. These reformulated priorities include:
- Reduce regulatory burdens. During the year, the commission launched Project KISS (which stands for "Keep It Simple, Stupid"), a Commission-wide review of CFTC rules, regulations, and practices to make them simpler, less burdensome, and less costly.
- Improve market intelligence. The Commission seeks to become a smarter regulator. During the year, the CFTC realigned its market surveillance group, created a market intelligence branch, and appointed a market intelligence officer. These reforms are intended to sharpen the Commission’s surveillance capability while increasing its knowledge of evolving structures and practices to inform sound policymaking.
- Embrace FinTech. During the year, the Commission launched the LabCFTC initiative, which is focused on promoting market-enhancing FinTech innovation and fair competition. The initiative is intended to make the CFTC more accessible to FinTech innovators, inform the Commission’s understanding of emerging technologies, and serve as a focal point for the development and implementation of regulatory policy within the FinTech space.
- Enhance trading liquidity. Recently, there have been incidences of negative market events, such as flash crashes which undermine the confidence of the world financial markets. The Commission will seek to ensure that regulations, including capital requirements, properly balance systemic risk concerns with the need for robust, liquid markets.
- Fix flawed swap rules. The Commission staff has been analyzing the mismatch between the CFTC’s swaps trading framework and the distinct liquidity, trading and market structure characteristics of the global swaps market. The staff plans to recommend an alternative swaps trading regulatory framework that better aligns regulatory oversight with inherent swaps market dynamics and promotes swaps trading on SEFs to the Commission in FY 2018.
- Effective international engagement. The Commission will seek to work with its foreign counterparts towards efforts to foster mutually beneficial standards for international markets. The Commission will also seek to strengthen bonds among financial regulators to ensure that a united front is presented to wrongdoers who seek to harm market participants.
- Eschew empire building. The Commission will look to refocus on its core mission by streamlining the work of various CFTC divisions, delegating responsibility to NFA where appropriate, and seek to identify areas where benefits can be derived from cooperation with parallel federal market regulators, state regulators, and enforcement agencies.
- Adopt best business practices. The Commission will continue its efforts to run a tighter ship in the current fiscal environment and meet its core mission notwithstanding limited resources. Towards this end, the Commission is taking several steps, including leveraging technology solutions and realigning its business management staff towards a centralized services model.
In his closing report remarks, Chairman Giancarlo noted that the commissioners and staff are committed to supporting and strengthening the CFTC’s mission to foster open, transparent, competitive, and financially sound markets. "We will continue to implement reforms in ways that enhance safe, sound, sustainable, secure, and vibrant markets for finance and investment in order to promote economic growth and job creation," he concluded.
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