CFTC Chairman J. Christopher Giancarlo addressed a wide variety of topics, ranging from the Trump regulatory reform agenda to the agency’s budget to cryptocurrencies, in his first on-the record interview since being confirmed by the Senate. The interview was conducted by Gabriel T. Rubin of the Wall Street Journal. Giancarlo was confirmed by the Senate on August 3, 2017, along with fellow commissioners Rostin "Russ" Behnam and Brian Quintenz.
Here are some of the topics discussed and highlights of the interview with Giancarlo:
The Trump administration regulatory agenda and its application to the CFTC. Giancarlo believes that the CFTC’s agenda must foster broad-based economic growth and deepen lasting prosperity. He noted, "My interpretation of the Trump agenda to the CFTC you could put in a nutshell. And I would say that’s to balance derivative market regulation and financial system stability with market vibrancy, economic growth and American prosperity."
Giancarlo also took issue with a general press criticism that the Trump administration isn’t making forward progress at the regulatory agencies. He noted, "I’m here to say that, at least as far as the CFTC is concerned, that’s false." He pointed out that during his time as acting chairman, "We completed an average of 3 1/2 voting actions a week, which is on par with the activity of the CFTC under the previous administration. We launched some unprecedented new initiatives, like LabCFTC and Project KISS [for "keep it simple, stupid"]."
The CFTC’s Budget. Giancarlo was not willing to concede that Congress will turn down its bid for a $31.5 million budget increase from the current $250 million level. However, the chairman was silent when asked how budget constraints might crimp its efforts to launch LabCFTC, the Commission’s major financial technology initiative. On a related score, Giancarlo remained less than enthusiastic about augmenting the CFTC’s funding via the imposition of user fees. The chairman remains concerned that user fees will result in a further drag on market liquidity, and noted that market participants are already subject to fees imposed by the NFA and the exchanges.
Priorities as CFTC Chairman and updating CFTC regulations. Giancarlo sees his top priority as promoting financially sound markets in a way that best fosters economic growth—and economic growth that’s broad-based. To accomplish that, Giancarlo stated, "We need to do two things. We need to start by respecting the American taxpayer. And that’s why Project KISS is so important. We need to make sure that our regulations are periodically reviewed to make sure they are doing in a way that is optimized to minimize the burdensomeness and the cost for those who have to comply with the regulations, while still reaching the statutory purposes behind those regulations."
The swaps market. Giancarlo echoed what has now become his familiar criticism of the regulations addressing execution that the CFTC adopted under the Dodd-Frank market reform legislation. He noted, "[S]waps need to trade in a way that’s suitable for swaps and not suitable for futures. And what the CFTC did was try to superimpose the futures model of swaps execution on a marketplace … [T]he swaps market cannot, will not trade the way futures trade. And the reason has to do with the inherent nature of liquidity. And I explain that in great length in my white paper," he continued.
Cryptocurrencies and FinTech. While the CFTC has gotten out in front of the regulation of bitcoin and the approval of the LedgerX, a derivatives clearing organization focusing on cryptocurrencies, Giancarlo has assumed a markedly cautious and agnostic approach, noting: "We were very careful in our statement about the recent registration of LedgerX to make it clear that we take no view on the efficacy of cryptocurrencies or their utilization by market participants, et cetera. We simply apply the law and our regulations to the applications we received. And upon careful consideration, determined—and we determined in a bipartisan fashion—that LedgerX met our requirements and therefore we granted registration."
With regard to technological innovation generally, the chairman observed, "Technology is often a very important driver of economic growth and expansion. As we’ve seen over the last several decades, the internet revolution drove long periods of great wealth creation here in the United States and the rest of the world. And we’re in a new phase of technological development and innovation in financial technology and other areas of technology. And under the Trump administration, our goal is to regulate in a way that is not antithetical to the type of growth that could come from technological innovation."
The Volcker Rule. Giancarlo continued to sound his adamant opposition to the Volcker Rule, noting, "I’ve been very consistent in my three years of sounding the alarm about … deteriorating trading liquidity in derivative and other risk transfer markets." He continued, "I’ve said that healthy markets require a diversity of liquidity provision. And one of the impacts of the Volcker rule has been to really diminish the role of the inventory-based liquidity provision in preferencing proprietary-based liquidity provision. We have less overnight inventory liquidity and more daylight liquidity."
In closing, the chairman took an optimistic bent, noting, "[M]y professional career has been one of delivering on the things I say I’m going to do. And I look forward to doing this, you know, in the right order, with the right input, with the right support on a bipartisan basis in getting this done."
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