[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]









 EXAMINING THE 2017 AGENDA FOR THE COMMODITY FUTURES TRADING COMMISSION

=======================================================================

                                HEARING

                               BEFORE THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 11, 2017

                               __________

                           Serial No. 115-12



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]













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                        COMMITTEE ON AGRICULTURE

                  K. MICHAEL CONAWAY, Texas, Chairman

GLENN THOMPSON, Pennsylvania         COLLIN C. PETERSON, Minnesota, 
    Vice Chairman                    Ranking Minority Member
BOB GOODLATTE, Virginia,             DAVID SCOTT, Georgia
FRANK D. LUCAS, Oklahoma             JIM COSTA, California
STEVE KING, Iowa                     TIMOTHY J. WALZ, Minnesota
MIKE ROGERS, Alabama                 MARCIA L. FUDGE, Ohio
BOB GIBBS, Ohio                      JAMES P. McGOVERN, Massachusetts
AUSTIN SCOTT, Georgia                FILEMON VELA, Texas, Vice Ranking 
ERIC A. ``RICK'' CRAWFORD, Arkansas  Minority Member
SCOTT DesJARLAIS, Tennessee          MICHELLE LUJAN GRISHAM, New Mexico
VICKY HARTZLER, Missouri             ANN M. KUSTER, New Hampshire
JEFF DENHAM, California              RICHARD M. NOLAN, Minnesota
DOUG LaMALFA, California             CHERI BUSTOS, Illinois
RODNEY DAVIS, Illinois               SEAN PATRICK MALONEY, New York
TED S. YOHO, Florida                 STACEY E. PLASKETT, Virgin Islands
RICK W. ALLEN, Georgia               ALMA S. ADAMS, North Carolina
MIKE BOST, Illinois                  DWIGHT EVANS, Pennsylvania
DAVID ROUZER, North Carolina         AL LAWSON, Jr., Florida
RALPH LEE ABRAHAM, Louisiana         TOM O'HALLERAN, Arizona
TRENT KELLY, Mississippi             JIMMY PANETTA, California
JAMES COMER, Kentucky                DARREN SOTO, Florida
ROGER W. MARSHALL, Kansas            LISA BLUNT ROCHESTER, Delaware
DON BACON, Nebraska
JOHN J. FASO, New York
NEAL P. DUNN, Florida
JODEY C. ARRINGTON, Texas

                                 ______

                   Matthew S. Schertz, Staff Director

                 Anne Simmons, Minority Staff Director

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                             C O N T E N T S

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                                                                   Page
Conaway, Hon. K. Michael, a Representative in Congress from 
  Texas, opening statement.......................................     1
    Prepared statement...........................................     3
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, opening statement...................................     3

                                Witness

Giancarlo, Hon. J. Christopher, Chairman, Commodity Futures 
  Trading Commission, Washington, D.C............................     4
    Prepared statement...........................................     6
    Submitted questions..........................................    47

 
 EXAMINING THE 2017 AGENDA FOR THE COMMODITY FUTURES TRADING COMMISSION

                              ----------                              


                      WEDNESDAY, OCTOBER 11, 2017

                          House of Representatives,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
1300 of the Longworth House Office Building, Hon. K. Michael 
Conaway [Chairman of the Committee] presiding.
    Members present: Representatives Conaway, Thompson, 
Goodlatte, Lucas, King, Austin Scott of Georgia, Crawford, 
Hartzler, LaMalfa, Allen, Bost, Rouzer, Kelly, Comer, Marshall, 
Bacon, Faso, Arrington, Peterson, David Scott of Georgia, 
Costa, McGovern, Vela, Lujan Grisham, Kuster, Nolan, Bustos, 
Maloney, Adams, Evans, Lawson, O'Halleran, Panetta, Soto, and 
Blunt Rochester.
    Staff present: Darryl Blakey, Paul Balzano, Rachel Millard, 
Stephanie Addison, Liz Friedlander, Matthew MacKenzie, Troy 
Phillips, Nicole Scott, and Carly Reedholm.

OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE 
                     IN CONGRESS FROM TEXAS

    The Chairman. This hearing of the Committee on Agriculture 
entitled, Examining the 2017 Agenda for the Commodity Futures 
Trading Commission, will come to order.
    I have asked Michael Bost to open us with a brief prayer. 
Michael.
    Mr. Bost. Please bow your head. Dear Heavenly Father, we 
thank you so much for this opportunity to be here today. Lord, 
we thank you for this nation. We thank you that we can live 
freely, that we can debate issues to try to make this nation a 
better place for our families, for the prosperity of this 
nation. We ask your blessing be upon this nation. We ask you to 
protect our brothers and sisters right now that are in Puerto 
Rico, and the things they are suffering through. Lord, guide 
the hands of the people that are down there working, that you 
bless them and you bring their island back, Lord, that they 
prosper. That the other areas that have been hit by such 
devastation as the other two hurricanes and the fires, Lord 
God, we just ask your protective hand be on all of our 
citizens. Lord, we praise you, we worship you, guide us as we 
work on these issues today. Give us the Wisdom of Solomon, 
Lord, and help us to have the kind hearts that we need to have 
as public servants. We ask all this in Jesus Christ's name. 
Amen.
    The Chairman. Thank you, Michael.
    Good morning. I want to welcome Chairman Giancarlo for 
being here today to highlight his plans for the CFTC. I want to 
first congratulate him on his nomination and confirmation as 
Chairman. I count Chris as a friend, and I have enjoyed his 
counsel and the opportunity to work with him these past 3 
years. He is going to make a fine Chairman of the CFTC, and I 
have all the confidence in the world that he will run that 
Commission in the way we would all like to see it run.
    I also want to thank our colleagues in the Senate for their 
quick action in confirming Brian Quintenz and Russ Benham as 
new Commissioners. Having met with both of these gentlemen, I 
know they will be able and thoughtful Commissioners. I am also 
looking forward to the confirmation of Dawn Stump. The Senate 
is waiting to pair her with the nominee for the fifth and final 
seat, so hopefully that process moves along and we can finally 
have a full Commission. The ag community is deeply supportive 
of her nomination and is looking forward to having her 
perspective inside your building.
    Mr. Chairman, I appreciate your willingness to take a look 
back at the regulatory responses made to the financial crisis 
of 2008. Many of our Members have been advocates of a 
comprehensive review of the CFTC's Title VII rulemakings. Too 
many end-users and market participants remain adversely 
impacted by the sprawling, complex rules. I share your 
conviction that we can improve economic growth by reducing 
unnecessary regulatory burdens.
    I am also encouraged by your vision for improving the 
management at the CFTC. You have said you want to make the CFTC 
a 21st century regulator, and I look forward to more details 
about LabCFTC and the other modernization plans that you are 
proposing. You have also made structural changes and moved some 
personnel reporting lines, and I am interested in hearing about 
any early payoff that you have seen from those moves
    You have outlined an ambitious agenda that is headlined by 
two issues this Committee has spent substantial time examining: 
the SEF trading rules and the swap data reporting requirements. 
Progress on these two issues is critical to the success of the 
Title VII reforms. The status quo will leave fractured markets 
and nearsighted regulators. I am hopeful you can make 
meaningful headway on both these fronts.
    Finally, international issues remain front and center 
before your Commission. As we have expected, trading venue 
equivalence is an important issue and I am encouraged by what I 
have heard in the news. But I am discouraged to read that CCP 
equivalence is again on the table. It is imperative that the 
U.S.-EU equivalence determination does not become collateral 
damage in the Brexit fight.
    You have talked about deference between international 
regulators and I support that stance 100 percent. For three 
Congresses in a row, this Committee, and this House, have 
passed strong language that would have enshrined principles of 
mutual deference to competent regulators into law. These 
markets are too big and too important to strangle with 
bureaucratic infighting.
    Again, thank you for coming today and the time you and your 
staff have spent preparing. We look forward to your testimony 
and working with you over the course of your term.
    [The prepared statement of Mr. Conaway follows:]

  Prepared Statement of Hon. K. Michael Conaway, a Representative in 
                          Congress from Texas
    Good morning. I would like to thank Chairman Giancarlo for being 
here today to highlight his plans for the CFTC. I first want to 
congratulate him on his nomination and confirmation. I count Chris as a 
friend; I have enjoyed his counsel and the opportunity to work with him 
the past 3 years. He is going to make a fine Chairman of the CFTC and I 
have all the confidence in him.
    I would also like to thank our colleagues in the Senate for their 
quick action in confirming Brian Quintenz and Russ Benham as new 
Commissioners. Having met with both of these gentlemen, I know they 
will be able and thoughtful Commissioners. I'm also looking forward to 
the confirmation of Dawn Stump. The Senate's waiting to pair her with 
the nominee for the fifth and final seat, so hopefully that process 
moves along and we can finally have a full Commission. The ag community 
is deeply supportive of her nomination and is looking forward to having 
her perspective inside the building.
    Mr. Chairman, I appreciate your willingness to take a look back at 
the regulatory responses made to the financial crisis of 2008. Many of 
our Members have been advocates of a comprehensive review of the CFTC's 
Title VII rulemakings. Too many end-users and market participants 
remain adversely impacted by the sprawling, complex rules. I share your 
conviction that we can improve economic growth by reducing unnecessary 
regulatory burdens.
    I am also encouraged by your vision for improving the management at 
the CFTC. You've said you want to make the CFTC a ``21st Century 
Regulator'' and I look forward to more details about LabCFTC and other 
modernization plans. You've also made structural changes and moved some 
personnel reporting lines, and I am interested in hearing about any 
early payoff.
    You've outlined an ambitious agenda that is headlined by two issues 
this Committee has spent substantial time examining: the SEF trading 
rules and the swap data reporting requirements. Progress on these two 
issues is critical to the success of the Title VII reforms. The status 
quo will leave fractured markets and nearsighted regulators. I am 
hopeful you can make meaningful headway on both these fronts.
    Finally, international issues remain front and center before the 
Commission. As we expected, trading venue equivalence is an important 
issue and I am encouraged by what I've heard in the news. But I am 
discouraged to read that CCP equivalence is again on the table. It is 
imperative that the U.S.-EU equivalence determination doesn't become 
collateral damage in the Brexit fight.
    You've talked about deference between international regulators and 
I support that stance 100 percent. For three Congresses in a row, this 
Committee and this House have passed strong language that would have 
enshrined principles of mutual deference to competent regulators into 
law. These markets are too big and too important to strangle with 
bureaucratic infighting.
    Again, thank you for coming in today and the time you and your 
staff have spent preparing. We look forward to your testimony and 
working with you over the course of your term.
    I now turn to the Ranking Member, Mr. Peterson, for any comments he 
would like to make.

    The Chairman. I now turn to the Ranking Member for his 
comments.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE 
                   IN CONGRESS FROM MINNESOTA

    Mr. Peterson. Well, thank you, Mr. Chairman. And welcome, 
Chairman Giancarlo, to the Agriculture Committee. You have 
appeared before the Committee before, and you have actually 
played in the band here in the Committee hearing room before, 
we welcome you.
    I am looking forward to your testimony today on where we 
see the CFTC heading under your tenure. And I am particularly 
interested in how you see the final implementation of Dodd-
Frank. I have generally been impressed with how the Commission 
has gone about enacting the changes, and look forward to seeing 
continued efforts to bring more transparency to the derivatives 
marketplace.
    I am concerned, however, that Europe's rules for their 
version of our swap execution facilities don't provide anywhere 
near the pre- and post-trade transparency that our rules do. I 
understand that you have been negotiating an equivalence 
agreement on those rules, and that you are close to reaching an 
agreement. Hopefully, any final agreement will be more closely 
aligned with our transparency rules than theirs.
    The CFTC has a very important role to play, protecting the 
integrity of our derivatives market, and this protects not just 
those who use the market, but the economy as a whole.
    So thank you again for being with us today, and I look 
forward to your testimony.
    I yield back.
    The Chairman. I thank the Ranking Member.
    The chair would request other Members submit their openings 
statements for the record so that our witness may begin his 
testimony, and to ensure there is ample time for questions.
    I want to welcome to the witness table the Honorable J. 
Christopher Giancarlo, Chairman of the U.S. Commodity Futures 
Trading Commission, Washington, D.C.
    Chris, I trust that you will not use your role in the 
Ranking Member's band to exert undue influence over him as you 
play the banjo for the Second Amendment. So with that, Mr. 
Giancarlo, you are recognized. The table is yours.

          STATEMENT OF HON. J. CHRISTOPHER GIANCARLO,
  CHAIRMAN, COMMODITY FUTURES TRADING COMMISSION, WASHINGTON, 
                              D.C.

    Mr. Giancarlo. Thank you, Chairman Conaway, Ranking Member 
Peterson, and Members of the Committee. I am honored to testify 
before you as Chairman of the Commodity Futures Trading 
Commission.
    In the 3 years that I have served on the Commission I have 
learned a lot from you about the issues facing America's 
farmers, ranchers, producers, and other users of commodity 
futures products. I have also traveled to many of your home 
states to meet with Americans who use and rely on our markets 
for these products. These visits have made me a much better 
regulator. I have also spent the past 3 years getting to know 
the agency, its staff, and its programs, and in that time my 
respect has grown for the hardworking men and women who serve 
the CFTC's important mission.
    As you know, America's farmers and ranchers have used 
listed derivative products and markets for more than 100 years 
to hedge their costs of production and delivery. But derivative 
markets are not just useful for agricultural producers; they 
impact the price and availability of heating in American homes, 
of energy used in factories, of interest rates charged on home 
mortgages, and on the returns earned on Americans' life 
savings. They serve the needs of society to help moderate 
price, supply, and other commercial risks, and, thereby, free 
up capital for economic growth, job creation, and much-needed 
prosperity. That is why we must be diligent in protecting these 
markets from fraud and abuse.
    The day after the White House announced its intention to 
nominate me as Chairman, I said, ``There will be no pause, no 
letup, or no reduction in our duty to enforce the law and 
punish wrongdoing in our derivative markets.'' And I have kept 
that pledge, and intend to continue to do so, and I look 
forward to detailing for this Committee the CFTC's vigorous 
enforcement program.
    In preparing the CFTC's current budget request earlier this 
year, I reviewed the agency's various functions and 
expenditures. I identified several ways it can run more 
efficiently and save taxpayer money. But I also found areas 
where we need to devote additional resources. These include 
clearinghouse examinations, market economists, and 
technologists. And I would like to discuss these needs with you 
today.
    I also look forward to discussing a new agency-wide review 
of CFTC rules, regulations, and practices to make them simpler, 
less burdensome, and less costly. This initiative is called 
Project KISS. Now, it is not about identifying rules for 
repeal; it is about taking our existing rules and applying them 
in ways that are simpler, less costly, and less burdensome, 
especially for smaller market participants and end-users. I 
would also like to discuss another initiative which we call 
LabCFTC. It serves as a focal point for our efforts to 
facilitate market-enhancing financial technology innovation 
along with fair competition for the benefit of the American 
public. It serves as a platform to deepen our understanding of 
emerging technologies and their impact on American markets. 
LabCFTC is meant to help the CFTC avoid being a last century 
analog regulator of today's 21st century digital markets.
    Now, cybersecurity is certainly one of the greatest threats 
to market integrity and systemic stability of our time, and I 
look forward to reviewing for you the steps I have taken as 
Chairman to address this ever-evolving challenge.
    One of my key priorities is to better coordinate the work 
of the CFTC and that of fellow regulators, including the SEC, 
and also the Fed when it comes to clearinghouse supervision. 
Equally important is to better harmonize our implementation of 
swaps market reforms with that of overseas regulators. I am 
committed to seeing that the CFTC's oversight of swaps and 
other derivatives is robust and effective, and yet compatible 
with overseas regulations to avoid fragmenting markets and 
trading activity. And to this end, I am hopeful that the CFTC 
and the EU will soon conclude satisfactory determinations on 
margin on uncleared swaps and trade execution.
    Finally, I look forward to resolving outstanding regulatory 
issues before the Commission, such as the de minimis threshold. 
Not just resolve it, but get it right, using the latest and 
most complete data to make a determination based upon true risk 
to the financial system. Yet, it is hard to get something as 
complicated as this right when we are under a time crunch. On 
one hand, we are less than 90 days away from the New Year, when 
market participants will have to start counting the notional 
amount of their swaps transactions for de minimis purposes. On 
the other hand, we have two new Commissioners and a new 
division director who are just seeing internal agency trading 
data for the first time. I am reluctant to ask them to make 
such an important decision in a rush. I have, therefore, 
decided to request that the Commission delay this decision for 
1 further year. We will follow the same procedural steps that 
Chairman Massad used last year to implement this 1 year delay. 
It will give the new Commissioners and division staff adequate 
time to analyze extensive quantitative data, ask questions, 
analyze the answers, and arrive at a final decision. The goal 
is to get the right result, not a rushed result. Therefore, I 
intend to put before the Commission in the first half of 2018 a 
proposal for a final resolution of the swap dealer de minimis 
issues. I do not intend to roll over the decision on this issue 
again.
    Thank you for inviting me to testify before you to review 
issues of critical importance to the work of the CFTC and the 
American people, and I look forward to your questions.
    Thank you.
    [The prepared statement of Mr. Giancarlo follows:]

    Prepared Statement of Hon. J. Christopher Giancarlo, Chairman, 
         Commodity Futures Trading Commission, Washington, D.C.
    Thank you Chairman Conaway, Ranking Member Peterson, and Members of 
the Committee.
    I am honored to testify before you today as the 13th Chairman of 
the U.S. Commodity Futures Trading Commission (CFTC).
    In the 3 years that I served as a Commissioner at the CFTC, I 
learned a lot from you about the issues facing America's farmers, 
ranchers, producers, and other users of commodity futures who depend on 
the CFTC regulated markets for their risk management needs. I am 
grateful now to give testimony as Chairman of the CFTC. Thank you for 
the opportunity to hear your concerns and answer your questions.
    In 2014, as a nominee to the CFTC, I presented my background in 
commercial law and business to the Senate Agriculture Committee and 
acknowledged my rather obvious character flaw of not having been raised 
on a farm. I spoke about my experiences as a practicing lawyer and how 
I always tried to spend time with new clients at their business offices 
to learn what they did and how they did it. I believe you cannot truly 
serve someone you represent unless you first dig in and understand how 
they make a living. At that time, I committed to learning everything I 
could about the agricultural sector.
    Since that time, I have had the honor to meet with hundreds of 
Americans who depend on CFTC-regulated derivatives markets. I have 
travelled to many of your home states, 19 in fact, to meet with 
farmers, ranchers, energy producers, and small and large manufacturers, 
all of whom use our markets to hedge production and price risk. I have 
milked dairy cows with family farmers in Melrose, Minnesota, and 
visited with cotton farmers in Bardwell, Texas. I have been 900 
underground in a Kentucky coal mine and 90 above ground on a North 
Dakota natural gas rig. I have walked factory floors, oil refineries, 
grain elevators, and power plants all over this country.
    And I still have more walking to do. We regulators must learn to 
walk in the shoes of our fellow Americans so that we can serve their 
needs back in Washington. While these visits have been incredible in 
their own right, they have most importantly made me a better informed 
regulator of America's commodity futures markets.
    I have also spent the past 3 years on the Commission getting to 
know the agency, its staff, and its programs. My admiration and respect 
have not diminished, but grown. In January, upon becoming Acting 
Chairman, I began a process of looking at every function and 
expenditure undertaken by the Commission, just as I learned to do in my 
business career. In the private-sector, we would never simply take last 
year's budget number and add a percentage increase. Rather, each dollar 
requested had to serve a purpose. Likewise, when I first sat down with 
the CFTC leadership team, my budget baseline was zero. We built our 
budget from the ground up.
    Drawing on my business experience, I have already identified 
several ways the agencycan run more efficiently and save taxpayer 
dollars. I also discovered areas within our current mission where we 
need to devote additional resources. Moving forward, I have trust and 
confidence that with the right allocation of resources we can meet the 
challenges of an evolving 21st Century market.
Importance of the CFTC
    As you well know, American farmers and ranchers have used listed 
derivatives markets to hedge their costs of production and delivery for 
more than 100 years. These markets allow the risks of variable 
production costs, such as the price of raw materials, energy, foreign 
currency, and interest rates, to be transferred from those who cannot 
afford them to those who can. They are the reason why American 
consumers enjoy stable prices in the grocery store, whatever the 
conditions out on the farm.
    Even Americans not actively participating in the futures markets 
are impacted by the prices generated by them. Commodity futures markets 
provide a critical source of information about future harvest prices. 
For example, a grain elevator uses the futures market as the basis for 
the price it offers local farmers at harvest. In return, farmers look 
to exchange prices to determine for themselves whether they are getting 
fair value for their crop. The U.S. Department of Agriculture (USDA) 
uses that same information to make price projections, determine 
volatility measures, and make pay-outs on crop insurance.\1\
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    \1\ E.g., USDA, Informational Memorandum: PM-17-012, 2017 Crop Year 
(CY) Common Crop Insurance Policy and Area Risk Protection Insurance 
Projected Prices and Volatility Factors; Malting Barley Endorsement 
Projected Price Component and Volatility Factor; and Hybrid Seed Price 
Endorsement--Hybrid Seed Corn Prices (Mar. 1, 2017), available at 
https://www.rma.usda.gov/bulletins/pm/2017/17-012.pdf.
---------------------------------------------------------------------------
    But derivatives markets are not just useful for agricultural 
producers. They impact the price and availability of heating in 
American homes, energy used in factories, interest rates charged on 
home mortgages and the returns earned on retirement savings. More than 
ninety (90%) percent of Fortune 500 companies use derivatives to manage 
commercial or market risk in their worldwide business operations.
    In short, derivatives serve the needs of society to help moderate 
price, supply and other commercial risks to free up capital for 
economic growth, job creation and prosperity. While often derided in 
the tabloid press as ``risky,'' derivatives--when used properly--are 
tools for efficient risk transfer and mitigation. It has been estimated 
that commercial derivatives usage added 1.1 percent to the size of the 
U.S. economy between 2003 and 2012.\2\
---------------------------------------------------------------------------
    \2\ The Milken Institute found the following economic benefits to 
the U.S. economy from derivatives: ``[b]anks' use of derivatives, by 
permitting greater extension of credit to the private-sector, increased 
U.S. quarterly real GDP by about $2.7 billion each quarter from Q1 2003 
to Q3 2012; [d]erivatives use by non-financial firms increased U.S. 
quarterly real GDP by about $1 billion during the same period by 
improving the firms' ability to undertake capital investments; 
[c]ombined, derivatives expanded U.S. real GDP by about $3.7 billion 
each quarter; the total increase in U.S. economic activity was 1.1 
percent ($149.5 billion) between 2003 and 2012; [b]y the end of 2012, 
use of derivatives boosted U.S. employment by 530,400 (0.6 percent) and 
industrial production 2.1 percent.'' See Apanard Prabha, et al., 
Deriving the Economic Impact of Derivatives, Milken Institute, at 1 
(Mar. 2014), available at http://assets1b.milkeninstitute.org/assets/
Publication/ResearchReport/PDF/Derivatives-Report.pdf.
---------------------------------------------------------------------------
Enforcement
    I am committed to supporting and strengthening the CFTC's mission 
to foster open, transparent, competitive, and financially sound markets 
for the trading of commodity and financial futures, swaps, and other 
derivatives. I am also committed to seeing that America's derivatives 
markets operate free from fraud, manipulation, and other trading 
abuses.
    The day after the White House announced its intention to nominate 
me as Chairman, I said ``there will be no pause, let up or reduction in 
our duty to enforce the law and punish wrongdoing in our derivatives 
markets; the American people are counting on us.'' \3\
---------------------------------------------------------------------------
    \3\ J. Christopher Giancarlo, Chairman, U.S. Comm. Fut. Trading 
Comm'n, CFTC: A New Direction Forward, Remarks of Acting Chairman J. 
Christopher Giancarlo before the 42nd Annual International Futures 
Industry Conference in Boca Raton, FL (Mar. 15, 2017), available at 
http://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo-20.
---------------------------------------------------------------------------
    Since then, I have appointed James McDonald as Director of 
Enforcement, a former Federal prosecutor who served as an Assistant 
United States Attorney from the Southern District of New York. I have 
strengthened our rules and procedures to better protect whistleblowers, 
brought new impactful enforcement cases, and successfully resolved 
other important enforcement cases. Our enforcement resources have also 
been enhanced. For example, I realigned our Market Surveillance Branch 
to report directly to the Director of Enforcement.
    Since January of this year, the CFTC's Division of Enforcement has 
brought important enforcement actions across our markets, which have 
strengthened market integrity and enhanced customer protections. For 
example, following an investigation by the Division, the Commission 
entered an Order earlier this year imposing sanctions for manipulation, 
among other things, in the live cattle futures market. The Division has 
continued to bring significant spoofing cases, and recently filed the 
largest precious metals fraud case in the history of the Commission. It 
has also prosecuted fraud in virtual currency markets. In fact, the 
Commission has filed ten new enforcement actions in September alone. 
Very recently, the CFTC filed civil fraud charges in the U.S. District 
Court for the Southern District of New York against a company over an 
alleged Bitcoin investment scheme, involving fraud, misappropriation, 
and issuing false account statements.\4\
---------------------------------------------------------------------------
    \4\ Press Release, U.S. Comm. Fut. Trading Comm'n, CFTC Charges 
Nicholas Gelfman and Gelfman Blueprint, Inc. with Fraudulent 
Solicitation, Misappropriation, and Issuing False Account Statements in 
Bitcoin Ponzi Scheme (Sept. 21, 2017), available at http://
www.cftc.gov/PressRoom/PressReleases/pr7614-17.
---------------------------------------------------------------------------
    In addition to actions utilizing the Commission's fraud and 
manipulation authority, the Division has also recommended actions 
concerning failure to supervise, as well as violations of position 
limits, record-keeping and reporting obligations, and registration 
rules. We are also continuing to work proactively alongside our law 
enforcement partners, including the Department of Justice, to ensure 
that, in the appropriate cases, we are facilitating criminal 
prosecutions of the most culpable actors.
    The Division of Enforcement has also leveraged its resources 
through implementation of a self-reporting program designed to help the 
Division identify more culpable wrongdoers and hold them accountable. 
As this program demonstrates, we will follow the facts and the law to 
prosecute both corporations and responsible individuals. This self-
reporting program is designed to help us identify the individuals, and 
where the evidence supports, prosecuting those individuals, most 
culpable for any wrongdoing. As we did, for example, in charging 
individuals at a major bank with spoofing violations earlier this year 
based in part on the cooperation of other, less culpable individuals.
    This program does not--in any way, shape or form--suggest a 
lessening of the agency's efforts to enforce the law. Rather, it 
signals the CFTC's determination to prosecute a broader range of 
misbehavior than would otherwise be uncovered without self-reporting by 
responsible parties.
    Moreover, the CFTC's self-reporting program enjoys bipartisan 
support. The foundation of the program is in the deferred prosecution 
protocols established under the chairmanship of Timothy Massad and 
adopted unanimously by the Commission. The current cooperation program 
was fully supported by former Commissioner Sharon Bowen \5\ and mirrors 
similar programs established by the Justice Department, and the SEC 
during the Obama Administration.
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    \5\ Neil Roland, CFTC plan to reward firms that self-report 
misconduct is `no lessening or softening' of enforcement, Bowen says, 
MLEX, September 27, 2017.
---------------------------------------------------------------------------
21st Century Regulator
    As Chairman, I believe the CFTC's regulatory mission best serves 
the public interest when it fosters broad-based economic growth and 
American prosperity. It is my strong belief that for all segments of 
our economy to flourish, we need well-crafted and practical rules, 
regulations, and regulatory approaches that encourage participation and 
responsible innovation in our markets.
    So much of our world today, from information to music to 
manufacturing to transportation to commerce--even farming, is 
undergoing a digital transformation. It should be no surprise that our 
capital, commodity, and futures markets are going through the same 
transformation. The electronification of markets over the past 30 to 40 
years and the advent of exponential growth in digital technologies have 
altered trading, markets, and the entire financial landscape with far-
ranging implications for capital formation and risk transfer.
    The world is changing. Our parents' financial markets are gone. The 
21st century digital transformation is well underway. And, as our 
markets continue to evolve, the CFTC cannot be an analog regulator in a 
digital age--instead we must also evolve. We must learn from the 
changes enveloping our world and adopt them in pursuit of our 
regulatory mission and the betterment of our markets.
LabCFTC
    With this in mind, CFTC recently launched an initiative called 
LabCFTC.\6\ It serves as the focal point for Commission efforts to 
facilitate market-enhancing financial technology (FinTech) innovation 
and fair competition for the benefit of the American public. LabCFTC is 
designed to make the CFTC more accessible to FinTech innovators. It 
serves as a platform to inform the Commission's understanding of 
emerging technologies. LabCFTC will enable the CFTC to be proactive and 
forward-thinking as FinTech applications continue to develop, and to 
help identify related regulatory opportunities, challenges, and, risks.
---------------------------------------------------------------------------
    \6\ Press Release, U.S. Comm. Fut. Trading Comm'n, CFTC Launches 
LabCFTC as Major Fintech Initiative (May 17, 2017), available at http:/
/www.cftc.gov/PressRoom/PressReleases/pr7558-17.
---------------------------------------------------------------------------
    The LabCFTC initiative will accomplish its mission through three 
primary work streams: The first is to provide greater regulatory 
certainty and understanding that encourages market-enhancing financial 
technology innovation to improve the quality, resiliency, and 
competitiveness of our markets. The second is to identify, understand, 
and utilize emerging technologies that will enable the CFTC to carry 
out its mission more effectively and efficiently in the new digital 
world. And, the third is to establish an internal resource to inform 
our staff on emerging technologies, while collaborating with external 
stakeholders, including domestic and international regulators, in order 
to share best practices related to FinTech innovation.
    Emerging financial technologies ranging from blockchain to machine 
learning to predictive data analytics are transforming financial 
markets and services. The rapid pace of innovation and adoption, the 
potential disintermediation of traditional financial market functions, 
and the increasing speed and power of computers are raising important 
new opportunities and challenges for key market stakeholders, including 
banks, end-users, and regulators. In order to remain proactive and 
facilitate the emergence of market-enhancing technologies, regulators 
around the world are working to share developments, trends, and 
insights in order to understand and harness the potential of these 
innovations.
    Two weeks ago, under the leadership of the CFTC's first-ever Chief 
Innovation Officer, LabCFTC held its second set of office hours in NYC. 
LabCFTC will be holding its next set of office hours in Chicago on 
Friday, October 20. LabCFTC is also targeting sessions in other 
technology centers including Silicon Valley, Austin Texas and Route 28 
outside of Boston.
    Since its launch a few months ago, LabCFTC has held over 100 
meetings with market participants and FinTech innovators, ranging from 
established financial service firms to start-up companies. Among all 
LabCFTC inquiries, more than \2/3\ were successfully resolved or 
require no further follow-up by LabCFTC. Technologies discussed include 
distributed ledger and blockchain, smart contracts, artificial 
intelligence/machine learning, predictive data analytics, algorithmic 
trading, cloud computing, digital identity, cyber-security, and 
RegTech. Potential applications of these technologies in CFTC markets 
could enhance efficiencies, reduce transaction costs, increase 
transparency, and bolster compliance.
    LabCFTC seeks to assist and foster market-enhancing FinTech 
innovation in CFTC regulated markets here in America. We look to 
harness these rapidly evolving digital markets to be engines for 
economic freedom and opportunity--the ingredients that have always 
been, and always will be, essential for American prosperity.
    And, yet, there is another equally important purpose for LabCFTC, 
one that is quite simple. That is to help the CFTC bridge the gap from 
where we are today to where we need to be--a twenty-first century 
regulator for twenty-first century digital markets.
Cybersecurity
    And before I move on from speaking about technology, I want to 
address cybersecurity--at the CFTC and the institutions in the markets 
we oversee. I know Congress is rightly concerned about cyber risk in 
light of recently announced breaches of Equifax and the Securities and 
Exchange Commission. Such concern is appropriate. As I have repeatedly 
said, cybersecurity is undoubtedly the most important single issue 
facing our markets today in terms of market integrity and financial 
stability.\7\
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    \7\ J. Christopher Giancarlo, Chairman, U.S. Comm. Fut. Trading 
Comm'n, Harvard Law School Fidelity Guest Lecture Series on 
International Finance (Dec. 1, 2015), available at http://www.cftc.gov/
PressRoom/SpeechesTestimony/opagiancarlo-11.
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    All Federal agencies and financial market participants must be 
vigilant about cybersecurity. That includes the CFTC. It is why we are 
constantly reviewing and updating our cybersecurity protections to 
guard against the growing threat of a breach. Our agency has 
successfully thwarted hundreds of attempted breaches. Yet, we can never 
be complacent or assume that past success is an indicator of future 
resilience.
    In light of the relentlessness of the cyber threat, I have taken 
several steps since becoming Chairman. I meet monthly with the CFTC's 
Chief Cybersecurity Officer and review all recent cyber incidents and 
agency responses. We also discuss anticipated threats and emerging best 
practice defenses.
    The CFTC recently worked with the Department of Homeland Security 
to conduct a half day, agency wide disaster recovery exercise based on 
a simulated cyber-attack on U.S. derivative markets. We have scheduled 
further exercises in the months to come. We have taken other 
significant steps to increase the CFTC's cyber defenses that cannot be 
publicly disclosed.
    Notwithstanding our commitment to cyber vigilance, the CFTC takes 
nothing for granted. The cyber threat is persistent and ever-changing. 
It has rightly been said that it is not a question of ``if'' a cyber 
intrusion will occur, but ``when'' it will occur. That is why I have 
consistently expressed concerns about the government's handling of 
proprietary intellectual property for market participants.\8\ We must 
carefully balance the agency's legitimate need to review market data 
and other information against unnecessarily holding proprietary trading 
information that could make us a larger target for a broader group of 
cybercriminals, including those engaged in commercial espionage.
---------------------------------------------------------------------------
    \8\ J. Christopher Giancarlo, Chairman, U.S. Comm. Fut. Trading 
Comm'n, Statement of Dissent Regarding Supplemental Notice of Proposed 
Rulemaking on Regulation Automated Trading (Nov. 4, 2016), available at 
http://www.cftc.gov/PressRoom/SpeechesTestimony/
giancarlostatement110416#P5_827.
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    Turning to the cybersecurity of the markets we oversee, I note that 
in September 2016 the CFTC unanimously adopted system safeguards and 
cyber resilience standards for clearinghouses, contract markets, swap 
execution facilities, and swap data repositories.\9\ It now falls to 
the CFTC to examine registered entities for compliance with these 
safeguards. Unfortunately, the CFTC currently has a 75% staff vacancy 
rate in its CCP cyber-security program. The Commission needs funding to 
fill these positions with examiners who have the skills needed to 
measure compliance with CFTC regulations addressing cyber-security. 
This need is critical if the agency is to fulfill its mission during 
this time of increased cyber-attack and belligerence.
---------------------------------------------------------------------------
    \9\ CFTC System Safeguard Testing Requirements, 81 Fed. Reg. 64272 
and 64322 (Sept. 19, 2016) (codified at 17 CFR pts. 37-39, 49).
---------------------------------------------------------------------------
    At the request of the U.S. Commodity Futures Trading Commission's 
Office of the Inspector General, from September 25, 2015 through July 
25, 2016, Brown and Company CPAs and Management Consultants audited the 
CFTC's performance in reviewing information technology system 
safeguards in place at entities subject to CFTC regulatory oversight. 
Brown and Company's report concluded that the CFTC and its oversight 
divisions had developed policies and procedures to address 
cybersecurity risks at CFTC registrants operating in derivatives 
markets.\10\ The review also recommended several areas where the CFTC 
could enhance its oversight of cybersecurity preparedness of agency 
registrants.\11\ The CFTC was fully engaged with OIG, addressed all of 
the report's findings, and adopted several of its recommendations.
---------------------------------------------------------------------------
    \10\ OIG Rep., U.S. Comm. Fut. Trading Comm'n, Commodity Futures 
Trading Commission's Policies and Procedures for Reviewing Registrants' 
Cybersecurity Policies 8 (Oct. 11, 2016).
    \11\ Id. at 16-24.
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Project KISS
    Too often CFTC rules and regulations are applied in a needlessly 
complex and costly manner. They cause compliance to be too complex, 
costly or time-consuming for market participants especially derivatives 
end-users such as producers and farmers and ranchers. To address this 
problem, shortly after assuming the role as acting Chairman, I 
announced our Project KISS initiative.\12\
---------------------------------------------------------------------------
    \12\ J. Christopher Giancarlo, Chairman, U.S. Comm. Fut. Trading 
Comm'n, CFTC: A New Direction Forward, Remarks of Acting Chairman J. 
Christopher Giancarlo before the 42nd Annual International Futures 
Industry Conference in Boca Raton, FL (Mar. 15, 2017), available at 
http://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo-20.
---------------------------------------------------------------------------
    Project KISS stands for ``Keep It Simple Stupid.'' It is an agency-
wide review of CFTC rules, regulations, and practices to make them 
simpler, less burdensome, and less costly. On February 24, 2017, 
President Trump issued an Executive Order on ``Enforcing the Regulatory 
Reform Agenda.'' \13\ Although the CFTC as an independent agency is not 
strictly bound by President Trump's Executive Order, we believe that 
Project KISS is in line with the President's objectives.
---------------------------------------------------------------------------
    \13\ Id.
---------------------------------------------------------------------------
    As part of the Project KISS effort, the CFTC issued a call for 
recommendations from the public on regulatory reform. We now have a 
portal on our website for the public to provide suggestions that we can 
look to implement. The comment period for Project KISS recommendations 
closed on September 30.
    We received 65 comments from the public, each of which is posted on 
our website. An initial review of the public comments indicates that a 
broad cross-section of the derivatives industry offered constructive 
suggestions for reducing regulatory burdens. In addition to the public 
comments, CFTC staff identified over forty examples of ways in which we 
might achieve the objectives I have set forth under Project KISS.
    Project KISS is not about identifying rules for repeal. It is about 
taking our existing rules and applying them in ways that are simpler, 
less costly and less burdensome. I believe the American taxpayer 
expects us to do nothing less. For example, where we have the 
discretion to take a broad, outcomes-based approach to finding the 
regulatory regimes of foreign jurisdictions equivalent or comparable to 
our own, I believe that we should do so. Or, where it makes sense to 
codify existing, permanent staff no-action relief, again we should do 
so. Several submissions reference specific No-Action letters, such as 
void ab initio/error trade procedures (NAL 17-27) and SEFs' obligation 
to provide confirmations for uncleared swaps (NAL 17-17). Even tweaks 
as simple as streamlining registration or data submission forms, or 
changing them to integrate current technology, will make these 
necessary tasks more efficient and less burdensome for market 
participants.
    We must also work with other agencies to better harmonize and 
simplify our rules, particularly where we have shared jurisdiction over 
certain types of markets. In this vein, SEC Chairman Clayton and I have 
been speaking since assuming our respective roles. At our very first 
meeting we discussed ways in which we could harmonize our respective 
rules and regulations. Since then, we have set up a Chairman to 
Chairman working group that meets regularly. In fact, we most recently 
met together for several hours last Monday. We hope to soon announce 
some interagency understandings that will result in real regulatory 
efficiencies.
Title VII
    In 2014, I thought that my best qualification to serve on the CFTC 
was my commercial expertise in the global over-the-counter swaps 
markets. I was then--and remain today--a supporter of the swaps reforms 
established in 2009 by the G20 leaders and embodied in Title VII of the 
Dodd-Frank Act. I said that my support for these reforms was not based 
on academic theory or political ideology. It was based on practical 
experience.
    I have not wavered in my support for these reforms in my 3 years on 
the Commission. Yes, I have criticized the agency's implementation of 
some of the reforms--almost always where I believed it was impractical, 
overly burdensome or out of step with Congressional intent. In all 
cases, however, I advocated alternative approaches I believe better 
support healthy markets and are more faithful to the law. It is with 
those basic principles in mind that I have developed several policy 
priorities for the CFTC.
Swap Reforms
    The CFTC was the first major regulator worldwide to implement most 
of the G20 swaps reforms. You might call that framework ``CFTC Swaps 
Reform Release 1.0.'' We now have more than 4 years of experience with 
the varied strengths and shortcomings of the first release. I am 
therefore advocating for new and enhanced edition, CFTC Swaps Reform 
Release 2.0, which will be engineered to better support market 
durability, increase trading liquidity and participant diversity, and 
stimulate broad-based economic growth and revival. These changes will 
stay true to the Pittsburgh G20 reforms and be in full accordance with 
the letter of Dodd-Frank. Yet, they will incorporate lessons from our 
initial reform efforts into a new and better version.
    I have been critical of the CFTC's implementation of its swaps 
trading rules. Over 2 years ago, I published a white paper that 
analyzed this implementation.\14\ In it, I explained the mismatch 
between the CFTC's swaps trading framework and the swap market's 
fundamental structure. I asserted that the CFTC's current approach is 
highly over-engineered, disproportionately modeled on the U.S. futures 
market, and biased against both human discretion and technological 
innovation.
---------------------------------------------------------------------------
    \14\ J. Christopher Giancarlo, Pro-Reform Reconsideration of the 
CFTC Swaps Trading Rules: Return to Dodd-Frank, White Paper, Jan. 29, 
2015, http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/
sefwhitepaper012915.pdf.
---------------------------------------------------------------------------
    As predicted, the CFTC's swaps trading implementation has caused a 
number of harms. It has driven global market participants away from 
transacting with U.S. entities. It has fragmented global markets into a 
series of distinct liquidity pools that are more vulnerable to market 
shocks.
    Now, the CFTC must incorporate these lessons learned into a revised 
swaps trading framework. The CFTC must create a framework that is 
better aligned with swaps market dynamics and liquidity, and more 
closely adheres to the express language and spirit of Dodd-Frank. The 
revised swaps trading framework should be more flexible and allow 
market participants to choose the manner of swap trade execution suited 
to their business. It should help attract, rather than discourage, 
global participants to U.S. trading markets. It should better align 
regulatory oversight with inherent characteristics of the swap market. 
Most importantly, the CFTC's revised swaps trading framework should 
facilitate healthy risk hedging activities in the private-sector that 
are essential for broad-based economic growth and revival.
    In many ways, regulatory frameworks are like software applications. 
Some work well and attract a broad base of users. Others are plagued 
with bugs and flaws that, if not addressed, fail to attract those not 
otherwise subject to required usage.
    Like software users, market participants will always look to 
participate in well-designed, regulatory frameworks. Trading 
counterparties seek neither the least nor the most regulated 
marketplaces, but market places that have the right balance of 
sensible, objective and reliable regulation--in other words: good 
software. Our goal is to oversee a U.S. swaps regulatory framework that 
has the optimal mix of well-considered rules and regulations that best 
foster open, transparent, competitive, and financially sound 
derivatives markets to support American economic growth, job creation, 
and prosperity.
Swaps Data Reporting
    At the heart of the 2008 financial crisis was the inability of 
regulators to assess and quantify the counterparty credit risk of large 
banks and swap dealers.\15\ The legislative solution was to establish 
swap data repositories (SDRs) under the Dodd-Frank Act.\16\ Although 
much hard work and effort has gone into establishing SDRs and supplying 
them with swaps data, 9 years after the financial crisis the SDRs still 
cannot provide regulators with a complete and accurate picture of bank 
counterparty credit risk in global markets.\17\ In part, that is 
because international regulators have not yet harmonized global 
reporting protocols and data fields across international 
jurisdictions.\18\
---------------------------------------------------------------------------
    \15\ Fin. Crisis Inquiry Comm'n, Final Report of the National 
Commission on the Causes of the Financial and Economic Crisis in the 
United States 298-300, 329, 363, 386 (2011), available at http://
fcicstatic. law.stanford.edu/cdn_media/fcic-reports/
fcic_final_report_full.pdf.
    \16\ 7 U.S.C.  24a (2012), Commodity Exchange Act  21.
    \17\ Silla Brush, Dodd-Frank Swap Data Fails to Catch JPMorgan 
Whale, O'Malia Says, Bloomberg, Mar. 19, 2013, available at http://
www.bloomberg.com/news/articles/2013-03-19/dodd-frank-swap-data-fails-
to-catch-jpmorgan-whale-o-malia-says.
    \18\ Neil Roland, IOSCO's Wright Faults Authorities' Coordination 
on Derivatives Trade Reporting, MLex FS Core, Nov. 18, 2015, available 
at http://www.mlexfscore.com/
?r=EAAAABgJFMl6s4sxd6kwCIh1BeL7zWr2TdKX9gEasKt9evFi.
---------------------------------------------------------------------------
    Of all the many mandates to emerge from the financial crisis, 
visibility into counterparty credit risk of major financial 
institutions was perhaps the most pressing. The failure to accomplish 
it is certainly the most disappointing.
    The CFTC is committed to success in the global reform efforts 
towards swaps data reporting. That is why we are actively engaged in 
global swaps data harmonization efforts while simultaneously looking to 
improve upon the current processes for swaps reporting that were put in 
place back in 2012 and 2013.
    On the international front, the CFTC is co-leading several global 
initiatives to harmonize derivatives reporting along with fellow 
overseas regulators via Committee on Payments and Infrastructures--
International Organization of Securities Commissioners (CPMI-IOSCO) and 
the Financial Stability Board (FSB):

   Unique transaction identifiers (or UTIs) to track the 
        lifecycle of a derivative transaction from creation until final 
        termination;

   Unique product identifiers (or UPIs) to identify the 
        instrument type and elements of the product referenced in a 
        derivative; and

   Critical data elements (or CDEs) to provide basic 
        information about the terms of the transaction, such as 
        notional amount, price, and collateral movements.

    CPMI-IOSCO published final technical guidance on UTIs in early 2017 
and final guidance on UPIs is expected soon. We expect that guidance on 
CDE fields to be published by Q1 of 2018.
    An FSB sponsored group, the Group on UPI and UTI Governance, 
continues to work on governance issues for these identifiers, such as 
implementation. This important international work is ongoing with the 
CFTC's full support and involvement.
    Meanwhile, here at home, the CFTC issued for comment in July a 
swaps data reporting ``Roadmap.'' \19\ The CFTC has received 20 comment 
letters on the Roadmap that were overwhelmingly well informed and 
supportive. DMO staff is carefully considering them.
---------------------------------------------------------------------------
    \19\ U.S. Comm. Fut. Trading Comm'n, Roadmap to Achieve High 
Quality Swaps Data (July 10, 2017), available at http://www.cftc.gov/
PressRoom/PressReleases/pr7585-17.
---------------------------------------------------------------------------
    A major focus of implementing the Roadmap will be incorporating 
harmonized UTI, UPI, and CDE guidance into our reporting regime. 
Wherever possible, we want to harmonize CFTC reporting elements with 
international CDE guidance. Still, it is possible that the CFTC will 
require some additional fields for CFTC specific use cases that are not 
addressed at the international level.
    The Roadmap has carefully calibrated the release of CFTC rules to 
follow the release of international technical guidance on CDE in order 
to avoid conflict. Furthermore, the Roadmap attempts to incorporate a 
realistic implementation timeline to allow for the appropriate building 
and testing by all relevant parties. We are sensitive to the complexity 
of changes to rules with multiple interconnected parts like swaps 
reporting. We will work with market participants to set realistic 
compliance dates.
    To be clear, the international CPMI-IOSCO process is aimed at 
harmonizing what must be reported on a derivative, not when and how to 
report. We need to make sure that the when and how are also covered. In 
the end, CFTC when and how rules for swaps reporting may be different 
than those adopted by overseas regulators. In some areas, where we 
believe we have the better approach, such as single-sided reporting, we 
intend to pursue the CFTC's current approach. Yet, in other areas 
where, in light of experience, it appears that overseas regulators have 
adopted a better way, such as T+1 regulatory reporting, we will 
consider making changes.
    Swaps data reporting is new for all of us. No regulator has yet 
found the optimal approach to success. Yet, we are all determined to 
get there. None are more determined than the CFTC. That is why we 
published the swaps data Roadmap.
    There is an old saying, ``If you don't know where you're going, 
you'll never get there.'' The Roadmap shows where the CFTC is going. We 
are determined to get there.
CCP/Cross Border
    In order for the CFTC to remain an effective regulator, it must 
keep pace with the evolution of our markets, or our regulations will 
become outdated and ineffective. This is especially so in its oversight 
of derivatives clearinghouses. Mandatory clearing of standardized swaps 
was a core component of the G20 reform agenda. The world's largest 
Central Counterparties (CCPs), which collectively clear over 95 percent 
of the global cleared swaps market, are directly registered with CFTC 
as Designated Clearing Organizations (DCOs). These DCOs are located in 
the United States, as well as in major financial centers in Europe and 
Asia. I am committed to ensuring that the regulatory approach to 
oversight over these global markets is effective and robust without 
fragmenting markets and trading activity.
    I recently returned from a 10 day trip in Europe where I met with 
key regulatory counterparts and policymakers from the European Union, 
France, Germany, and the United Kingdom to discuss how to ensure 
effective regulatory cooperation and coordination between the CFTC and 
Europe, especially with respect to the supervision of major cross-
border CCPs. During my trip I spoke publicly, as well as contributed a 
guest op-ed in the leading French business paper Les Echos, expressing 
the view that regulatory and supervisory deference should underpin how 
U.S. and EU regulators supervise CCPs.
    In the spring of 2016, under the leadership of Chairman Massad, the 
CFTC reached a key accord with the European Commission on recognition 
of swaps clearinghouses. This agreement was an important signal to the 
markets and the international regulatory community that the United 
States and Europe could work together successfully on critical cross-
border issues. That agreement has contributed to stronger and more 
productive relations between the CFTC and its European and other 
overseas regulatory counterparts. The CFTC remains committed to 
honoring its obligations under this agreement.
    I fully understand that Brexit raises new and challenging issues 
for how Europe regulates its financial markets. Nevertheless, if Brexit 
is indeed a trigger for a new approach in Europe regarding the 
supervision of cross-border CCPs, then it must be an approach developed 
with the cooperation and support of the CFTC. If the EU must reconsider 
its approach to cross-border supervision of systemically important 
CCPs, then we cannot have piecemeal and contradictory rule making. 
Instead, we should together strive for a comprehensive and universal 
solution that supports strong cross-border markets, recognizes and 
builds upon the strengths of our respective supervisory programs, and 
preserves as much as possible the basic tenets of the CFTC-EC 
equivalence agreement.
Unfinished Business
    And, last, but certainly not least, I look forward to working 
closely with my fellow Commissioners on the priorities I have outlined 
above, as well as resolution of outstanding regulatory issues before 
the Commission, such as the de minimis exception and a position limits 
rule.
    The level of the de minimis threshold is a critically important 
issue. Getting it right requires thoughtful analysis of the latest and 
most complete data to inform the best path forward in terms of managing 
risk to the financial system. Currently, work is actively being done by 
the Division of Swap Dealer and Intermediary Oversight (DSIO) under a 
new Division Director.
    With respect to position limits, I committed in my confirmation 
hearing to finalizing a rule and I intend to do so. This is an 
enormously important undertaking that will impact America's farmers, 
ranchers, and manufacturers and their ability to hedge legitimate 
production costs. Any final rule must work in practice and not be 
overly burdensome. It will be complicated. This is a rulemaking has 
been underway for some time. There are thousands of comment letters on 
the topic, and there are opinions on all sides of the issue.
    That is why final position limits rulemaking should be done 
properly by a full Commission. It will ensure that any final position 
limits rule is indeed final and stands the test of time and changes in 
future Administrations.
Conclusion
    Again, I am grateful for the chance to testify before you today and 
to outline issues that I believe are of critical importance to the work 
of the CFTC. I commit to working with each one of you, with candor and 
promptness, in our common purpose of serving the American people and 
the producers upon which we all rely.
    Thank you. I look forward to answering your questions.

    The Chairman. Well, thank you, Chairman Giancarlo. We 
appreciate you being here and your testimony.
    I have something official to read real quick. The chair 
would remind Members they will be recognized for questioning in 
order of seniority for Members who were here at the start of 
the hearing. After that, Members will be recognized in order of 
arrival. I appreciate Members' understanding.
    With that, I recognize myself for 5 minutes.
    Again, Chris, thanks for being here. Can you talk further 
about the broader statement, the cross-border equivalence 
deference, the things that are going on, and maybe help some of 
us understand a little bit better, the Brexit issue, and what 
EU may be trying to do to take advantage of those changes, to 
try to impose a regime that was not necessarily contemplated 
earlier when you did come to an equivalence kind of 
conversation. Would you flush that out for us?
    Mr. Giancarlo. I would be happy to. Maybe just a little bit 
of background to just sort of set the stage.
    Following the financial crisis in 2008, the world's G20 
leaders met in Pittsburgh in 2009 and agreed on a number of 
fundamental reforms for the global swaps market; moving swaps 
off bank balance sheets to the extent possible into central 
clearing, having swaps transact on licensed and regulated 
platforms, reporting swaps transactions to central 
repositories, and then minimum capital and margin requirements.
    Personally, I agree with all of these steps and said so at 
the time, and continue to believe they are the right steps. The 
question is about the implementation. Those G20 accords said 
that responsible regulatory authorities would implement these 
core reforms through their national regulatory and statutory 
processes.
    The United States went first, in fact, the CFTC went first, 
and by 2013 and 2014 it implemented most of those changes and 
put them in place. We were a rule-maker in regard to the 
implementation of these, and in many cases, did a very 
effective job. Other cases I have been critical of some of the 
implementation, but not the underlying law. And other cases 
such as clearing, we have been wildly successful, and now we 
are actually dealing with the second and third order impact of 
those changes.
    Well, other jurisdictions haven't been as quick to putting 
their rules in place, and in many regards Europe is today 
getting ready to put in their big implementation; something 
called MiFID II, which comes into effect in January of 2018.
    Since that time that our rules were in effect, we have 
learned a lot about them, and Europe has come to a point where 
they are now determining that our rulesets are either 
equivalent to theirs or not equivalent to theirs. And we have a 
number of important outstanding equivalence determinations that 
we have been working here at the CFTC very diligently with our 
European colleagues to get to a final resolution of, and as I 
mentioned in my opening remarks, I am hoping we will soon be 
there.
    But on the subject of clearinghouse supervision, this is a 
very important issue, and it may be an issue of some degree of 
tension between us and Europe. As I said to you, the United 
States is a rule-maker. We are not a rule-taker. And this is a 
concern in the wake of the Brexit, that Britain will be taking 
a lot of its swaps rules wholesale from Europe, and Europe is 
now reformulating some of its rules in terms of clearinghouse 
supervision to have a third-country approach where they propose 
that they will have direct oversight of third-country 
clearinghouses which, in some cases, could export European 
substantive law into the way our clearinghouses operate.
    Well, again, we are a rule-maker, not a rule-taker, in the 
United States. This Congress decides what our law should be and 
charges our agency to implement it. It doesn't tell us that we 
have to abide by foreign country substantive law. This is an 
area where we are working carefully with our European 
colleagues. We are making them aware of our concerns. I have 
just finished a 10 day visit to Europe where I had both private 
visits and some public statements, and even did an op-ed in a 
French newspaper to get our point across that we were the first 
to adopt these rules, we will continue to be diligent in our 
implementation of regulatory reform, but we are a sovereign 
nation and we have a sovereign approach to these rule 
implementations.
    The Chairman. I didn't realize you were fluent in French.
    Mr. Giancarlo. With a little help of a good translator.
    The Chairman. Well, I appreciate that. Again, I appreciate 
your leadership at the CFTC. I look forward to working with you 
on a variety of issues including reauthorization, funding 
levels for your agency, all those important questions moving 
forward, that we have a common interest in getting those done 
and done as quickly as possible.
    So with that, I yield back and turn to the Ranking Member 
for 5 minutes.
    Mr. Peterson. Thank you, Mr. Chairman.
    Following up on that regard, I remember when I took the 
Committee over to Europe, when we were doing all of this stuff 
way back when, and we had the people there tell us that they 
were shopping for the lowest level of regulation; well, 
actually, some of our companies in the U.S. were using London 
against New York in terms of saying, ``Well, if you don't give 
us what we want, we are going to go over to London.'' Clearly, 
they were doing that.
    What I am concerned about is that apparently Clarus 
Financial Technology has found that under the European rules 
that they have set, 80 percent of the swaps would have no pre-
trade transparency, and that 75 percent of the risk traded will 
remain dark for a month. What I am concerned about, are they 
going to try to set up some kind of regime where they are so 
upset with London that they are going to try to start 
negotiating against each other to try to weaken these 
regulations as part of their war with London. I am sure you are 
well aware of all of this stuff, so do you think that your 
negotiations are going to be able to overcome this, because my 
concern is that we continue to have a system that works and is 
transparent so we don't ever get into a situation like we were 
in, in 2007, when people didn't know who could make good on the 
risk, and the whole thing just about came apart.
    Mr. Giancarlo. Well, thank you for that question, Ranking 
Member.
    As you rightly said, at the heart of the crisis back in 
2008 was a lack of visibility, both for regulators and for the 
marketplace, into the counterparty credit exposure of one large 
bank to another large bank. And that led to an old-fashioned 
run on the bank and a full meltdown financial crisis. And 
fixing that risk profile of transparency is one of the most 
important imperatives to come out of Dodd-Frank and Title VII. 
And the shame of it is that here we are 9 years after the 
crisis, 8 years after the Pittsburgh Accord, 7 years after 
Dodd-Frank, and we still don't yet have the full mechanism in 
place to give us that full visibility into counterparty 
exposure.
    Now, it is not for lack of trying. We have created the swap 
data repositories, we are collecting the data, but we are 
trying to bring order to a world in which every bank had a 
different protocol for how these trades were recorded within 
their own back office, let alone reported to regulators. We 
have different nation and jurisdictional methodologies, 
reporting methodologies.
    Now, we at the CFTC are working very closely in 
international bodies, at IOSCO and others, to try to get these 
transaction identifiers right. And yet we have our own work to 
do in putting our own systems in place to do this. This is an 
imperative, and it is one that I am committed to following 
through at the Commission.
    Now, you mentioned the European approach to transparency. I 
am concerned about it. There is a lot of discussion on 
transparency, but as we understand the MiFID II requirements, 
there are also a lot of exceptions to their own transparency 
requirements. We are still understanding that.
    At heart though, I will say one thing is, I do believe that 
for the most part market participants don't search for the 
lowest common denominator when it comes to regulation. I think 
they search for the best. It is our job as regulators not to 
focus on whether we have the least amount of regulation or the 
most amount, it has to be to have the best regulation; the 
regulation that achieves the core principles and the guidance 
that Congress sets for it, but does it in a way that is 
sensible and is in tune with the market itself. And that is 
what we search for is, what is the optimal way to achieve the 
policy goals that Congress sets for us.
    Mr. Peterson. When do you think these discussions are going 
to end?
    Mr. Giancarlo. I think they are going to be going for a 
long time. The Pittsburgh Accords, when they called for these 
implementations they said what we must do is implement them in 
a way that is compatible. And trying to get the compatibility 
right is a long and complicated process. We will be at this for 
some time.
    I wish it were simpler than that, but these are complex 
markets, and it is a complicated, regulatory landscape.
    Mr. Peterson. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. The gentleman yields back.
    Mr. Lucas, 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman.
    Chairman Giancarlo, let's pull back just a little closer to 
home for a moment for what I hope will be a brief series of 
questions.
    The Treasury released last week recommendations that CFTC 
and the SEC harmonize their treatment of inter-affiliate 
margin. And I know that your agency has been willing to 
acknowledge that these swaps are not presenting systematic 
risks to the wider market, but the banking regulators have yet 
to come around to that point of view. Would you agree that 
these two approaches should be harmonized, and, briefly, if so, 
how do you think the two agencies can go about it?
    Mr. Giancarlo. Thank you for that question.
    As soon as Chairman Clayton at the SEC and I settled into 
our chairs, we reached out to one another and agreed that there 
are a whole range of issues that deserve a considerable amount 
of high-level attention of our agencies to resolve between our 
two agencies. And we have established now a Chairman-to-
Chairman ad hoc working group, led by his chief of staff and my 
chief of staff, that meet several times a month, starting with 
a list of unresolved issues that we have been going through one 
at a time. And it led to recently a Chairman-to-Chairman 
meeting with our full staffs to go through these issues. And we 
will be now meeting every several weeks at the Chairman-to-
Chairman level, in addition to our chiefs of staff meeting, 
more routinely, going through an issue. And I hope that by the 
end of this year we will have some announcements to make about 
having made progress on that.
    But your point about compatibility, the one thing I would 
say is we need to get to a balance between the banking 
regulators' approach to swaps reforms and the market 
regulators' approach to swaps reforms. They need to be balanced 
out. I think that in some cases bank-driven concerns, concerns 
over bank solvency have overridden concerns about market 
trading liquidity, and in a healthy approach to swaps reform, 
we balance the concerns on both sides.
    Mr. Lucas. In the past, Chairman Giancarlo, you have 
pointed out the risks that come with the government agencies 
gathering highly sensitive trading information, and I agree 
with you on that score, particularly pertaining to last year's 
Regulation AT proposal from the Commission. These fears seem 
particularly appropriate given the SEC's EDGAR (Electronic Data 
Gathering, Analysis, and Retrieval system) hack in the last 
month.
    So, Mr. Chairman, I guess what I would ask is this, should 
farmers and ranchers be concerned about a trove of sensitive 
trading information being hacked at the CFTC, and then used to 
upset the various commodity markets? Is that a fear we should 
have?
    Mr. Giancarlo. We all need to have a healthy, mature 
concern about cybercrime, cybersecurity in this day and age. I 
have told my staff that we should do everything we can to 
prevent it, but sometimes we have to think about it as not a 
question of if, but a question of when, and how do we minimize 
the damage. And to that end, I recently instituted a new 
instruction at the agency. We are in the process right now of 
doing three things. One is cataloging every use we have of PII, 
personally identifiable information, used by the agency. 
Second, once we have identified all of it, we will then 
determine where we can either eliminate or reduce our 
collection of PII. And then third, for that PII that we 
determine we do need to continue to collect, what will be our 
best practices in how we protect it, how we limit its 
utilization, how we encrypt the information, and what is the 
duration by which we will keep it before we will destroy it.
    So we are taking three steps to identify how we use 
personal information, and hopefully, that will reduce the 
likelihood that if and when we are hacked, that information 
will get out into the wrong hands.
    Mr. Lucas. In February of last year, the Commission 
negotiated a common approach for recognizing transatlantic 
derivative clearinghouses as equivalent with the EU. For a 
moment, since I serve on a number of committees that look at a 
number of things from a number of different perspectives, let's 
say Congress repealed the Orderly Liquidation Authority for 
systematically important clearinghouses, how would that affect 
the equivalency determinations enjoyed by U.S. clearinghouses 
now?
    Mr. Giancarlo. Thank you. A very important question. The 
situation prior to Orderly Liquidation Authority, in the event 
a CCP; a central counterparty clearinghouse, needed to be 
resolved, is Title VII in bankruptcy, that is full wind-down 
under the oversight of a trustee in bankruptcy. I mentioned 
that some of the reforms of Dodd-Frank have been wildly 
successful. One is the clearing mandate which has now caused 
the supersizing of a number of swaps clearinghouses. Putting a 
swaps clearinghouse of enormous proportion into Title VII 
bankruptcy is not a good outcome. If Title II is repealed, we 
are back to the situation prior, which is not optimal.
    What we need to do is take a look at Title II, which was 
designed for banks, and think about how it should be retailored 
for use by these new supersized clearinghouses which, in the 
event of a crisis, actually need to be run in a very orderly 
fashion to maintain orderly markets, which could be a lengthy 
duration of time, not wound down in an immediate fashion for 
the benefit of either creditors or depositors, which they don't 
have.
    Mr. Lucas. Thank you, Mr. Chairman.
    The Chairman. The gentleman yields.
    David Scott, 5 minutes.
    Mr. David Scott of Georgia. Thank you, Mr. Chairman.
    Chairman Giancarlo, I strongly believe that we certainly, 
on the issue of cross-border, that we have to continue to press 
for U.S. interests, but ultimately make principles-based 
agreements with foreign regulators so that we can continue to 
promote cross-border businesses.
    Now, our American market participants and other exchanges 
like ICE, in my district in Atlanta, and clearinghouses, they 
need to continue to have access to the European market in a 
fair and reasonable way, not economic silos. Do you agree with 
that?
    Mr. Giancarlo. I couldn't agree more. I think you stated 
the balance exactly right in your remarks. We need to work with 
our overseas counterparts to pursue the core principles of the 
swaps reforms, but do it in a way that advances American 
interests. And finding that balance is the critically important 
task for us at the agency.
    Mr. David Scott of Georgia. Yes. Now, one thing that 
disturbs me about this Brexit situation, in relationship to 
that, are you aware that a fight has erupted between the United 
Kingdom and EU, of course, since this Brexit regarding the 
location of important derivatives clearinghouses such as LCH. 
And the EU has even threatened to impose, or either enhance 
supervision on these so-called relocation requirements? Are you 
aware of that?
    Mr. Giancarlo. I am very aware of it. I am following it 
very closely, Congressman.
    Mr. David Scott of Georgia. And what is your concern with 
that?
    Mr. Giancarlo. If I can be a little colorful on this, I am 
concerned sometimes, I feel as if the United States is being 
treated as the children of a divorcing couple.
    Mr. David Scott of Georgia. Absolutely. I couldn't have 
said that any better than that. And so you can see my position, 
and you are familiar with the Intercontinental Exchange and the 
great work that they are doing.
    Now, let me go to one other point on this de minimis 
question. I am concerned that it could have devastating 
consequences if we lower it to $3 billion. First of all, it 
would limit our banks' ability to provide the risk management 
solutions for our customers. And then second, it would raise 
the cost of providing the hedges that are so important for risk 
management.
    And so my question to you is, considering how long this has 
been going on and how soon action is needed, and you touched 
upon it in your remarks, but will you pledge today to not lower 
that level from $8 billion?
    Mr. Giancarlo. Well, let me say this. As in most of these 
things, there is a careful balancing that needs to be done 
here. The balancing is, one of the core reforms is that swap 
dealers would be subject to registration.
    Mr. David Scott of Georgia. Yes.
    Mr. Giancarlo. And this issue then becomes what is the de 
minimis of that; where is the cutoff. We want to get the cutoff 
right, whether it is at $8 billion, $3 billion, or any other 
billion, where we keep market participants making markets and 
serving especially the smaller market participants, and at the 
same time we honor our obligation to register them.
    Mr. David Scott of Georgia. Okay.
    Mr. Giancarlo. What I will pledge to you to do is to get 
the latest and the very best data, to put it in front of my 
Commissioners and ask them what is the right level where we 
keep the amount of market-making going on in the markets, so 
our smallest market participants have access to it and yet we 
honor our obligations to register those who are truly swap 
dealers.
    Mr. David Scott of Georgia. Okay.
    Mr. Giancarlo. And my goal is to get to the right outcome 
of this.
    Mr. David Scott of Georgia. Very good.
    Finally, I serve as the Co-Chairman of the FinTech Caucus, 
and I want to get your opinion on what you see the future as 
far as regulation. Now, as you probably know, the Office of the 
Comptroller of the Currency has indicated that they want to now 
put a special order charter on these FinTech companies, which 
means once that happens, they have to register with the Federal 
Government. Once they register then they are going to come 
under all these regulations from a variety of different 
sources. And in your case, you have a unit that you are dealing 
with to look at this; so does the CFP, their unit is called 
Galaxy.
    Mr. Giancarlo. Yes.
    Mr. David Scott of Georgia. And so is the Fed. All of these 
regulators now are itching and looking to how to regulate, and 
the biggest problem that the FinTech companies have is, what do 
we do about this. And so I would like for you, my time is up, 
so maybe we can look at that, going down the----
    Mr. Giancarlo. Thank you. If I could respond briefly. Just 
at the risk of overgeneralizing, these new innovators come in 
two buckets. They are either the quintessential small garage 
startup new company, or they are big, incumbent operations like 
some of the big Wall Street banks and other big players. My 
fear is if we go to a charter basis, the big banks and all will 
have no problem meeting all those requirements, and hiring the 
lawyers and everything else that you need to do to do it, and 
the small firms will simply say we will go somewhere else. We 
are having a hard enough time doing accounting and payroll let 
alone being able to hire the lawyers and everything necessary 
to get one of these charters. And so we will have shifted the 
balance of power in favor of the big firms. And as we know in 
our own American experience of the last 30 years, sometimes it 
is these small innovators that bring some of the most 
fundamental change to markets.
    We don't want to disadvantage the small players; we want a 
balance between the big and the small, because where the best 
innovation comes, we don't know, we want all sides of the 
equation innovating and bringing those new evolutions to our 
markets, hopefully to better our markets. And that is our job, 
to make sure they better our markets.
    Mr. David Scott of Georgia. Thank you. And thank you, Mr. 
Chairman, for giving us a little extra time.
    The Chairman. The gentleman's time has expired.
     Austin Scott.
    Mr. Austin Scott of Georgia. Thank you, Mr. Chairman. I was 
somewhat laughing at my colleague, David Scott from Georgia's 
question how good it was, because the one that I had written 
down dealt with financial technology, and you have answered 
part of it, but now we have a little time, maybe you can 
elaborate, Mr. Chairman.
    The global contest in this area, are we ahead of other 
countries or are we behind other countries with regard to 
encouraging the development of this financial technology, and 
are there certain countries that we need to catch up with?
    Mr. Giancarlo. Yes. There was a study done by one of the 
big accounting firms a year or so ago, and it ranked countries 
on the FinTech and what we call RegTech innovation going on in 
those jurisdictions, and it looked at the major jurisdictions, 
divided the U.S. into California and New York, and looked at 
London, Hong Kong, Singapore, Australia, and Japan. And on the 
case of financing access to technology talent of the 
university, the United States ranked number one. But when it 
came to the regulatory environment, the United States ranked 
dead last.
    Our competing regulatory jurisdictions, especially in 
London, but also in Hong Kong and Singapore, are way ahead of 
us. They have developed what, in the UK, they call Project 
Innovate where they work directly with FinTech companies. I 
like to say what they have done is they have taken their old 
limestone building and smashed a new doorway that says 
innovators come in here. And innovators can go in and say, 
``Look, here is what we are trying to do,'' and there will be 
somebody there that says, ``Well, our rules don't let you do 
that, but we will put you into a special innovation center 
where we will allow you to innovate, you will work with some 
young technologists on the staff of the Bank of England or the 
Monetary Authority of Singapore, you will keep them apprised of 
what you are doing, you will do your innovations, and then we 
will see whether we need to amend our rules to allow you to do 
that.''
    Mr. Austin Scott of Georgia. Yes.
    Mr. Giancarlo. That is what we are trying to do at the 
CFTC, but we are sort of unprecedented, this hasn't been the 
U.S. Government's response to innovation. The answer to your 
question is we are definitely behind our fellow international 
regulators in this area, and need to catch up, I believe.
    Mr. Austin Scott of Georgia. So just a quick follow-up to 
that. You are talking about trying to make changes by rule, and 
my question as a follow-up would be, do you have the regulatory 
authority now that you need, or do you need additional 
authority through legislation to help you accomplish this?
    Mr. Giancarlo. We are going to need at some point 
additional authority through legislation.
    Mr. Austin Scott of Georgia. Okay.
    Mr. Giancarlo. What we are trying to do in the interim 
though is really understand and fine tune what that is.
    Mr. Austin Scott of Georgia. Okay.
    Mr. Giancarlo. We have a rulebook and a set of regulations 
at CFTC that was written for the 20th century analog markets; 
those markets that we are all familiar with, we see in movies 
of trading pits, and hooting and hollering and shouting. Those 
trading pits are all closed, and yet our rulebook still 
recognizes floor traders and floor brokers, categories that 
don't exist anymore. Our rulebook was written for a trading 
world that existed last century. The markets have moved on and 
yet we have to catch our rulebook up to the way the markets are 
today, and that is what we are trying to do with our LabCFTC.
    Mr. Austin Scott of Georgia. As you have recommendations 
for the language in legislation, if you would let us know. I 
imagine my colleague, Congressman Scott, and I can probably 
find agreement on that. I look forward to working with you on 
it.
    One last question: The issue of self-reporting, there is a 
lot of criticism of self-reporting in the media. Seems to be 
criticism of virtually everything in the media these days. Can 
you explain the rationale behind encouraging self-reporting?
    Mr. Giancarlo. I would be delighted to. And I can explain 
this on a number of levels. The criticism that has been the 
media has run the gamut, and The New York Post reported that we 
are using south Bronx tactics to go after white-collar 
defendants. On the other side of the spectrum we have been 
accused of waving the white flag to Wall Street. The criticism 
has been all over the place.
    Thank you for the question, because I really want to 
address this head-on. And let me start with how the CFTC 
prosecutes wrongdoing. We have three traditional ways of 
finding out about wrongdoing, all three of which we have 
enhanced in the last 6 months, not shutdown, not diminished; 
not waved the white flag. Our three traditional ways; one is 
our own internal surveillance. We have enhanced that by 
actually moving it into our Division of Enforcement so it is 
more efficient in terms of uncovering wrongdoing. Second, we 
rely on tips and referrals from other law enforcement agencies. 
We have enhanced those relationships to make those tips 
received by us more efficiently.
    Mr. Austin Scott of Georgia. Yes.
    Mr. Giancarlo. And finally, we have a whistleblower 
program. We have enhanced that by adding new protections for 
whistleblowers to protect them to bring items to our attention. 
All three of those methodologies remain in place.
    Our new cooperation agreement is an additional fourth 
channel that we have added to that. And what this is, is a way 
of us having companies themselves, if they become aware of 
wrongdoing, report that wrongdoing to us so that we can then 
act on it.
    Now, my light is flashing so I am running out of time. I 
would like to talk about this more, if there is a further 
follow-up question, I want to talk more about this specific 
program.
    Mr. Austin Scott of Georgia. Mr. Chairman, thank you for 
your service and your family's service to the country, and 
thank you for visiting Georgia.
    Mr. Giancarlo. Thank you very much.
    The Chairman. The gentleman's time had expired.
    Mr. Maloney, 5 minutes.
    Mr. Maloney. Would you like to finish your previous answer, 
Mr. Chairman? I would be curious to let you do that.
    Mr. Giancarlo. Thank you very much.
    I want to give you just an example of where this 
cooperation program can be really useful. Just picture a CEO 
walks into his office at 9 o'clock on a Wednesday morning, and 
standing outside is his Chief Compliance Officer, and he says, 
``Sir, we have a problem. We just discovered that Joe Blogs on 
one of our trading desks has been engaged in completely illegal 
conduct. It has just come to our attention. I am bringing it to 
your attention.'' The CEO rightfully says take him off the 
desk, send him home, let's investigate and find out what is 
going on. A month later he gets the report. The report is this 
guy was a lone actor, as soon as they discovered it they took 
him off the desk. It seems like he was acting alone, but they 
know it was wrong. The CEO at that point is faced with a 
choice. One choice is to fire that employee, say nothing 
further, and be done with it. The other choice is to report it 
to the regulator.
    Up until now, if they report it to the regulator, they are 
subject to the full panoply of punishment for doing that. 
Unfortunately, the choice that may be more likely to be made is 
that employee is fired and nothing more said about it. And the 
problem with that is that means that employee then goes across 
the street, gets a new job with another firm, and starts the 
same nonsense all over again, and we as the regulator don't get 
to take that person out of the marketplace.
    Mr. Maloney. Okay, if I may.
    Mr. Giancarlo. Yes.
    Mr. Maloney. I am reclaiming my time, as my colleague 
Maxine Waters would say.
    Mr. Giancarlo. Of course. I am sorry.
    Mr. Maloney. I am interested in that, but I am also 
interested in systemic risk. What are the sources of systemic 
risk right now that we are not paying enough attention to?
    Mr. Giancarlo. That is a great question, and it is a 
complicated one for----
    Mr. Maloney. Do you want to start with clearinghouses?
    Mr. Giancarlo. Well, in some ways it is the victim of our 
own success. The swaps clearing mandate has been wildly 
successful, but I am not sure we fully thought of the 
dimension. Today, the London clearinghouse has eclipsed the 
Chicago Mercantile Exchanges, the world's largest clearinghouse 
measured by initial margin.
    Mr. Maloney. Right. What happens if it fails?
    Mr. Giancarlo. Well, failure in the swaps world is 
complicated because clearinghouses traditionally don't fail.
    Mr. Maloney. I know.
    Mr. Giancarlo. What they do is though----
    Mr. Maloney. But they are different now, right?
    Mr. Giancarlo. They can suffer short-term liquidity 
crunches where they have to pay initial margin, or a variation 
margin, in cash, and they have to convert collateral, often 
very good collateral, like T-bills and cash-like debt, but they 
have to convert it quickly into cash.
    For our domestic clearinghouses, they have a facility under 
Title VIII of Dodd-Frank with the Federal Reserve that can give 
them short-term liquidity lending.
    For overseas clearinghouses, they have the Bank of England 
but they don't have direct access to our Federal Reserve. And 
yet something like 50 percent or so of what is in the London 
Clearinghouse is U.S. bank, and something like 44 percent is 
U.S.-dollar denominated. That is a concern.
    Another concern I have is a consolidation that is taking 
place in the----
    Mr. Maloney. Yes, I am sorry, just quickly, what is the 
concern?
    Mr. Giancarlo. I don't want to use your time. Thank you.
    Mr. Maloney. The concern is that the Bank of London doesn't 
care the way it should about bailing out U.S. companies.
    Mr. Giancarlo. Well, the Bank of England is a very good 
regulator, and I have confidence in their ability to act 
quickly, but they would be having to act quickly with dollar 
facilities for those dollar deposits, and they may then need to 
turn around and use what is called a swap facility with our 
Federal Reserve to back that up. Now, I have spent time with 
the Bank of England, I believe the processes are in place for 
this, but in fast-moving crisis this could be a point of a fair 
amount of concern and tension.
    Mr. Maloney. I have less than a minute. Besides the 
clearinghouses, what are the other systemic risk concerns?
    Mr. Giancarlo. There is always a concern with swaps when 
you combine the complexity and the leverage that is involved in 
them, and that is one of the reasons why a lot of the reforms 
are the right reforms, when we register swap dealers, we 
inspect them, we want to make sure they understand how these 
products are used. We need to understand what the actors are in 
this, and why I have put forward a proposal to actually license 
intermediaries in this market, brokers in this market. It is 
not something that is in Dodd-Frank, and I feel it should be, 
and it is something we feel at the agency we can do, so that we 
make sure that the market participants themselves are 
knowledgeable in these products.
    Mr. Maloney. Thank you, Mr. Chairman. I knew you when you 
were a successful entrepreneur in New York City, in a space 
that was similar to the one I was in, and you had a better 
business model. I am very happy to see you in this chair today.
    Mr. Giancarlo. It is nice to see you again. Thank you, 
Congressman.
    The Chairman. The gentleman yields back.
    Mr. Crawford, 5 minutes.
    Mr. Crawford. Thank you, Mr. Chairman.
    Mr. Chairman, thank you for being here today. Back in June, 
this Committee heard testimony supporting granting 
clearinghouses access to account services and limited discount 
window access at the Fed. Do you think extending such services 
to all derivative clearinghouses would help avoid a taxpayer 
bailout and reduce systemic risk, and if so, why?
    Mr. Giancarlo. I want to distinguish too big to fail, TARP-
like bailouts of clearinghouses, which would be extraordinarily 
unforeseeable, with the two facilities that are available in 
Title VIII, which is depository facilities. Actually, to Mr. 
Maloney's question about systemic risk, one area of systemic 
risk is these clearinghouses are collecting all this margin and 
they are putting it with the same three or four custodial 
banks. Being able to put that money on deposit into the Federal 
Reserve system is a very valuable element of Title VIII, and 
that is a value. And that is not a too big to fail, that is 
simply putting up cash assets into a Fed reserve account. And 
the one is short-term liquidity provision in the event of a 
short-term liquidity crunch, where these clearinghouses will be 
able to put up good assets again in terms of short-term cash 
liquidity on either a day or intraday, or several-day basis. 
Those are healthy facilities that could actually forestall a 
crisis.
    Mr. Crawford. Thank you.
    I want to switch gears a little bit, Mr. Chairman. This is 
the Agriculture Committee, and I want to talk ag commodity 
trading as it applies to an everyday farmer who is making 
decisions about risk management, and how they deal with that 
day-to-day. I am a former Series 3 license holder. I don't 
pretend to know much about the commodity markets other than, as 
you described, a broad range of commodities under your purview. 
But I want to focus on the ag side just a little bit.
    I have a theory, and you can either debunk this or validate 
it, whatever, but I have a theory that if we have more actuals 
in the market, and I am talking about commodities 
agriculturally, if we have more actuals in the market we reduce 
volatility. Would you agree with that?
    Mr. Giancarlo. There are a lot of new and emerging 
econometric views of markets. There is something called the 
adaptive markets theory that has come out of a professor named 
Andrew Lo at MIT that talks about markets like ecosystems.
    Mr. Crawford. Yes.
    Mr. Giancarlo. And, in the natural world the healthiest 
markets are the markets that have the greatest amount of 
biodiversity.
    Mr. Crawford. Yes.
    Mr. Giancarlo. And the market environments that are the 
least durable and the more prone to market shocks are the ones 
that have limited biodiversity. We see a similar thing in our 
markets; those markets that have the greatest multiplicity of 
market participants of all stripes; naturals, long-term 
hedgers, short-term hedgers, speculators, are the ones that are 
the most durable. And the ones where you have a small amount of 
market participants or of a similar trading style are the ones 
that are least durable. Our goal, as market overseers, ought to 
encourage the greatest diversity of market style, market 
strategy into marketplaces. And that is what we seek to do is 
to increase the biodiversity, if you will, of our markets.
    Mr. Crawford. Sure. Let me throw this out. My fear is that, 
as we have discussed this, and it has been an interesting 
conversation we have had thus far, but I am thinking the folks 
that are watching this on C-SPAN, the literally tens of people 
that are watching this right now----
    Mr. Giancarlo. With their eyes glazing over, at least when 
I am speaking.
    Mr. Crawford.--have kind of zoned out, and that is sort of 
the sense that I get from farmers is that they have been 
relegated to purely price takers, and that spec traders on 
either side are now responsible for price discovery. And there 
used to be a true price discovery in there for them, and that 
is when we saw probably more of a willingness for agricultural 
producers to become hedgers, because they are already in the 
market, they are already long actuals, so they need to hedge, 
they need to be short. But trying to sell that to a farmer with 
all that we are talking about right now in the broad sense, it 
is putting a lot of fear out there. And so my point is this, we 
are relying almost exclusively on spec trading for price 
discovery. Your thoughts on that?
    Mr. Giancarlo. I worry about that too. And one of the 
things that we aim to do in our budget is really double the 
size of our econometrics unit. The CFTC used to be an agency 
driven by economics, and that has really winnowed down over the 
last decade, and because we need to understand the impact of 
these new market participants in the market. There is no magic 
wand, but it has to start with better intelligence about how 
our markets are changing as we go into this digital 
environment.
    And I am very concerned, but I don't want to take action 
based upon fear and worry, I want to take it based upon sound, 
economic understanding as to what are the impacts of some of 
these new, nontraditional players in our ag markets.
    Mr. Crawford. Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentleman's time has expired.
    Mr. Evans, 5 minutes.
    Mr. Evans. Thank you, Mr. Chairman.
    Mr. Chairman, I would like to follow up on something that 
my colleague was raising in terms of can you think of laws and 
regulations that have changed with Dodd-Frank that still needs 
more refinement. You look like you had started to talk about 
that. You mentioned specifically some things that were not in 
Dodd-Frank. Can you go back to that aspect of it?
    Mr. Giancarlo. Sure. If we take the core reforms in Title 
VII that the CFTC was charged to implement, starting with 
probably the one that was most fundamental, and that was the 
clearing mandate the CFTC's implementation, as I said, was 
wildly successful. And now we have the second and third order 
ramifications of that, and that is the supersizing of some of 
our clearinghouses, including one in particular that is not 
even on American shores. And we have to face up to that 
challenge in an environment where even the European regulatory 
response is changing because of Brexit. That is a very 
complicated one, and will play out over the next year or so.
    The second mandate that we implemented was swaps data 
reporting, and as I mentioned earlier, a vitally important 
reform, one that I fully support for different reasons. We 
haven't achieved its ultimate objective. It was an enormous 
undertaking.
    Mr. Evans. Did you say we have or have not?
    Mr. Giancarlo. Have not.
    Mr. Evans. Okay.
    Mr. Giancarlo. I am sorry if I didn't articulate. We have 
not fully achieved that. I am committed to doing it, but it is 
a big project, and that is because the marketplace itself had 
no agreement on what were the right ways of identifying 
transactions. They called the same instruments by different 
names throughout the marketplace, and different nation states 
have different approaches to this as well. It is an enormous 
task. We must get it done.
    The third implementation was the one that I personally am 
most critical of, I believe in the need to regulate and 
register swaps intermediaries; what are called swap execution 
facilities. But I believe that the CFTC in its first crack at 
this got it wrong for two reasons. One is it didn't follow the 
instructions of Congress. Congress said that swap execution 
facilities should be able to use any means of interstate 
commerce to transact, and the CFTC said, ``Well, you can have 
any means as you want as long as it is either the two types we 
are prescribing.'' And the two types were types that come out 
of the futures world, not out of the swaps world, so they used 
the wrong model on this. And so I wrote a lengthy white paper 2 
years ago laying out an approach that is more consistent with 
Congress' instruction there.
    Those are the three major rule implementations that we have 
done, and moving forward, what I believe in the three 
principles that we want to do is optimize their implementation 
in a way that is healthy and is appropriate for our markets.
    Mr. Evans. You also said something else a few minutes 
earlier, you talked about the rulebook, the rulebook being 
established at one period of time, and then you talk about the 
modernization, where we are in the 21st century. How do you 
reconcile that aspect, and what recommendations do you make to 
us to try to somewhat reconcile that challenge?
    Mr. Giancarlo. I believe it is the case that we have a 
ruleset that was pretty much originated--our agency was founded 
in 1975, most of our accords were written in the 20th century, 
and yet our markets are changing dramatically in front of our 
eyes.
    A quick experience I had visiting a farmer in Texas a year 
ago, he showed me how he was able to cut a field in the middle 
of the night in pitch darkness, using GPS satellite guidance 
for his combine, vehicle telemetry for his tractor, and a drone 
to be able to film the entire scene. He and his son cut the 
entire field in the middle of the night. Farming; an activity 
that is as old as mankind, has always been a daylight activity, 
thanks to digitization, is now a 24 hour a day activity. And 
that type of digitization of farming is mirrored in our markets 
as well. Our markets are being dramatically changed by these 
new exponential digital technologies, and we need to keep up.
    Now, there is an old doctor adage; ``First, do no harm.'' 
We need to be careful how we make changes in our rulebook. They 
need to be appropriate, and we need to start with understanding 
the impact of these new technologies on our markets, understand 
it thoroughly so we can update our rulebook in line with hard 
data as to how our markets are being affected by these new 
digital technologies.
    Mr. Evans. Okay. Thank you, Mr. Chairman. I yield back the 
balance of my time.
    The Chairman. The gentleman yields back. Thank you.
    Mr. Comer, 5 minutes.
    Mr. Comer. Thank you, Mr. Chairman.
    My first question is going to revolve around digital 
currency jurisdiction.
    Mr. Giancarlo. Yes.
    Mr. Comer. Bitcoin and distributed ledger technology are 
the subject of many interesting regulatory questions today. For 
example, the CFTC asserted jurisdiction over digital currency 
such as Bitcoin, calling them commodities, while the SEC 
asserted jurisdiction over DAO (decentralized autonomous 
organization) tokens, calling them securities.
    Similar questions arise in connection with the treatment of 
distributed ledger technology by other regulators. What can you 
do to help clarify the regulatory treatment of these new 
technologies?
    Mr. Giancarlo. Yes. Here is a perfect example of how our 
rules and SEC rules were written for a time before there were 
digital currencies. And what we now need to do is reinterpret 
these rules in light of this very fast-paced technological 
innovation, which are these cryptocurrencies. And it is a 
volatile environment; it is one that is evolving very, very 
quickly.
    And so what we are doing at the Commission is just calling 
it straight down the line. We are approaching this like a good 
umpire; we are calling balls and strikes. We read our statute 
and the definition of commodities to involve these new 
instruments. And you mentioned that we registered a 
cryptocurrency exchange, we did that because they met our 
requirements. And I had our lawyers go through it carefully and 
say, ``Yes, they meet the requirements,'' so we registered it.
    We also, however, have just taken on a Bitcoin Ponzi 
scheme, because we also believe they are meeting our 
requirements but in the wrong way, and they are violating 
those.
    We are playing this straight down the line. We are 
interpreting our rules in light of this new technological 
innovation, and we are looking at this very carefully and very 
thoughtfully, but we have to reinterpret a rulebook that was 
written before those came in existence for the world that we 
have today.
    Mr. Comer. Okay. Switching gears, the Volcker Rule is 
currently administered by five agencies jointly, including the 
CFTC. The Treasury Department recently criticized the rule for 
its extraordinarily complex and burdensome compliance regime, 
which hinders both market-making, functions necessary to ensure 
a healthy level of market liquidity, and hedging necessary to 
mitigate risk. What role do you think the CFTC should take in 
the future implementation of the Volcker Rule, and how do you 
scale that to your available resources?
    Mr. Giancarlo. Yes, the Treasury Secretary has taken the 
lead on this and it is in the Treasury report, and the 
Administration's view is not to call for the repeal of the 
Volcker Rule but to make it suitable for our markets, and 
ultimately suitable for broader economic growth and market 
health. And I believe that is the right course.
    We will be in the boat rowing on fixing the Volcker Rule, 
but we won't be the lead oar; that will come out of Treasury, 
and we look forward to what recommendation is made.
    As far as from a markets point of view, my concern with 
Volcker is that it be conducive to healthy market activity. 
There are some presumptions built into the current definition 
of the Volcker Rule that presumes that activity is 
impermissible proprietary trading as opposed to permissible 
market-making. And I have some questions with some of the 
presumptions. They don't seem to be based upon market reality, 
they seem to be based upon maybe a bias against markets. And as 
a market regulator, we are very concerned where we believe 
there is bias against healthy market activity.
    Mr. Comer. Yes. With respect to position limits, the SEFs 
are required to set position limits, but have no view into the 
overall positions held by people who transact on their 
platform. Does it make sense to eliminate this requirement?
    Mr. Giancarlo. Well, it is a very complicated area. The 
nature of the swaps market is to have multiple execution 
points, unlike our futures market that has one execution point 
for most of the listed products. It is complicated. How do you 
have uniform position limits when it is actually implemented at 
multiple points, who don't necessarily have a means of 
communication, which is why, before I went to the government, I 
actually proposed to the CFTC a public-private partnership to 
form a council that would agree on position limits and apply it 
across the board. And that is something we are still looking 
at, at the Commission, and will continue to look at as to 
whether that might be a solution to this.
    Mr. Comer. Okay. Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentleman yields back.
    Mr. O'Halleran, 5 minutes.
    Mr. O'Halleran. Thank you, Mr. Chairman. I guess my problem 
right now is I have so many notes, I can't organize them fast 
enough, but I have as many concerns also. Your testimony 
basically has said to me that after 9 years, we are not where 
we need to be, and that I don't think I have, in my experience 
with the CFTC I have never seen a time when you were funded 
appropriately to be able to meet your mission statement at all. 
And so I don't think you are funded appropriately now either. 
You had stated there are more knowns than unknowns. I don't 
know about that. There are more unknowns than knowns. That is a 
concern, given your current position. [Audio malfunction in 
hearing room.] and my math is bad too, as it appears. After all 
that diatribe, please catch up with me.
    Mr. Giancarlo. Thank you, Congressman. Now my notes are all 
over the place, and I will try to respond, if I could.
    Thank you for the shout-out on our budget. As you know, we 
did use bypass authority to seek a 12 percent funding increase 
over the budget put forward by the White House. You asked about 
what is the strategic vision. I think the strategic vision is 
twofold. One is, I am committed to the core reforms of Title 
VII, personally. I was committed then, I am committed today. My 
goal is----
    Mr. O'Halleran. You don't have the resources to get there.
    Mr. Giancarlo. Well, we have asked for a 12 percent budget 
increase, but within that we can achieve a lot.
    Second, even with those reforms, Title VII doesn't address 
some of the biggest challenges we have today. Cyber is not 
addressed in Dodd-Frank. The digitization of our markets, not 
addressed in Dodd-Frank. The fragmentation of our markets, not 
addressed. The consolidation of market participants, including 
the consolidations of the futures commission merchants 
industry, not addressed. We are committed to completing that, 
but we also have to look forward to these other challenges that 
are not addressed, and that requires market intelligence. We 
really need to understand these changes.
    I do want to address the issue on----
    Mr. O'Halleran. I hear a tapping behind me.
    Mr. Giancarlo. If I could just on The Wall Street Journal 
piece, that compared the first 6 months of this year. As we 
explained to The Wall Street Journal, all of those cases were 
started under my predecessor, so if they are disappointed in 
what has been done in the first 6 months, they are really 
addressing not my agenda, but the previous agenda.
    The Chairman. The gentleman's time has expired.
    Mr. Bost, 5 minutes.
    Mr. Bost. Thank you, Mr. Chairman.
    Chairman Giancarlo, the ongoing conflict between the UK and 
EU over Brexit has introduced significant risk to swap 
clearing. The EU may require euro-denominated swaps to be 
cleared in the EU. Alternatively, the EU may impose strict 
supervision requirements on clearinghouses outside of the 
borders.
    Now, because of the luxury of this place, I am bouncing 
from one committee to another, so you may have answered some of 
these questions already, but I have four specific questions and 
I would like to have them addressed today, if we can. How might 
this affect the U.S. clearinghouses, how might it affect U.S. 
swap markets, why would we allow the EU to disrupt the 
equivalency agreements, and what can we do to make sure 
investments are adequately protected? Those are the four 
questions I have.
    Mr. Giancarlo. Thank you very much. The last one is 
investments are adequately protected?
    Mr. Bost. Yes.
    Mr. Giancarlo. It will affect our U.S. clearinghouses. As I 
read the European proposal, they would export European 
substantive law, a mirror on the operation of our U.S. 
clearinghouses. They also would have a role for the European 
Central Bank in overseeing our clearinghouses. This is 
something that is unprecedented. Our Federal Reserve has no 
role in clearinghouses offshore. Yes, it would affect our U.S. 
clearinghouses.
    It would also affect U.S. markets. We think it would lead 
to a greater fragmentation of markets. And as I used that 
analogy of markets like ecosystems, when you fragment 
ecosystems you weaken and create potential harm to ecosystems. 
And we think fragmenting markets is an existing problem which 
will be exacerbated by this proposal.
    On the third point about the existing equivalence 
agreement, where I come from a deal is a deal. We reached a 
deal. And I give credit to my predecessor, Chairman Massad, he 
spent 3 years working on that deal. Concessions were made to 
reach that deal with the Europeans. A deal is a deal.
    And then on investments in the market, whether the 
investment is shareholders in our clearinghouses, whether it is 
investment shareholders in other elements of our financial 
institution, a wholesale change like this will have impact on 
investment and the investment returns for market participants.
    All four of your concerns are concerns that we share and we 
will be addressing in the months to come.
    Mr. Bost. What is the answer that we can do from this 
Committee from a legislative standpoint to give an opportunity 
to protect our investors?
    Mr. Giancarlo. Well, the signals to the Europeans that the 
United States is a rule-maker, not a rule-taker are a start. We 
were the first rule-maker when it came to the implementation of 
the Pittsburgh Accord swaps reforms, and in many ways we did a 
mighty fine job of it. And while we respect the Europeans' 
process of coming to their rulesets and rule-making, again, we 
are a sovereign nation, this Congress makes the laws, this 
agency implements the laws, and we have been doing this for a 
long time, and for the most part we are doing it quite 
successfully. Not in every case. We can always improve and we 
can always do better, but we certainly are recognized as the 
world's leader in derivatives regulation, and this Committee 
has a very important role to play. We are a rule-maker, not a 
rule-taker.
    Mr. Bost. Thank you.
    The Chairman. The gentleman yields back.
    Mr. Panetta, 5 minutes.
    Mr. Panetta. Thank you, Mr. Chairman.
    Mr. Giancarlo, welcome, and thank you for this opportunity 
for me to ask you questions. I appreciate this chance.
    Mr. Giancarlo. Thank you.
    Mr. Panetta. And thank you for your preparation as well as 
your testimony.
    I have one question, but I have a little bit of a windup 
before I pitch it to you, if that is all right. It deals with 
the CFTC's enforcement of the impartial access provision. Now, 
prior to 2008 the swaps market was based on sort of a two-tier 
system; it went from the client, to the dealer, to the broker, 
and then back up that chain. The issue back then was that the 
dealer and the broker had sort of a, I guess, a relationship 
where they worked out more of a favorable rate. And the dealer 
would benefit, but then would charge the client at a much 
higher rate. And, therefore, I guess, Title VII of the Dodd-
Frank, which was, I guess, crafted by this Committee, changed 
it from a two-tier system to a one-tier system, and put in a 
middleman for these standardized swaps, what they called them, 
and they are known as the swap execution facilities; SEFs. Now, 
they are supposed to be impartial and anonymous, reduce 
discriminatory pricing on these swaps, and require no 
customization whatsoever. And, in fact, the CFTC's SEF rule 
mandates that an SEF must ensure impartial access to its 
markets and market services for eligible participants, and that 
eligibility itself must be set at an impartial, transparent, 
fair, and nondiscriminatory manner.
    Now, one of these eligible participants from my State of 
California would be CalPERS, the state agency responsible for 
managing retirement accounts for public employees. And by 
ensuring impartial access to CalPERS into this market, they and 
the 1.6 million Californians who depend on CalPERS, including 
myself on a past employment that I had, for their retirement 
and health benefits, they stand to gain.
    In your written testimony, you state that the goal of the 
CFTC is to oversee a U.S. swaps regulatory framework that has 
the optimal mix of well-considered rules and regulations that 
best foster open, transparent, competitive, and financially 
sound derivative markets to support American economic growth, 
job creation, and prosperity. However, the SEF marketplace as 
it stands would not be fairly described as one where impartial 
access is the rule. Rather, it is the exception.
    My question, why is the CFTC not ensuring impartial access 
to SEFs for standardized swap trading?
    Mr. Giancarlo. We will pursue failures of SEFs to impose 
impartial access as appropriate. That is a rule that we take 
seriously. We will.
    More broadly, we believe that Congress took a very organic 
approach to market development in Title VII and did not dictate 
the form of market structure. The science of platform economics 
teaches that there are many different market structures and 
marketplaces. There are many markets that have wholesale and 
retail market structures, from the automobile market to many 
other marketplaces. I don't view Title VII as requiring an all-
to-all marketplace. In fact, the swaps market is not a retail 
market; it is restricted to what is called eligible contract 
participants. It is a professional marketplace. And many 
professional marketplaces have wholesale elements and retail 
elements.
    However, I entirely agree that whatever the market 
structure that evolves organically in the marketplace, the 
impartial access requirement is a fundamental requirement in 
that marketplace, and we will enforce that requirement as 
appropriate as and when we see it.
    Mr. Panetta. And do you see that happening any time soon, 
or when do you think that is going to happen?
    Mr. Giancarlo. Well, if we see a violation of it, we will 
respond to it.
    Mr. Panetta. Okay, great. Thank you. I appreciate it.
    Thank you, Mr. Chairman. I yield back.
    Mr. Thompson [presiding.] The gentleman yields back.
    I now recognize the past Chairman of the Agriculture 
Committee, Mr. Goodlatte, for 5 minutes.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Mr. Giancarlo, thank you very much for appearing today. I 
appreciate it very much.
    I would like to follow up on a line of questioning by Mr. 
Lucas earlier with regard to the recent Treasury report 
released just last week, where they observed that the 
regulatory distinction between swaps and security-based swaps 
did not reflect previous market practice, and the resulting 
split jurisdiction between the SEC and the CFTC has posed 
challenges for market participants. Large market participants 
have expressed their concern over being subjected to 
unnecessary costs and duplicative oversight by both the CFTC 
and the SEC, and have observed that it would be much more cost-
effective for market participants and the derivatives market as 
a whole to adhere to one set of rule-makings.
    As we sit here today, more than 7 years after the Dodd-
Frank Act became law, the CFTC has largely implemented its 
swaps rules, whereas the SEC has yet to do so. Why would not 
right now be the right time to reconsider how we have divided 
swaps jurisdiction between the two agencies? Since you have 
done your homework on your agency.
    Mr. Giancarlo. Any time is right to reconsider whether a 
particular part of the statute may have been ill-advised or 
cause over-complexity. An example is in the credit default 
swaps marketplace where a trading desk that may engage in 
credit default swaps will have both on the desk those trading 
single-name credit default swaps and those trading credit 
indices, and yet if they are trading one product, they are 
subject to SEC regulation, that is single-name credit default 
swaps, if they are trading credit indices they will be subject 
to CFTC regulation. And since sometimes these indices have 
different components in them, if it is ten or less it is SEC 
regulation, if it is ten or more it is CFTC regulation, and the 
components can change. You can have a trading desk that the 
division between who their regulator is can shift, and yet in 
real time they are trading the marketplace.
    Yes, some of these definitions are overly complex, 
especially more complex by the fact that we have our rules set 
in place and the SEC is still doing it.
    I do believe there are other products, however, in the 
securities-based category that probably are suitable for the 
SEC, such as equity-based derivatives. If Congress were to take 
up the challenge of reconsidering this, both I and Chairman 
Clayton would be pleased to participate in this in an informed 
fashion to get the optimal mix of what should be SEC 
jurisdiction, what should be CFTC jurisdiction, and perhaps we 
don't have that optimal mix today.
    Mr. Goodlatte. Let me ask another question related to Mr. 
Lucas' line of questioning. You talked about the financial 
stability of some of the commodity exchanges, and what is the 
best way to deal with a collapse of one of those exchanges, 
which we certainly hope doesn't happen but it can happen. Have 
you had the opportunity to look at the legislation passed by 
the House, which originated in the Judiciary Committee, which I 
chair, dealing with a new way to handle large financial 
institutions in bankruptcy? It primarily focused on banks that 
were considered to be too big to fail. But I would like to know 
whether you have looked at that, whether you know anything 
about whether that could work for these types of institutions, 
or whether something else could be done, or whether that 
legislation could be tweaked to make it work better, to be 
prepared in the event that there is a need to liquidate an 
exchange.
    Mr. Giancarlo. Thank you for that.
    I am aware of the existence of that legislation. I 
apologize that I am not conversant with the details. What I did 
note in it is that, from my perspective, you appear to be 
saying, ``Okay, Title II of Title VII was passed in the wake of 
a crisis, it was rushed and it was rather wooden, perhaps, and 
crude in its approach. How do we fine-tune this in a more 
thoughtful fashion based upon what we have learned, and get to 
an outcome that is a better and more refined outcome.'' And 
that is where we need to go with some of our systemically 
important clearinghouses in the swaps area. Title II is a 
rather wooden and really bank-centric approach, and yet we need 
something much more tailored to clearinghouses which, in the 
event of a resolution, which is highly unlikely, need a more 
long-term solution than simply taking them out of the market. 
That could cause tremendous market harm. They need to be 
operated for the health of the markets perhaps for a long 
duration, and that is not really possible under Title II of 
Dodd-Frank as I read it today.
    A more refined approach would be very welcome.
    Mr. Goodlatte. Well, I would be interested if you would 
take a closer look at that and give us your thoughts, and I 
would be happy to make available the attorneys on our 
Regulatory Reform Subcommittee that deal with bankruptcy law to 
hear your thoughts on anything we might be able to do in that 
area to make it work better for other types of financial 
institution failures.
    Mr. Giancarlo. We will do that, Congressman, and we will be 
in touch with your office on that. Thank you.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    The Chairman [presiding.] The gentleman's time has expired.
    Ms. Blunt Rochester, 5 minutes.
    Ms. Blunt Rochester. Thank you, Mr. Chairman. And thank you 
so much, Mr. Giancarlo, for being here.
    My question is a little different than some of the other 
ones that you have heard this morning. Congress will once again 
face a vote to lift the debt ceiling, and at our full Committee 
hearing on clearinghouse resiliency this year we heard a great 
deal of testimony regarding the paramount importance of U.S. 
treasuries to the clearinghouses and, thus, cleared markets you 
oversee. Some of my colleagues in Congress, including 
colleagues on our Committee, have publicly stated that their 
belief that failing to raise the debt ceiling would actually, 
``not be that big a deal.'' Would you please describe the 
impact of such a failure on the markets the CFTC oversees?
    Mr. Giancarlo. All parties probably would agree, and I 
certainly would agree, that widespread concerns that the U.S. 
would not make payments on its securities would be harmful to 
markets, and certainly would affect their usefulness as 
collateral in our clearinghouses to support swaps transactions.
    Ms. Blunt Rochester. Yes. Given the nature of this, and I 
watch CNBC, I love this kind of stuff, but the thought of what 
this could mean to our country as you describe it, and also as 
I hear about it, and kind of the pain that it would inflict 
upon us for what seems to be maybe political, in the end, can 
you tell us do you think it is time to end this practice? Do 
you agree with the President that it is time to abolish it?
    Mr. Giancarlo. Yes. As the head of a regulatory agency, I 
am loath to tell Congress how it should conduct its affairs. 
These are important instruments in the marketplace, but how 
Congress organizes its funding and how the debate goes I will 
leave to those who have stood for public election and represent 
their constituents, and will make those decisions as they see 
fit.
    Ms. Blunt Rochester. Well, I appreciate your having 
confidence in us, and we have confidence in you as well. I mean 
so that is one of the reasons we ask your opinion on something 
like this, and particularly since it is something that the 
President himself has said it is time to abolish. I was just 
curious if you agree with that.
    Mr. Giancarlo. I truly do believe that the creditworthiness 
of the United States Government is vitally important to both 
our domestic and global financial markets, unquestionably.
    Ms. Blunt Rochester. Okay. And I am going to shift a little 
bit because I have the same kind of questions that the two Mr. 
Scotts and Mr. O'Halleran had about FinTech, and I was really 
interested in what you said about the study and how we compared 
to other countries, and where you said that we are number one 
is on the financing and access to talent, basically. And where 
you said we are falling behind, or are the last, is on the 
regulatory environment. And I was just curious if you could 
just share with us things that you think we need to do, your 
agency needs to do, so that we move ahead and move from the 
bottom to the top.
    Mr. Giancarlo. Yes. One of the things that was cited in the 
study that I mentioned as a very optimal outcome is what the 
Brits do. There is a coordinated program between the Treasury, 
the Bank of England, and the market regulator; the FCA, on this 
Project Innovate. They work together so innovators can do 
pretty much one-stop shopping when they talk to the regulators 
and the government about their innovations.
    Now, I also think they are very prudent about the way they 
go, but they don't just simply say, ``Oh, new innovation, 
great, knock yourselves out, go for it,'' they are very 
diligent in how they approach these innovators, they work with 
them carefully, they are not going to willy-nilly make rule 
changes simply because some new innovation is coming around. 
But the innovators know from day one where they stand when they 
speak to the British regulators. And the same is true in 
Singapore and Hong Kong, in my experience.
    That is not the approach here. What we have here is an 
alphabet soup of regulators. We have our LabCFTC, others have 
no place for innovators to go. And I have heard some stories 
about one innovator that went to one regulator and said, 
``Well, we want to try something new,'' and the regulator said, 
``Well, you can't, our rules don't allow for it.'' And they 
said, ``But this is, potentially, really beneficial to the 
market,'' and the regulatory officer they met with said simply, 
``Maybe our rule will change, but for now that is the way it 
is, end of story.'' That is not the reception they would have 
in the UK, and that is not the reception we want to give in 
this country. We are the home of innovation. I mean we created 
the Internet. We should be a place where innovators receive a 
warm and intelligent reception, thoughtful reception, a 
cautious one; we always need to be cautious, but a thoughtful 
one. And that is where we need to get to.
    The Chairman. The gentlelady's time has expired.
    Mr. Faso, 5 minutes.
    Mr. Faso. Mr. Chairman, thank you for that. And, Chairman 
Giancarlo, thank you for being here today, and I have enjoyed 
your testimony.
    Mr. Bost, unfortunately, asked the question I was thinking 
of, but picking up on what Ms. Blunt Rochester just said, I am 
wondering if you could blue sky with us for a moment. If we do 
not modernize our regulatory pattern and approach where do you 
think these markets will be in 10 years, and what risk do we 
have domestically if we do not keep up with innovations and 
regulatory reforms which may be taking place in other markets 
around the world; Singapore and other places?
    Mr. Giancarlo. Actually, when I spoke to an official from 
the Monetary Authority of Singapore, they told me that they 
modeled their approach to innovation on the U.S. And I said, 
``On us?'' And they said, ``Yes, but 20 years ago. We modeled 
it on the U.S. in the 1980s when a thoughtful Congress and the 
White House got together and said the Internet is happening 
here, why don't we take a first, do no harm approach to the 
Internet and encourage its innovation in the United States.'' 
And so foreign jurisdictions are taking a page out of our book 
and we are not following our own good example in this way. And 
so we are seeing big innovation environments develop offshore 
in England.
    China has devoted a whole province and funded it to develop 
this new distributed ledger technology, and its leading 
university in that area is receiving government money. China is 
so committed to the market innovations, we need to have just 
some portion of that same fortitude and determination and we 
would do equally well, if not better, because so much of the 
science is here, so much of the funding is here. But we need 
the same regulatory approach. We need an open regulatory 
approach.
    Mr. Faso. Let's try to bring this to a practical level. To 
the average person who might be watching this out in America, 
to our consumers, to our farmers, to our businesses, what are 
the practical implications if we don't modernize and reform?
    Mr. Giancarlo. Well, we fall behind, and so the big context 
here is that other countries view markets as vital national 
interests. The Chinese are the largest consumers of cotton in 
the world, the largest consumers of precious metals in the 
world, the largest consumers of rare earth metals, and yet all 
of those commodities are priced in western markets. And they 
say to themselves, but we consume those products, why are they 
not priced in Yuan, why are they priced in dollars. They would 
love to own those markets. They would love to have those 
markets. We need to have the same approach to our markets as 
vital national interests, that other countries see as vital 
national interests.
    Mr. Faso. But persuade the consumer out there, tell the 
American consumer what does this actually mean to them.
    Mr. Giancarlo. I will give you a perfect example. I was in 
a grain elevator in Montana a few months ago and the grain 
elevator operator showed me his chart of his prices, and all of 
his prices were coming off of prices traded on the Chicago 
Mercantile Exchange. When a farmer in Montana goes to the grain 
elevator, the price signals, even if he is not hedging in his 
markets, the prices are coming from American markets. Well, 
let's say those markets, however, move offshore, and the prices 
are not coming from Chicago but are coming from Shanghai. That 
is why these markets are vitally important, because our 
consumers can rely on American markets to set the price for 
their production.
    Mr. Faso. In other words, there is less volatility in terms 
of what the predictability of prices could be, because they are 
priced in dollar-denominated, not foreign-denominated.
    What does that mean to a consumer in the grocery store 
looking at the cost of various staples that they buy each week?
    Mr. Giancarlo. When any of us go in the grocery store we 
enjoy the luxury of not having to stop for a minute and say, 
``Wow, I wonder if it was a good condition on the American 
farm, I wonder if it was a good growing season, because I want 
to know if there are going to be fresh vegetables when I get to 
the vegetable section, or if there will be bread on the 
shelves.'' We enjoy that luxury of stable prices, and it is not 
just in our groceries but in our 30 year mortgages. We are the 
only country in the world that, as a standard homeownership 
tool, uses a 30 year fixed rate mortgage, because our interest 
rate swaps market enable our banks to hedge the risk of 
variable interest rates. Same thing with our heating oil, all 
our energy products are priced in dollars. If it were priced in 
foreign markets without our strong regulation, and priced in 
different currencies, the consistency we enjoy in our western 
way of life would be dramatically changed.
    Mr. Faso. This is the critical ingredient that we need to 
drive home to the American consumer as to the importance of 
modernization of these rules, because it provides more 
predictability and stability to prices here for our consumers, 
our businesses in the United States.
    Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentleman yields back.
    Ms. Adams, 5 minutes.
    Ms. Adams. Thank you, Mr. Chairman. And thank you to the 
Ranking Member. And thank you very much for your testimony.
    The new self-reporting and compliance approach that you 
outlined in your testimony does not provide a formula or 
benchmark for the benefit a company may derive from self-
reporting. An earlier draft of the new advisory specified a 
reduction of up to 75 percent of the total penalty, but the 
final version simply said that the company will see substantial 
reduction in their penalty if they self-report.
    How do you expect companies to calculate the benefits of 
self-reporting without specific numbers, and will CFTC be 
issuing further guidance?
    Mr. Giancarlo. Thank you very much for that, Congresswoman.
    Some of this is an iterative process; we will learn as we 
go. The program we have in place is not a Republican or a 
Democratic program, in fact, in many ways it is based upon 
programs originated under the Obama Administration at the 
Department of Justice and the SEC. In fact, what we have at our 
Commission was built upon some deferred prosecution procedures 
that were put in place by my predecessor, Chairman Massad, and 
the program we have was put forward jointly by me and 
Commissioner Bowen, my Democratic colleague, over the last few 
months. What we are doing has a great deal of precedent in the 
prior Administration and support by my former fellow Democratic 
Commissioner on the Commission.
    But what we are trying to do is build into this gradually. 
We are going to learn as we go. It is new for our Commission, 
even if it isn't new in other parts of the Federal Government 
and other law enforcement agencies. We are going to learn as we 
go what is the right level. And some of that level of redress 
in our penalties will be built upon the degree of cooperation 
we get from firms; how fully do they disclose to us the 
wrongdoing, how cooperative are they. If they are not fully 
cooperative and don't fully disclose, then all bets are off.
    Ms. Adams. Thank you. Under the new self-reporting and 
compliance approach to enforcement that you outlined in your 
testimony, will every self-report to the CFTC result in an 
enforcement investigation?
    Mr. Giancarlo. They have to report to the Enforcement 
Division.
    Ms. Adams. Okay. The Security and Exchange Commission's 
information technology budget last year was significantly 
higher than yours, and yet the SEC suffered a significant 
cybersecurity breach of its active system. Cybersecurity 
breaches like this have become common. Just last week we 
learned about more breaches at Equifax and Yahoo. Do you feel 
that your agency has sufficient resources to prevent a future 
cyber attack, or to respond to one if and when it occurs?
    Mr. Giancarlo. Thank you. I want to be very careful to say 
that there will never be a successful attack. I will tell you 
that we currently encounter about 10,000 attacks on our 
agency's systems per month. That is a lot of attacks, and I 
can't say that someday some one of them won't be successful, 
but I can tell you that we will do everything we can. Since I 
have been Chairman, I have initiated a number of new cyber 
procedures. The first thing is I now meet with our Chief 
Cybersecurity Officer monthly, and I review with them the 
nature of those attacks, whether we are seeing any changes in 
the attacks, whether there are any significant attacks that he 
wants to bring to my attention. We also review latest 
developments in our own cybersecurity defenses.
    Second, a few months ago we initiated the first ever 
agency-wide cybersecurity drill where we created a hypothetical 
cybersecurity attack on our marketplace, and then we drilled 
our senior executives to see how they responded to it.
    There is an old adage in the U.S. Army that says, ``You 
fight as you drill,'' and so we are going to be drilling a 
great deal at the CFTC from here on out.
    And then third, as I mentioned to you, we now are doing a 
full inventory of our collection of personally identifiable 
information to see where we can either eliminate or reduce the 
collection of it, and where we do feel we do need to collect 
it, what would be the best way of protecting that information.
    Ms. Adams. Thank you very much. Mr. Chairman, I yield back.
    The Chairman. The gentlelady yields back.
    Mr. Thompson, 5 minutes.
    Mr. Thompson. Mr. Chairman, thank you. And, Chairman 
Giancarlo, welcome. I am glad to have you here.
    Many of the CFTC regulations are rooted in outmoded 
expectations of how business is conducted, such as trading 
futures in pits that no longer exist, or through floor traders 
that no have no floor. What are you doing to help CFTC's 
regulations catch up to modern business practices?
    Mr. Giancarlo. This is why we have designed LabCFTC. The 
first thing we need to do is really understand the impact of 
this digitized financial marketplace, and how is it changing 
the dynamics, who are the new players, how are they interacting 
in the market, how are they using technology.
    LabCFTC is our outreach; it is our way of interacting with 
them to understand what they are doing. But then second, how 
can we maybe use some of those technologies in what we are 
doing to keep us and to allow us to keep pace with the 
innovation. Second, we are really looking to get back to solid, 
econometric work at the agency. I must say that one of my 
biggest disappointments of the agency is the way in which the 
Office of Chief Economist was allowed to wither on the vine 
over the last few years, and we really want to build that back 
up. If we are ever going to understand these changing markets, 
we need world-class economists helping us understand it.
    I am not someone who wants to make policy changes based 
upon the latest anecdote or the latest newspaper article. I 
really want to make it on sound science, sound understanding of 
how the markets are changing and, therefore, that should drive 
what the policy response is.
    Before I can just spout and say, ``Well, we are going to do 
this about algos, or we are going to do this about automated 
trading,'' I really want to understand what the impact is, and 
that should then drive what do we need to do as a policy 
response.
    Mr. Thompson. As a follow-up to that, at least at this 
point, what legislative changes do you need to implement your 
priorities and to help better manage the agency?
    Mr. Giancarlo. There are a number of things that we have 
been looking at. There are a couple of things the SEC does that 
we would like to emulate, but we have some statutory 
prohibitions. The SEC is able to second employees with other 
regulators here and abroad. I mentioned that about 75 percent 
of the global swaps market is cleared in London, and yet we 
have no one in London. If there is a crisis overnight in 
London, we are 5 hours behind, by the time we wake up and get 
our arms around it, it is already happening. I would like to be 
able to second an employee to the Bank of England or to the 
Financial Conduct Authority, and I have been invited to do so, 
and yet we don't have statutory authority to do that. It is 
something we would like to look at.
    We also would like to be able to, in our LabCFTC we have 
been invited by some of these new innovations to participate as 
a participant in something what they call proof of concepts, or 
these beta tests of some of these new developments. And yet if 
we were to accept that, it would be accepting a contribution to 
the government, and would have to go through a procurement 
process. We would like to see whether we can have the same 
ability to participate in the way that our fellow regulators 
abroad do. The Brits participate in these programs all the 
time, and we would like to see if we can do the same thing that 
the British regulators do.
    We mentioned OLA, the orderly liquidation authority, we 
would like to work with Congress on, if there will be changes 
in that, how do we tailor that for our clearinghouses. There 
are some areas in the Treasury part where they are concerned 
about financial end-users. We would like to look at that. 
Insured depository institutions, some of the language there 
could be improved.
    There are some areas around the edges that we would like to 
work with this Committee and with Congress as we go forward 
that we could find some ways of improving things.
    Mr. Thompson. Given that we know that qualifying for end-
user exceptions can be burdensome and complicated, and even 
Treasury recently released a report recommending legislative 
amendments, how would you suggest we simplify the clearing and 
margin exemptions for end-users?
    Mr. Giancarlo. Broadly, one of the most important elements 
of Title VII was to exempt end-users from it. End-users were 
not the cause of the financial crisis, and yet so much of the 
rule is falling on them. This is an area where we really need 
to focus. The Treasury report called on us to focus, and there 
are a number of areas where we can make some improvements. I 
mentioned the insured depository institution relief, and 
certainly financial end-users as well are perhaps areas where 
the rules have been overly broad and overly restrictive, goes 
against the fundamental decision that was made in Dodd-Frank to 
exempt end-users from its reach. It is an area where we really 
need to bring our best thinking, and think about what we can do 
to get that right.
    Mr. Thompson. Okay, thank you. I yield back.
    The Chairman. The gentleman's time has expired.
    Mr. Soto, 5 minutes.
    Mr. Soto. Thank you, Mr. Chairman. And, Chairman Giancarlo, 
congratulations on your recent confirmation.
    I wanted to get a sense of sort of your philosophy on the 
scope of what our future trading universe should be. Can you 
give me your philosophy on the scope as opposed to what crop 
insurance does or what Wall Street and the stock market in New 
York does? Where are the boundaries of what we should be doing 
with the futures trading?
    Mr. Giancarlo. Thank you very much. And nice to see you 
again, and my heart goes out to the people of Puerto Rico. I 
know it is a concern of yours.
    Mr. Soto. Thank you.
    Mr. Giancarlo. Yes. These markets are very important to not 
just end-users and farmers and producers that use the markets 
directly to hedge, but also indirectly the price of their 
produce is being priced off these markets. Even if they are not 
hedging themselves, when they go to the grain elevator, when 
they go to the distributor, the price they are being offered is 
set as a spread to the price that that product is trading in 
the futures market.
    It is vitally important for us as a regulator to make sure 
those prices are set fairly, that there is no fraud and 
manipulation in the markets, to make sure that those prices are 
the accurate market price, even for those market participants 
who are not directly using them to hedge, but are affected by 
the price signals that come out of it. There is a very 
important retail-level impact of these markets way far away 
from Wall Street, that is our job as regulators to make sure we 
police and get right.
    Mr. Soto. I yield back.
    The Chairman. The gentleman yields back.
    Mr. Allen, 5 minutes.
    Mr. Allen. Thank you, Mr. Chairman. And thank you, Mr. 
Chairman, for being with us today and trying to help us 
understand exactly how this thing works.
    Just a quick question on the effect on our community banks 
which my district is, particularly with agriculture, dependent 
on our community banks. And regarding the de minimis, Congress 
intended to help community banks by excluding from the de 
minimis calculation swaps between an insured depository 
institution and a customer in connection with originating a 
loan. The CFTC interpreted that exclusion very narrowly. And as 
you examine the de minimis level, will you consider a proper 
scope of that exclusion?
    Mr. Giancarlo. Absolutely. Thank you for bringing that up 
because that is an area that in some ways often gets 
overlooked. It was one or two errant words or ambiguous words 
in the statute led to three or four pages of extensive 
restrictions in our ruleset. And that is an area that is 
absolutely ripe for us to take another look at and simplify.
    At heart, it is about whether an insured depository 
institution can make a loan and then hedge the loan. And as you 
know, if they can't adequately hedge the loan, they may be less 
reluctant to make the loan or might charge more for it. We want 
lending and we want hedging. We want these smaller institutions 
to make loans to their local constituents and then actually 
properly hedge it, so on their balance sheet it is not an 
exposure to them.
    Our over-regulation, our overwriting of this rule is 
restricting the very activity that we want to promote in a 
growing economy. This is something that is very ripe for us to 
take another look at, and we will take another look at this.
    Mr. Allen. Good. Again, I am glad to hear that.
    Well, as you know, with commodity prices, farm income is 
down a bit over 55 percent over the last 3 years. Of course, 5 
years ago they were at their highest level. And, of course, now 
they are down. We have some trade issues that may account for 
some of that. But how does this commodity, obviously, we are 
hedging in a global marketplace.
    Mr. Giancarlo. Right.
    Mr. Allen. Okay? But then you have countries, like China, 
that will pay their farmers over $1 a pound for cotton, yet our 
world market price right now, I don't know, it is probably a 
little less than 70, which is too low. From a trade 
standpoint, how do you work with our trade ambassador to deal 
with how we actually hedge these things?
    Mr. Giancarlo. You are absolutely right. I mean it is a 
complicated environment, when we operate a free market for the 
setting of prices in our commodities, and our commodities no 
longer face a domestic market, but truly a global market, and 
they compete against low-cost producers in developing parts of 
the globe. And yet some of the very markets that are importing 
our products themselves have price protection on their own 
commodities. It is a very complicated balance, and it is one 
that is a big challenge for our trade representatives as well 
as our Agriculture Secretary, who I believe is really up to the 
job, but it is a big job and a complicated job.
    I had the opportunity to meet with Secretary Perdue in 
Montana a few months ago and talk about some of these very 
issues. I know he is focused on it, and I pledged to him my 
support of anything we can do, and he knows he has it and we 
will be there for him.
    Mr. Allen. Well, that is good because it is a big concern 
out there. Really the fluctuation, I mean even though it has 
been over 5 years it is nearly impossible. I mean right now, we 
are obviously planting more peanuts than we are cotton because 
of the current farm program. But somehow we have to restore 
stability in this marketplace for these folks to be able to 
plant ahead. Right?
    Mr. Giancarlo. Exactly right.
    Mr. Allen. Well, thank you, Mr. Chairman. And I yield back.
    The Chairman. The gentleman yields back.
    Mr. Lawson, 5 minutes.
    Mr. Lawson. Thank you very much, and welcome to the 
Committee. And the more I hear you speak, the more complicated 
the issue gets, which I don't come close to understanding. But 
what I will say, when financial institutions are doing a 
downturn over the financial crisis, holding more contracts than 
they have cash on-hand, and then when the mortgage rates go 
down and they are not able to meet those obligations, could you 
explain what really happens when they hit that point?
    Mr. Giancarlo. Well, as you know, one of the tremendously 
important reforms in Dodd-Frank was to standardize the margin 
that must be provided, or must be utilized, in transactions for 
swaps that don't go through a clearinghouse in order to avoid 
that very problem. If there is a payout required under the 
terms of that derivative instrument, that the necessary margin 
is there to support that position. That was a concern during 
the crisis that was addressed in the law, and now it is up to 
us as the regulators to make sure that that the way the margin 
is calculated, the way it is applied, the way it is charged is 
done in a way that is effective to meet that very concern that 
you raise.
    Mr. Lawson. Okay. Well, let me ask you this, because I want 
you to comment. A couple of months ago the large financial 
institutions were here and were saying we need a repeal of 
Dodd-Frank. And from what information that you have given, 
Dodd-Frank was supposed to provide some relief and regulations. 
Why, in your opinion, did the larger banks say that it is time 
now to move away from Dodd-Frank?
    Mr. Giancarlo. Well, those that may have that opinion, it 
is not an opinion I share when it comes to Title VII, and Title 
VII is the provision that my agency is directly charged to 
implement, and I am personally supportive of it, and 
institutionally as an agency we support it. I don't know what 
or who expressed that view, but it doesn't reflect the view of 
either me or the Commodity Futures Trading Commission. We 
believe that Title VII, I have said this many a time, I will 
say it again, I think Congress got Title VII right, and now it 
is up to us as an agency to make sure we get the implementation 
right.
    Mr. Lawson. Okay. I saw something that I wanted to ask you 
about, about the trade, where there are hedges, about the cost, 
were they going to stay at a certain level and the price might 
go down, but there are fees that are implemented, and there is 
a winner and a loser in this process, according to what I just 
read. Is this a normal practice all the time in trading 
commodities?
    Mr. Giancarlo. And are you----
    Mr. Lawson. If it makes any sense what I am saying.
    Mr. Giancarlo. Are you referring to what is called the 
variation margin that parties to a trade must post?
    Mr. Lawson. Right.
    Mr. Giancarlo. Well, in the futures market this is a 
longstanding practice that has survived one financial crisis 
after another. It is a very sound practice, it works very well, 
and it is where we look when we think about how we should then 
have a variation margin program, and if so, in swaps, and how 
do we get the balance right. But where we utilize variation 
margin in the futures world, it is a very sound practice, and 
our clearinghouses do a very good job of calculating it and 
applying it.
    Mr. Lawson. Okay. Mr. Chairman, with that, I yield back.
    The Chairman. The gentleman yields back.
    Ms. Kuster, 5 minutes.
    Ms. Kuster. Thank you very much. And thank you for being 
with us today, Chairman Giancarlo. Congratulations on your 
unanimous confirmation, and I wish you well in your new 
position.
    I appreciated the opportunity to meet with you back in 
April, and I wanted to thank you for our discussion. We talked 
about your appropriation, which I support increasing, and your 
approach to implementing Dodd-Frank and the enforcement of bad 
actors in our derivatives market.
    And I want to expand on that enforcement discussion, if I 
could. In your testimony you outlined several steps you have 
taken to strengthen the CFTC's mission to deterring fraud and 
abuse within our derivative markets. And one aspect that I want 
to hone in on, can you describe in detail which types of 
penalties, and I want to get out the criminal or civil, will be 
addressed in the self-reporting mechanism? On the surface it 
may appear that the ``significant reduction'' in penalties that 
the CFTC's Enforcement Division would award to companies may 
let bad actors off the hook. And so that is my concern. And 
then as a follow-up, can you describe how this mechanism will 
hold bad actors accountable, and prevent them from trading on 
the derivatives market in the future if they have been engaged 
in wrongdoing? And under the new self-reporting and compliance 
approach, will every self-report to the CFTC result in an 
enforcement investigation?
    Mr. Giancarlo. Thank you for those questions.
    We do not have criminal authority at the CFTC. We work with 
a criminal law enforcement authority, such as the Department of 
Justice, if we are aware of what we believe to be crimes and we 
report that. We have civil authority, and we pursue that where 
it leads.
    In the case of self-reporting, we expect a number of things 
for self-reporters, and that is complete, candid, and accurate 
reporting, we expect them to take their own actions to 
immediately discontinue any bad conduct, and then we expect 
full cooperation through the process. We will assess after all 
that whether there is appropriate credit for self-reporting, 
and we expect full, as I said, full and complete and candid 
cooperation with us throughout the process.
    Ms. Kuster. At what point would you make the determination 
to refer to the Department of Justice if it was criminal in 
nature?
    Mr. Giancarlo. Yes.
    Ms. Kuster. How do you make that decision if you are 
relying on self-reporting?
    Mr. Giancarlo. Yes. The same basis we do today in all other 
matters. If we see criminal activity, we bring in the 
Department of Justice early on in the process.
    Ms. Kuster. And then the other question, I know that you 
have a strategy for a successful whistleblower program that 
began under your predecessor, I am wondering if you will 
continue that program to ensure that we can weed out bad 
actors, and whether you would substantially increase your 
standard civil monetary penalty for individuals above the 
current rate. It is only about $150,000, that doesn't seem like 
much of a deterrent for people that could be committing fraud 
and making millions of dollars.
    Mr. Giancarlo. Well, thank you for that. I believe in the 
whistleblower program. In fact, in my first few weeks as acting 
Chairman I, in fact, put forward an enhancement of the 
whistleblower protections; protections for whistleblowers, and 
that stands as a statement of my commitment to that program. We 
do not intend to winnow down that program in any way.
    I would be happy to look at those penalties. That isn't 
something that enforcement brought to my attention, but I would 
be happy to look at those to see if they are suitable for their 
purpose or whether they can be increased in any way.
    Ms. Kuster. And I guess I would just ask you on an ongoing 
basis, because I still do have concerns about this self-
reporting, if we had relied on self-reporting on Wall Street we 
would have probably seen some serious bad actors cause serious 
harm to consumers across this country. Could we ask you for a 
reporting-back mechanism to this Committee on the success of 
the self-reporting, and any outcome from the whistleblower 
protection program, and just an accounting of your referrals to 
the DOJ, in other words, a full picture of how this works, 
going forward, so you can reassure us if it is working, or you 
can make adjustments.
    Mr. Giancarlo. Yes. And I want to make something perfectly 
clear. We are not relying on the self-reporting program. We are 
continuing every form of wrongful behavior detecting activity 
that we do today, from tips and referrals to our own 
surveillance process, which I have also enhanced since I have 
been acting Chairman, through our whistleblower program. All of 
those remain in place and will continue to be important 
sources. This self-reporting is an enhancement to that.
    And the answer is I would be happy to have my staff brief 
you on a regular basis of what we are doing on this. Our new 
enforcement that will be giving some figures on self-reporting 
once we have a period of time under our belt, and our 
whistleblower awards are publicly available.
    Ms. Kuster. I think it would be helpful for all the Members 
of the Committee.
    Thank you, and I yield back.
    The Chairman. The gentlelady's time has expired.
    Chris, thank you for being here. The term deference is 
currently being used in the vernacular. I have used it, you 
have. Can you give us a couple of sentences on what you mean by 
the phrase deference?
    Mr. Giancarlo. Yes. It is really a fairly simple concept, 
and that is that the nation state regulator is the primary 
regulator of their domestic clearinghouses, and overseas 
regulators should defer to the supervision done by the local 
regulator. What we mean by that is we believe that we are the 
competent local regulator of our domestic clearinghouses. We 
have been doing this for 4 decades now, and we work very well 
with our colleagues in Europe and abroad. But if they have 
issues and concerns as to how we regulate our clearinghouse, we 
are their first port of call. We will work with them, we will 
cooperate with them, provide them with the information they 
need to understand how we go about our regulatory duties. And 
we believe that is the best approach in an increasingly 
complicated world for clearinghouse supervision.
    The Chairman. Well, thank you very much. Mr. Peterson, any 
final comments?
    Well, Chris, thanks for being here this morning. You did 
make a tactical error. I found it much more helpful when I am 
doing a presentation that I introduce my wife right at the 
start, because I typically get better treatment that way. I 
appreciate Regina being here with us this morning. Should have 
said that right in early on, buddy.
    Mr. Giancarlo. Absolutely. Complete tactical error, and she 
will make me know it when I get home. My wife, Regina 
Giancarlo.
    The Chairman. I got you. Well, thank you both for being 
here this morning, and your testimony. I appreciate the 
evolutionary agenda that you are putting forward with the 
agency, rather than reactionary. It is a good place to be in 
and in line with where the Committee has been with Title VII 
since its enactment. We are supportive of the goals of Title 
VII and the efforts to reduce systemic risk, but wary of the 
way it has been implemented and the impacts that that 
implementation has on market cohesion and liquidity.
    We can have the best rulesets in the world, but without 
cooperation between global regulators we are going to break 
global risk markets. And I believe that the best markets serve 
people and businesses who need them, and not necessarily the 
regulators who oversee them.
    In December 2012, we had testimony from Patrick Pearson, 
the head of the Financial Market Infrastructure Unit at the 
European Commission. Mr. Pearson observed, ``If we don't reach 
agreement on a sensible cross-border approach then conflicts, 
inconsistencies, and gaps will persist. Trades won't take 
place, trades won't be cleared, and they will be reported in a 
fragmented way. Companies in our economies will not be able to 
hedge risks they will not be able to hedge risks they have to 
hedge to do business, commercial or financial.'' I believe that 
Mr. Pearson was right then and he is right today.
    I said this in my opening statement, and I would like to 
say it again because I believe it is important, that Chris has 
proposed a thoughtful plan based on deference between competent 
regulators. It is the right plan not just for the regulation of 
global clearinghouses, but also for all other new requirements 
that we are imposing on these swaps markets. If we fail to make 
progress on international cooperation in the regulation of 
global markets, we just simply won't have global markets.
    And with that, I again appreciate Mr. Giancarlo being here 
with us this morning. Under the Rules of the Committee, the 
record of today's hearing will remain open for 10 calendar days 
to receive additional material and supplementary written 
responses from the witness to any question posed by a Member.
    This hearing of the Committee on Agriculture is adjourned.
    [Whereupon, at 12:00 p.m., the Committee was adjourned.]
    [Material submitted for inclusion in the record follows:]
                          Submitted Questions
Response from Hon. J. Christopher Giancarlo, Chairman, Commodity 
        Futures Trading Commission
Question Submitted by Hon. Vicky Hartzler, a Representative in Congress 
        from Missouri
    Question. Chairman Giancarlo, I want to thank you for working with 
me and my constituents to address issues many coops, rural electric co-
ops, and everyday end-users were having with the Ownership Control and 
Reporting rule also known as the OCR rule. I appreciate the September 
25th no action relief and expansion of flexibility on the final rule. I 
had an amendment to that passed the House earlier this year as part of 
the CFTC reauthorization, which altered the level of contracts traded 
each day that triggered compliance with the OCR rule. I was very 
pleased to see the CFTC make that much needed change.
    In the September 25th announcement, the CFTC called for further 
review of the underlying regulations to match the regulatory relief. I 
believe regulating through no action relief letters is poor governance 
although necessary at times for expedient flexibility while an agency 
conducts the formal rule making process. Can you please tell me your 
plans for making long term changes to the OCR rule and when you expect 
this to be finalized?
    Answer. Following up on the September 25th No-Action Relief 
announcement, CFTC staff began cataloguing and analyzing all of the 
open issues with the OCR rule, with a view toward making a 
recommendation for a permanent fix to the rule. Staff has been looking 
at the three issues that are the subject of your amendment to H.R. 238, 
namely: the 50 contract threshold triggering certain OCR reporting; 
natural person controller data; and foreign privacy law reporting 
restrictions.
    CFTC staff has also reached out to representatives of interested 
parties to ensure that no issues are missed and that their 
understanding of the issues is up to date. CFTC staff will focus on 
issues of concern to your co-op, rural electric coop, and everyday end-
user constituents as we consider changes to the OCR rule. I also invite 
you and your constituents to provide comments and input during the 
rulemaking process.
    I agree with your concerns about regulating through No-Action 
letters, as well as your acknowledgment that they are sometimes 
expedient and provide flexibility in advance of a rulemaking.
    I would like to present proposed changes to the OCR rule to my 
fellow Commissioners before the end of next year. I can assure you and 
your constituents that a permanent fix to the OCR rule is on my list of 
priorities during my tenure as Chairman.
Questions Submitted by Hon. Stacey E. Plaskett, a Delegate in Congress 
        from Virgin Islands
    Question 1. Energy costs are of great concern to my constituents. 
As you know, in 2010, the Dodd-Frank Act provided the Commission with 
specific tools, including position limits, to prevent manipulation in 
energy markets. The Commission was given power to impose limits on the 
size of positions in physical commodity derivatives, such as those 
based on oil futures, and new authority over margin levels--the amount 
put down to buy or sell swaps.
    Again, this was in 2010, and while the Commission has finalized its 
rulemaking on margin requirements for uncleared swaps, it has not yet 
done so for position limits.
    When do you expect the Commission to finalize its position limits 
rule? Will it be strong enough to lessen the kind of trading that gave 
rise to concerns about price manipulation in energy markets, and lead 
to lower and more stable prices for consumers?
    Answer. I am committed to presenting the Commission a workable 
position limits rulemaking that balances the public interest in 
restricting excessive speculation while allowing America's farmers, 
ranchers, energy producers and manufacturers to hedge bona fide risks 
of production costs and volatile commodity prices. Such rule should 
strike an appropriate balance among key levels and standards, such as 
deliverable supply levels and position limits, set by the Commission 
and those set by exchanges and self-regulatory bodies that are in the 
best interest of America's agricultural producers upon which we all 
rely.

    Question 2. As you know, the Commission's leasing decisions 
continue to be scrutinized. Reports have been issued on underutilized 
office space, which of course comes at cost to taxpayers.
    Last year, the GAO came out with findings of the Commission 
improperly recording lease obligations, and that it did not make cost-
effective decisions regarding lease procurement and internal controls.
    I know the Commission deals with very complex situations in its 
oversight duties.
    Given that there is already an agency--the General Services 
Administration (GSA)--with duties to provide real estate services and 
lease negotiations so that other agencies can focus on core matters, 
are you open to working through GSA to have them negotiate future 
leasing?
    The CFTC reauthorization bill that passed our chamber earlier this 
year included a provision to designate other agencies to manage leasing 
for the Commission, and I'd like to know your thoughts on that as well.
    Answer. The Commission recognizes the value that the General 
Services Administration (GSA) provides as the Federal expert in the 
area of Federal leasing. We therefore signed a Memorandum of 
Understanding, in November of 2016 that established a relationship with 
GSA for collaborating on the development of a comprehensive real estate 
portfolio strategy, as well as the execution of CFTC future leasing 
needs. As the Agency's current leases expire, the CFTC will utilize the 
services of GSA to execute those leases.
    Statutory changes are not required for the Commission to allow GSA 
to negotiate future leases on behalf of the Agency.

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