[Senate Hearing 115-691]
[From the U.S. Government Publishing Office]


                                                    S. Hrg. 115-691

                           STATE OF THE CFTC:
                        EXAMINING PENDING RULES,
                       CRYPTOCURRENCY REGULATION,
                      AND CROSS-BORDER AGREEMENTS

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

                                HEARING

                               BEFORE THE 

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 15, 2018

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

       Available via the World Wide Web: http://www.govinfo.gov/
          
          
                              __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
36-550 PDF                  WASHINGTON : 2019                     
          
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          COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY


                     PAT ROBERTS, Kansas, Chairman
THAD COCHRAN, Mississippi            DEBBIE STABENOW, Michigan
MITCH McCONNELL, Kentucky            PATRICK J. LEAHY, Vermont
JOHN BOOZMAN, Arkansas               SHERROD BROWN, Ohio
JOHN HOEVEN, North Dakota            AMY KLOBUCHAR, Minnesota
JONI ERNST, Iowa                     MICHAEL BENNET, Colorado
CHARLES GRASSLEY, Iowa               KIRSTEN GILLIBRAND, New York
JOHN THUNE, South Dakota             JOE DONNELLY, Indiana
STEVE DAINES, Montana                HEIDI HEITKAMP, North Dakota
DAVID PERDUE, Georgia                ROBERT P. CASEY, Jr., Pennsylvania
DEB FISCHER, Nebraska                TINA SMITH, Minnesota

             James A. Glueck, Jr., Majority Staff Director
                DaNita M. Murray, Majority Chief Counsel
                    Jessica L. Williams, Chief Clerk
               Joseph A. Shultz, Minority Staff Director
               Mary Beth Schultz, Minority Chief Counsel
                            
                            
                            C O N T E N T S

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                      Thursday, February 15, 2018

                                                                   Page

Hearing(s):

State of the CFTC: Examining Pending Rules, Cryptocurrency 
  Regulation, and Cross-Border Agreements........................     1

                              ----------                              

                    STATEMENTS PRESENTED BY SENATORS

Roberts, Hon. Pat, U.S. Senator from the State of Kansas, 
  Chairman, Committee on Agriculture, Nutrition, and Forestry....     1
Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan...     3

                                WITNESS

Giancarlo, Hon. J. Christopher, Chairman, Commodity Futures 
  Trading Commission, Washington, D.C............................     5
                              ----------                              

                                APPENDIX

Prepared Statements:
    Giancarlo, J. Christopher....................................    26

Document(s) Submitted for the Record:
Roberts, Hon. Pat:
    CFTC and European Clearing House Oversight Letter............    54

Question and Answer:
Giancarlo, J. Christopher:
    Written response to questions from Hon. Pat Roberts..........    58
    Written response to questions from Hon. Debbie Stabenow......    65
    Written response to questions from Hon. Thad Cochran.........    70
    Written response to questions from Hon. Michael Bennet.......    71
    Written response to questions from Hon. Robert P. Casey, Jr..    78

 
                           STATE OF THE CFTC:
                        EXAMINING PENDING RULES,
                        CRYPTOCURRENCY REGULATION,
                      AND CROSS-BORDER AGREEMENTS

                              ----------                              


                      Thursday, February 15, 2018

                              United States Senate,
         Committee on Agriculture, Nutrition, and Forestry,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:30 a.m., in 
room 328A, Russell Senate Office Building, Hon. Pat Roberts, 
Chairman of the Committee, presiding.
    Present or submitting a statement: Senators Roberts, 
Boozman, Ernst, Grassley, Thune, Daines, Fischer, Stabenow, 
Brown, Klobuchar, Bennet, Donnelly, Heitkamp, and Smith.
    Chairman Roberts. Before I call the hearing--well, I will 
do that officially--I call to order this hearing of the Senate 
Agriculture, Nutrition, and Forestry Committee--but first I 
want to welcome Senator Grassley, who is always in the pursuit 
of justice.
    Senator Grassley. I hope what you are offering me is a 
point of personal privilege to go ahead of everybody else, 
including the Chairman, so I can get to----
    Chairman Roberts. I think when you----
    Senator Grassley [continuing]. so I can get to the 
Judiciary Committee to have an important meeting----
    Chairman Roberts [continuing]. when you threaten the 
Ranking Member and myself that you were going to investigate me 
and put us under oath, I thought I would recognize you.
    [Laughter.]
    Senator Grassley. Okay. Thank you very much.
    For the benefit of why he is letting me do this, is because 
I have to go to the Judiciary Committee to chair, and then we 
also have immigration on the floor that I am managing, so I 
appreciate this because I cannot be at this hearing.
    So this is a question I am going to want all the members to 
know I am asking, and Chairman Giancarlo to know that I am 
asking it. Then when his--he gets a turn to respond to this, 
then he can respond to it so every member of this Committee can 
hear it, but I also hope he will back it up and answer it in 
writing for me.
    The purpose of this is to have the CFTC, which has been 
working with the EPA and overseeing the RINs market, the two 
agencies signed a memorandum of understanding March 2014, so 
that predates the Chairman of the CFTC's involvement in it. So 
he does not have any involvement in it but he has obviously got 
some responsibilities now.
    So, to Chairman Giancarlo, my question. In March 2016, a 
memorandum of understanding was signed between EPA and CFTC 
regarding the market for RINs. RIN stands for renewable 
identification number and is a mechanism that we use to enforce 
the renewable fuel standard. The memorandum States, quote, 
``CFTC review and analysis of the information will assist the 
EPA in protecting the public and providing advice to EPA on 
conducting possible investigations into potential fraud, market 
abuse, and other violations relating to the generation of 
trading in RINs.''
    So my specific question for you to answer later is, how 
have the CFTC and EPA worked together since signing the 
memorandum of understanding nearly 2 years ago? Has the CFTC 
ever analyzed RIN data with the intent of identifying the 
impact of speculators have on the markets? This issue of 
speculations on the markets has come up very recently, as 
several Senators have had disputes over what ought to happen to 
RINs.
    So I thank you for that consideration, and, more 
importantly, I thank the Chairman and Ranking Member for the 
courtesy that they just gave me. Thank you very much, Chairman 
Giancarlo.
    Chairman Roberts. We thank you, Senator Grassley. That will 
be submitted for the record and I know Chairman Giancarlo will 
respond in due haste, and thank you, sir.

 STATEMENT OF HON. PAT ROBERTS, U.S. SENATOR FROM THE STATE OF 
KANSAS, CHAIRMAN, U.S. COMMITTEE ON AGRICULTURE, NUTRITION, AND 
                            FORESTRY

    Chairman Roberts. I welcome my colleagues, especially the 
newest additions to the Senate Agriculture Committee, Senator 
Fischer from Nebraska, Senator Smith from Minnesota. For the 
benefit of the members I would like to note that Ranking Member 
Stabenow and I are both pleased to announce that Senator 
Fischer will be chairing the Subcommittee on Livestock, 
Marketing, and Agriculture security. Senator Smith is the 
Ranking Member for the Subcommittee on Rural Development and 
Energy. We welcome you to the Ag Committee. Thank you.
    [Applause.]
    Chairman Roberts. I welcome today's witness, Chairman of 
the Commodity Futures Trading Commission, Chris Giancarlo, as 
we examine a number of issues with him--the derivative market 
space, including key end user rules currently pending before 
the Committee; the status of cross-border equivalency 
agreements; and determining the proper role of regulators 
involving the market of crypto-currencies.
    Mr. Chairman, I speak for the whole Committee when I say we 
have been very impressed with your leadership heading up the 
CFTC since January of last year. While we held a number of 
confirmation hearings last year for you and your fellow 
commissioners, it has been almost 3 years since this Committee 
has held a true oversight hearing examining the CFTC and the 
markets that you regulate. This hearing is very timely, given 
that a lot has happened since that time.
    This is especially true in the derivatives sector, where 
commodities like Bitcoin and other crypto-currencies have 
become a major topic of discussion, not only among large 
financial institutions on Wall Street but among retail 
purchasers who are trying to determine what role, if any, 
crypto-currency should play in their investment decisions.
    Because crypto-currency offerings, and the technologies 
they are built upon, are skyrocketing, regulators like the CFTC 
are working hard to provide consumer protection, but without 
stifling further innovations in the market. Furthermore, the 
technology underlying crypto-currency has transformative 
potential. Blockchain, or distributed ledger technology, may 
offer the economy significant benefits as it is used to create 
more secure, transparent, and efficient ways for recordkeeping. 
I am pleased to see the CFTC taking such an aggressive and 
active role in this space.
    There was the historic vote by the people of Great Britain 
to leave the European Union. We are now seeing how the 
decisions of European officials regarding cross-border 
financial regulations may upend carefully negotiated agreements 
that would otherwise provide regulatory certainty to financial 
stakeholders operating on an international stage.
    We also continue to hear from important derivative end 
users in the agriculture sector and beyond, eagerly awaiting 
resolution to important rulemakings mandated under the Dodd-
Frank Act. We understand you and CFTC staff are working 
diligently on a number of these issues and we look forward to 
hearing with regard to your progress.
    To that end, Mr. Chairman, I understand without an 
additional commissioner finalizing some of these important 
rules is made much more difficult. I think both the Ranking 
Member and myself would like to see Dawn Stump, who was 
reported out of the committee last year, confirmed as soon as 
possible. The hold of her pending nomination is unacceptable 
and we will move forward on consideration of the additional 
vacant commissioner spot as soon as an individual is nominated. 
We need to move forward and get a fully functioning commission.
    Whether it is market participants who rely on CFTC to 
provide regulatory certainty or consumer financial advocates 
who highlight the need for robust oversight of the market, I 
think everyone can agree we need a full panel of commissioners 
at the CFTC.
    Again, thank you, Mr. Chairman, for being here today. I 
look forward to your testimony. I now turn to my colleague, 
Senator Stabenow, for her opening remarks.

STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR FROM THE STATE 
                          OF MICHIGAN

    Senator Stabenow. Well, thank you very much, Mr. Chairman, 
and welcome, again, Chairman Giancarlo. It has been good to 
work with you and I appreciate you being before the Committee.
    I also want to join the Chairman in welcoming our new 
members, Senator Smith and Senator Fischer. We are very, very 
pleased to have you on the Committee, particularly at this 
important time when we are coming into our major responsibility 
as a Committee in writing the 5-year farm bill. So thank you so 
much.
    Many people do not realize the importance of futures and 
swaps markets to the strength and stability of our economy. I 
know this Committee does. When a corn or soybean farmer in 
Saginaw County, Michigan needs protection from damaging swings 
in commodity market prices, they use the futures markets. When 
an auto manufacturer in Detroit needs protection against 
changes in foreign currency in order to export American-made 
products, they use swaps. Futures and swaps markets support our 
economy, helping to create American jobs and promote economic 
stability. We need a strong CFTC to ensure that those markets 
are fair and transparent and free of fraud and abusive 
practices.
    It has been roughly 10 years since the Great Recession, 
when the reckless actions of a few led to the pain and 
suffering of many. Over 8 million jobs were lost. Countless 
small businesses were shuttered. Farmers and businesses across 
the country faced foreclosure. Many older Americans were forced 
to delay their hard-earned retirements, while many younger 
Americans were unemployed and unable to pursue their piece of 
the American dream.
    We must never allow the devastation of the Great Recession 
to be repeated. It is critical that we do all we can to ensure 
that farmers and businesses and families are protected from 
financial ruin through no fault of their own.
    Congress has entrusted the CFTC with tremendous 
responsibilities--protecting customers, promoting transparency 
and stability in our markets, monitoring for market abuses and 
systemic risk, and holding wrongdoers accountable, just to name 
a few. Since the passage of Dodd-Frank, the CFTC has worked 
hard to promote strong customer protections. The agency has 
modernized its surveillance capabilities to better identify 
market abuses and systemic risks. Its enforcement program has 
exposed wrongdoing by some of the world's largest financial 
institutions, while also targeting the crooks and fraudsters 
who push Ponzi schemes and investment scams in our communities.
    As I have said before, there is more work to be done. We 
must continue to make progress toward a safer financial system, 
which is why I am concerned that the agency has not yet 
completed the rulemaking required by Dodd-Frank. Critical rules 
such as implementing speculative position limits and setting 
minimum capital requirements for swap dealers remain 
nonexistent.
    I am also interested to learn more about emerging market 
issues such as the CFTC's approach to automated trading and the 
tremendous growth of the crypto-currencies like bitcoin.
    Finally, we must continue to advocate for the CFTC to have 
the resources it needs so that it can really do its job. The 
CFTC's responsibilities have increased dramatically since the 
Great Recession, without the necessary funding to fully carry 
out those responsibilities, and, as a result, Americans have 
been placed at risk, and that is not acceptable.
    Chairman Giancarlo, I know you share this concern. I am 
committed to advocating for a fully funded CFTC and I urge my 
colleagues to join me in supporting this critical need. Our 
nation's farmers, ranchers, Main Street businesses, and 
consumers all depend on fair and transparent derivatives 
markets, and they need the security and protection provided by 
strong CFTC oversight.
    Today I look forward to hearing more about how the CFTC 
will continue to strengthen its efforts to safeguard our 
markets, minimize systemic risk, and protect consumers from 
fraud and abusive practices.
    Thank you, Mr. Chairman.
    Chairman Roberts. I thank the Ranking Member for her 
comments and I will turn to our witness for today's hearing, 
Chairman of the Commodity Futures Trading Commission, The 
Honorable J. Christopher Giancarlo. Welcome back, Mr. Chairman.
    You are a familiar face to the Committee, and in the 
interest of time I am going to skip the lengthy introduction. 
The value of your extensive prior experience in the private 
sector and your time as Chairman and as a CFTC Commissioner has 
been revealed in the way you have been leading the agency. 
Since taking the helm, you have done a great job advancing your 
vision of making CFTC a 21st century regulator. We look forward 
to hearing about the work you have done and your future plans.
    Just for the record, what was the level of funding that you 
requested, that you think you need to do a good job?
    Mr. Giancarlo. $281.5 million.
    Chairman Roberts. Then what was the result with regard to 
the President's budget?
    Mr. Giancarlo. The President's budget has put that number 
for $281.5.
    Chairman Roberts. $281----
    Mr. Giancarlo [continuing]. point 5.
    Chairman Roberts. Yes. But not all of it is in funding. 
There are what we call user fees. Is that correct?
    Mr. Giancarlo. That is correct.
    Chairman Roberts. What is that number?
    Mr. Giancarlo. $31.5 million.
    Chairman Roberts. $31.5 million, which will be a tax on the 
farmers and ranchers who use your capabilities and your trust 
as they try to manage risk. I am not happy with that. I think 
the Ranking Member joins me. I am not trying to put you on the 
spot. I just want to let you know that we will consider our 
budget according to our baseline, hopefully commensurate with 
your needs. Please proceed.

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

    Mr. Giancarlo. Thank you, Chairman Roberts, Ranking Member 
Stabenow, and distinguished members, and new members of the 
Committee.
    When I appeared before this Committee last summer I stated 
my priorities for the CFTC--to foster open, competitive, and 
transparent markets, free from fraud and manipulation, in 
support of broad-based economic growth that respects the 
American taxpayer through careful management of agency 
resources. I pledged that, if confirmed, I would work with each 
of you in our common purpose of serving the American people and 
the agricultural producers on which we all rely.
    Thank you for this chance to report on our progress. I look 
forward to your questions on the CFTC's enforcement program, 
recent budget requests, swap dealer de minimis, position 
limits, swap data reporting, Project KISS, our upcoming ag 
futures economics conference, and other matters. I also look 
forward to discussing the complex challenges of virtual 
currencies, including the CFTC's response and increased staff 
competency, consumer education, interagency cooperation, our 
exercise of authority, aggressive enforcement, and heightened 
review of virtual currency futures.
    With your permission, I would like to use the next few 
minutes to talk about American agriculture. The U.S. Census 
Bureau estimates that there will be another 2 billion people on 
Earth in the next 20 years. This poses a massive challenge for 
the global economy and governments and societies worldwide. How 
will all these people be fed? How can we meet these challenges? 
American agriculture.
    Just as the U.S. has emerged as a self-sufficient producer 
of energy for global markets, thanks to American ingenuity and 
entrepreneurship, the U.S. will play a big part in feeding the 
globe in the decades to come, thanks to the hard work and 
intelligence of the American farmer and rancher. American 
agriculture and energy producers will respond to the rising 
global demand with the support of U.S. derivative markets 
regulated by the CFTC and overseen by this Committee.
    Our futures and swaps markets serve at least two critical 
roles in feeding and powering the world's growing population. 
First, they allow markets to resolve imbalances efficiently, by 
providing reliable price benchmarks set in U.S. dollars. 
Second, they reduce price volatility of the world's limited 
resources by removing the economic incentive to hoard physical 
supplies. They allow America's farmers, ranchers, and energy 
producers to measure and transfer the risks of production to 
those willing and able to take that risk, stabilizing earnings, 
and benefiting all parties, including consumers worldwide who 
otherwise do not participate in derivative markets.
    For these reasons, American agriculture and American 
commodity futures markets are vital national interests. CFTC-
regulated markets are among the world's most robust and the 
most resilient. Even with extreme volatility, as we saw 
recently, CFTC-regulated markets were able to successfully take 
on and manage risk, enabling valuable risk transfer to support 
and stabilize the broader financial market. That is why I am 
grateful to you, Chairman Roberts, and Ranking Member Stabenow, 
for your recent letter supporting the CFTC's approach to the 
cross-border supervision of major clearinghouses and our 
current discussions with regulatory counterparts in the 
European Union.
    As you know, in 2016, my predecessor, Tim Massad, 
painstakingly negotiated an agreement with the EU for how we 
supervise each other's clearinghouses. That agreement, which I 
supported as a minority commissioner, is built upon the 
principle of regulatory deference. We believe that deference 
supports strong cross-border markets, recognizes our 
commonalities, and builds upon the strengths of our respective 
jurisdictions.
    The agreement aligns with the mutual pledges of the United 
States and Europe in the G20 accords to cooperate and avoid 
market fragmentation, regulatory arbitrage, and protectionism. 
That is why we continue to seek assurances from the EU that 
U.S. clearinghouses will not be treated differently than they 
are now. American markets must continue to be regulated under 
U.S. law, by American regulators, overseeing by this Committee 
of Congress.
    In closing, with the proper balance of sound policy, 
American regulatory oversight, and supervisory deference by our 
oversees regulatory counterparts, U.S. community derivative 
markets will continue to safely serve the needs of America's 
farmers, ranchers, and energy producers, enabling them to feed 
and power the world, not just today but in the generations to 
come.
    Thank you very much. I look forward to your questions.

    [The prepared statement of Mr. Giancarlo can be found on 
page 26 in the appendix.]

    Chairman Roberts. Chairman, thank you very much for a 
comprehensive commentary, more especially outlining the 
challenge that we face in feeding not only ourselves but a 
troubled and hungry world. Show me a country that cannot feed 
itself and I will show you chaos, and we have got a lot of 
that. It would be helpful if we had an aggressive and robust 
trade policy that anybody could figure out. Thank you for your 
comments.
    Blockchain is mostly discussed in its context as the 
technology underlying bitcoin. My understanding is that 
potential benefits are substantial for multiple industries, 
from agriculture to financial services to health care and so 
on. Notably, a few weeks ago, there was news of major 
efficiencies shown in the sale of approximately 60,000 tons of 
soybeans, using blockchain. As this technology and its 
transformative potential continues to emerge, what role, if 
any, should regulators play in this beginning stage?
    Mr. Giancarlo. Thank you, Senator. Blockchain, we have seen 
it expanded dramatically in not only the instance you mentioned 
but I know a number of other American agriculture merchants are 
now adopting it. We are even seeing the rail transportation 
system adopting blockchain techniques.
    The potential of this technology is truly transformative. 
Now, what it will take to realize it, and how it will be 
realized, and how long it will take, those are open questions. 
The more I read about it, the more I see that the impacts that 
it can have on so many of the traditional systems that we 
utilize, whether in finance, whether in logistics, whether in 
transportation, are extraordinary.
    It presents tremendous challenges for regulators. The 
concept behind it is the decentralization of information and 
the bypassing of central authorities that, for centuries, 
societies used to verify information. If you think about it, 
from a regulator's point of view, we, ourselves, rely on 
verifiers, whether they be exchanges or whether they be data 
repositories, and the traditional mode of regulation is to 
license those verifiers to play a role in our regulatory 
framework.
    So it presents tremendous challenges for us in our 
traditional ways of regulating, which brings me to the point, 
Chairman, it is so important for us to stay ahead of these 
transformations. If we fall behind, we could find a real 
disruptive impact on our traditional mode of regulation.
    Chairman Roberts. I appreciate that. I am going to get 
parochial here. One of the biggest issues in the derivatives 
space I hear about from farmers in Kansas, and elsewhere, 
concerns the lack of convergence. In the past Kansas City Hard 
Red Winter Wheat futures contracts, while time will tell, 
support of the change to a variable storage rate looks, at 
least, somewhat promising.
    What update can you provide on outreach the CFTC has done 
with producers and exchanges regarding this issue?
    Mr. Giancarlo. We focused very carefully on this issue, in 
hard red winter wheat and, actually, a number of other ag 
products. Just this week, my staff had meetings with the 
exchange and with the National Grain and Feed Association, as 
well, to talk about this issue and understand some of the 
dimensions of it.
    I will tell you that the upcoming contract--I believe it is 
the March contract--is one of the most used contracts, and the 
information that will come out of that is one we are going to 
be looking at very carefully, to determine whether we have got 
a broader problem or just an anticipated problem. I can assure 
you, Chairman, we are watching this very carefully.
    Chairman Roberts. Just for the record, I think we have too 
much wheat on the ground and not enough of a demand situation 
with regards to our trade policy.
    Mr. Chairman, you touch on the issue of cross-border 
agreements in the letter that the distinguished Ranking Member 
and I sent you in January. I ask unanimous consent this letter 
be submitted for the record, without objection.

    [The following information can be found on page 54 in the 
appendix.]

    Chairman Roberts. I understand you will be meeting next 
week with a number of your counterparts in Europe. Can you give 
us just a preview or a sense of where current discussions are 
going on the issue of clearinghouse supervision and other 
equivalency agreements entered into between your agency and the 
European regulator?
    Mr. Giancarlo. Yes. Thank you, Senator, and thank you for 
that letter. For our European counterparts to know of the 
resolve of this Committee and your support for our position is 
extremely helpful.
    The message I have been giving to them, and the message I 
will be giving them in the next meeting is the same one that I 
said in my opening statement, which is that American markets 
must continue to be regulated under U.S. law, by American 
regulators, overseen by this Committee of Congress. That is the 
position I have stated from the beginning and that will be the 
position I will maintain throughout the negotiations.
    Chairman Roberts. I truly appreciate your comments. Thank 
you for your responses. I appreciate your insights on all these 
topics. I do have additional questions for you but in the 
interest of time I will submit them for the record. I look 
forward to your responses.
    I now turn to Senator Stabenow for her questions.
    Senator Stabenow. Thank you, Mr. Chairman, and again, thank 
you, Chairman.
    I wanted to follow up. The Chairman was talking about the 
letter we had written to you, regarding, of course, bitcoin 
futures. I am wondering, as we look at protecting customers and 
market participants, what more needs to be done at this point?
    Mr. Giancarlo. Senator, it is such a fast-moving area that 
I think it is critical that we be learning, watching, and 
understanding every step of the way. We had a 4-hour meeting 
yesterday of our technology advisory committee at the CFTC, and 
we had some of the leading experts in this area in, educating 
us.
    As you know, we have also started something at the CFTC 
called LabCFTC, which is our outreach into these technological 
developments, to understand their innovations. The first step 
is a thorough understanding of this emerging technology and how 
it works.
    Senator Stabenow. One of the things you mentioned in your 
testimony was the shortcomings in oversight at this point in 
time, and that there are gaps in protections for traders and 
investors in the markets. So, that is worrisome and I am 
wondering how quickly something can happen. These markets are 
going to continue to grow and they have to be made safer for 
investors and the broader financial system.
    So, you know, I appreciate the approach you are taking but 
how soon will we see something definitive happening?
    Mr. Giancarlo. Well, so, as you know, in our budget request 
we do request additional funds for additional examiners, and 
that is very important.
    I am pleased to tell you, Senator, that since the launch of 
the new bitcoin futures product, since its launch there has not 
been a single margin breach, even during the heightened 
volatility that we saw over the last few weeks. So that product 
is operating in a completely lit environment, a transparent 
environment.
    We are monitoring--unlike bitcoin cash market, which we do 
not regulate, we do not have oversight authority over, we have 
enforcement authority but not oversight authority--in bitcoin 
futures, which we do regulate, and we see all the transactions, 
identified. It is not an anonymous market. It is a disclosed 
market. It is a thoroughly regulated market. It is a market of 
mostly institutional and high net worth. It is not a primarily 
retail market, as is the underlying market. So we are confident 
that the regulatory systems we have put in place over decades 
will serve well in this new futures market.
    The underlying market, as I have disclosed in my written 
statement, is a--it is not a supervised market, and that is a 
policy choice that I think we are all going to have to face in 
the months and the years to come.
    Senator Stabenow. Mr. Chairman, you have talked about 
adequate funding, and it is something I have talked about for a 
long time. I am glad to see the movement in the budget. We have 
to figure that out. You are talking about oversight--the CFTC's 
oversight. Could you talk, in general, about what you have done 
to strengthen the CFTC's oversight program? You talk about 
needing more staff to do this new piece. How much has this been 
a problem, in terms of providing accountability and oversight, 
with not having the staff that is needed to be able to do that?
    Mr. Giancarlo. Thank you, Senator. I would never let our 
oversight capability suffer any deterioration in its 
effectiveness. There are other needs that perhaps we might 
triage again, perhaps some training, some publications. We long 
had a library at the CFTC. I mean, there are areas where we can 
move.
    When it comes to oversight, we maintain cops on the beat. 
One of the structural changes I have made since becoming 
Chairman was to move our surveillance branch into our 
enforcement branch, so that the lag between detecting 
wrongdoing and acting on wrongdoing is immediate and not 
delayed by any type of interagency delay.
    So I feel that our effectiveness in rooting out fraud and 
manipulation is as strong as it has ever been, but we do have 
needs elsewhere. You know, we have suffered losses in our 
economics unit, our Office of Chief Economist, which we need to 
beef up. There are other areas. When it comes to fraud and 
manipulation, we are as strong--we are covering the waterfronts 
without any gaps.
    Senator Stabenow. Thank you. Finally, you have recently 
announced Reg Reform 2.0.
    Mr. Giancarlo. Yes.
    Senator Stabenow. Based on the fact that there are several 
critical rulemakings not yet done from Reg Reform 1.0, when 
will you complete the unfinished business, and will you commit 
to not weakening any of the safeguards that have been built in 
since the financial crisis?
    Mr. Giancarlo. Yes. If I can take the last question first, 
I can pledge to you I do not intend to weaken the safeguards 
built in. I am supporter of the core reforms of Title VII of 
the Dodd-Frank Act. I always have been and remain today.
    The two unfinished rules you mentioned in your opening 
remarks, the di minimis and position limits, I said to you, 
when I met with this Committee last June, that we would get 
both of those done, and in the fall, I said we would get the di 
minimis done in the first half of this year. I intend to put 
that in front. In fact, meetings are now scheduled with my 
fellow commissioners to present them with data through the end 
of 2017. So they will have the most up-to-date data, and those 
conversations will take place over the next several months.
    On position limits, I also pledged to you to move forward 
with that. We are moving forward with that. We will have 
something to present to the commissioners, I think, by the 
beginning of the second half of this year. The staff is working 
on it now. Now with position limits, as you know, that is a 
complicated rulemaking, but I think we can get this done. I do 
think it is something that does require a full commission. I 
think that for position limits to be a lasting rulemaking it 
should be considered by a commission of five, as intended.
    So we will not stop working on something, but I hope that a 
final rule can be voted on by five commissioners, not by three.
    Senator Stabenow. Thank you. Thank you, Mr. Chairman.
    Senator Boozman.
    [Presiding.] Thank you, and thank you, Mr. Chairman, for 
being here. We do appreciate all of your hard work, and your 
insight today as we, really delve into some important issues.
    One thing I would like to say, before I get into my 
questioning, is that I very much oppose the question of user 
fees. I opposed it in 2016. I think that if we go down that 
path then we would likely reduce liquidity, have increased 
volatility, and less efficient use of our futures markets.
    I know that you know the issues of funding, so that you can 
do what we ask you to do, is so important. As a member of the 
Appropriations Committee, and I think I can speak for the 
Appropriations Committee, we are working hard now, as we get 
into trying to finish out Fiscal Year 2018, and then also 
starting 2019, to try and address that.
    We have talked a lot about, in the past, cybersecurity, and 
I would like for you to comment on that. It seems like our 
agencies now because we can do it, we can gather all of this 
information, but as we essentially centralize it, comes the 
responsibility of protecting it. Can you tell us what you are 
doing in that regard?
    Mr. Giancarlo. Absolutely, Senator, and thank you for that 
question. I am delighted you asked me this because it is one 
that I have been focused on since I have joined the commission. 
I spoke--in 2015, I was honored to be asked to go to Harvard 
Law School and speak on 21st century challenges, and I said the 
No. 1 challenge to America's global financial markets is cyber, 
and I remain as convinced of that in 2018 as I was in 2015.
    Since becoming Chairman of the agency I have done a number 
of things. I now meet, once a month, in a scheduled meeting, 
with our chief cyber officer, and at that meeting he presents 
me with a full rundown of everything we have seen on the cyber 
front over the past month. I cannot disclose all of that to you 
but I have previously said that we receive close to 10,000 
cyber attempts per month. So to give you an idea of the 
relentless threat that we face, and I know a number of the key 
institutions that we oversee face even higher numbers, such as 
our exchanges and others. So this threat is serious.
    I am satisfied, from those meetings, that, as an agency, we 
are compliant with the key Federal regulations under FISMA, the 
Federal Information Security Modernization Act, the National 
Institute of Standards of Technology, NIST standards, and 
annual OIG audits.
    We have done more than that. One of the things we have 
started at the commission, that has never been done before, we 
now do full agency-wide cyber drills. A few weeks ago, we just 
did our second drill under my chairmanship, full agency-wide, 
all four offices, where we did a simulated attack on the 
infrastructure that we oversee, to see how we react to that. 
Because there is an old adage in the military service, that I 
think the Chairman may be familiar with, and that is you fight 
as you drill. So I have told the staff, we are going to drill 
repeatedly so we will know how to fight when the cyberattack 
comes. We are also asking the entities that we regulate to have 
similar protocols in place as well.
    Now one of the areas that we are asking for additional 
funding for is for is in our ability to examine the cyber 
readiness of the entities that we oversee, and the exchanges. 
We can use more resources to examine their cyber preparedness.
    Senator Boozman. Very good. I appreciate you coming out so 
strongly to protect the agreements with the EU commission that 
we worked in the past. Can you give us an example of what would 
happen if those were weakened significantly?
    Mr. Giancarlo. Yes. We are very concerned that the EU may 
have in mind the ability and the right to do unscheduled, 
independent examinations of our clearinghouses, to show up on 
their doorstep and to go in and conduct exams, to conduct test 
procedures, to require European standards and European practice 
on how our clearinghouses operate. I know of no other area 
where an overseas regulator can come into a U.S.-regulated 
environment and conduct their own independent exam, or even if 
they propose to do it in conjunction with us, that is not our 
legal structure. We are a sovereign nation. We are an 
independent agency. We report to this Committee and a committee 
in the House. We do not report to overseas regulators. The 
dimensions of what could come out of this proposed European 
legislation, I think are quite breathtaking.
    Now, what we are told is that we are maybe getting ahead of 
ourselves, that we need to wait and see what this all means. 
Well, I have never been one to much wait. I think that we need 
to make clear to Europe right now that we have been regulating 
our clearinghouses for decades. We have gotten it right. None 
of them failed during the financial crisis. You know, we can 
always improve, but, quite frankly, to be told that we will 
have to jointly work with an overseas regulator is something 
that is unprecedented.
    Senator Boozman. Well, thank you, and again, I think we 
have complete agreement on that issue.
    Thank you, Mr. Chairman.
    Chairman Roberts.
    [Presiding.] Senator Smith.
    Senator Smith: Thank you very much, Chair Roberts, and 
Ranking Member Stabenow.
    I would like to just start by telling you how excited I am 
to serve on this Committee and represent Minnesota farmers and 
also Minnesota forest products organizations with my colleague, 
Senator Klobuchar. I am really honored to be the Ranking Member 
on the Rural Development and Energy Subcommittee. So I look 
forward to working with Senator Ernst on those rural priorities 
and to work hard for Minnesota priorities on the farm bill. I 
am excited, also, really respect the spirit of bipartisanship 
that has been a hallmark of this Committee, and I look forward 
to working with all of you. So thanks very much.
    Chairman Giancarlo, I wanted to talk with you a little bit 
about the swaps market. So, like many Americans, Minnesotans 
certainly suffered deep losses as the result of the 2008 
financial crisis. Lots, as Senator Stabenow said, lost their 
homes, lost their jobs, lost their savings, and one of the 
contributing factors, of course, was this largely unregulated 
swaps market.
    So I think it is so important that we make sure that there 
is a strong swaps regulator here. I am sure we share that 
value. So can you just discuss with us a little bit about how 
the changes that you are working on to existing swaps rules 
will not increase the risk of another financial crisis.
    Mr. Giancarlo. Thank you for that question, and may I just 
simply say that, as Senator Klobuchar knows, I have had some 
very good education in Minnesota agriculture over the last few 
years. I got to visit the Blue Diamond Dairy Farm, just east of 
Sauk Centre, in 2016, and I was in Bloomington, just in 
December, with the Minnesota Cattlemen's Association. When you 
meet with folks like that, that are really at the grassroots 
level of agriculture you understand how important it is that 
we, back at the agency, get these rules right, so that they do 
not have to experience what they experienced, once again.
    You know, I am rather proud, at the CFTC, when I look 
around at our fellow derivative market regulators, we are 
really the only one--and I say this knowing that our European 
colleagues may be listening--we are the only one that has our 
full sweep of swaps regulations in place, and the regulations 
follow Title VII of Dodd-Frank. This agency embraced its role 
to implement those reforms, and those reforms are in place 
today, and they are working in place.
    Now, that does not mean that every element of them works as 
well as it should or as intended, which is why the process of 
regulation is not a one-and-done. It is a constant one to 
measure, to make sure that they--as markets change, and markets 
are very organic in their nature, they evolve and they change, 
and we need to make sure that our rules evolve and change to 
meet new changes in the marketplace.
    Senator Smith. Thank you. So how do you sort of assess, as 
you are making these sort of adjustments, tweaking to the 
rules, how do you assess kind of what impact that might have on 
the, you know, potential for a future financial crisis?
    Mr. Giancarlo. Well, we stay in constant contact with the 
market. One of the things that we have done since I have become 
Chairman is created a new branch within our Division of Market 
Oversight called Market Intelligence. The goal of this branch 
is to try to understand--there is a great hockey player named 
Wayne Gretzky who said he was successful not because he skated 
to where the puck was but where the puck was going. The goal of 
Market Intelligence Branch is to see where the puck is going, 
in terms of market evolution, and to try to make sure that our 
rules and regulations stay adequate for those changes in the 
market.
    Senator Smith. Thank you. As a Minnesotan, I am well 
familiar with the Wayne Gretzky analogy, so I appreciate that 
very much.
    Let me just, in the few minutes--the minute I have left, 
touch briefly on this question of budgets and user fees and how 
we might--you know, how we make sure that you have the 
resources that you need to do the work that you do.
    If we do not go to a user fee model on this Committee, and 
I understand that that--I understand that there is no decisions 
made about that--could you just sort of explain what impact 
that might have on your budgets and how you would--you know, 
what you would do.
    Mr. Giancarlo. Yes. I know that the number we put forward, 
$281.5, which is the same number we put last year, is the right 
number, and that is because I approached it the way I did in 
business of building of budget. I did not take the number from 
the prior year and add a percentage to it and say that is our 
new budget number.
    I said, I want to start from zero. This is my first time as 
a chairman. I made every division present to me what their 
mission was, what their needs were, what their capabilities 
were, and where they were lacking capabilities. We built the 
number up from zero--it is called zero-based budgeting--and the 
number we need, I know it, is $281.5.
    Senator Smith. Thank you, Mr. Chair.
    Chairman Roberts. Thank you, Senator Smith. Again, just for 
the record, I view user fees as a tax on the farmers, ranchers, 
and growers, and all of the people that depend upon you to make 
sure that their risk management strategy is protected.
    Senator Klobuchar.
    Senator Klobuchar. Well, thank you very much, and thank you 
very much, Mr. Chairman. We will forgive you, Senator Smith and 
I, for using an example of a hockey player that was not from 
the Wild or from the old North Stars, but that is okay.
    We do want to thank you for visiting our State, both in 
Stearns County and then the recent visit with our Cattlemen. We 
really appreciate that. One of the things you and I have talked 
about in the past is how commercial end users who base their 
derivative trades in the actual physical products that they 
produce or use is one group, and then you have financial 
institutions who base their derivative trades on fluctuations 
in prices--and you all know this--or the index, different types 
of companies.
    Just based on your visits to Minnesota and other places 
around the country, how has that helped inform you as you look 
at those different types of situations?
    Mr. Giancarlo. I am a firm believer that in so many walks 
of life that diversity adds value to the marketplace, and I 
think that is especially true in financial markets. I think the 
broader range of market participants, from big to small, from 
what some call naturals, all the way to speculators--not 
excessive speculators but speculators--add depth and value to a 
market.
    When I meet with end users, agricultural and energy 
producers, and understand their concerns, I see how critically 
important it is that we make sure that they continue to be 
comfortable operating in these markets, alongside some of these 
commercial, some of these proprietary traders as well. What we 
need to do, at the agency, is always try to find--make sure 
there is an environment where all can participate. That will 
provide us the greatest depth.
    Senator Klobuchar. Thank you very much. I know that 
Chairman Grassley--oh, no, former Chairman of the Judiciary 
Committee Grassley, excuse me--asked you about the issue of RIN 
data. As you know, the RFS is critically important, and I have 
been working on that for a long time. The CFTC's willingness to 
work with the EPA to combat fraud in the creation and sales of 
RINs is important as we work to sustain confidence in the 
market-based regulatory system.
    Based on your experience, do you believe that current 
information in trading data in RINs markets would increase 
transparency?
    Mr. Giancarlo. What I can tell you, Senator, is we were 
asked by EPA to look at certain physical market data, which we 
did. We do oversee, as a regulator, trading in the RINs futures 
contract. Unfortunately, there is virtually no trading in that 
contract. I mean, I think one or two trades. That is how little 
activity is there, and we monitor that but there is virtually 
no activity.
    In the underlying market--we are not the regulator of the 
underlying market but at the request of EPA we did review data 
and we gave them results. Based upon the data, we were not able 
to find any misbehavior in the market. The data was both 
limited and not of sufficient quality, and we are a data-driven 
agency, and analyzing bad data, you do not necessarily get good 
results, unfortunately, and we had a conversation about that.
    I recently spoke with Ag Secretary Perdue about this 
market, and shared these thoughts with him, and we have agreed 
that we are going to put our best economists on taking a look 
at this, and they are going to be meeting in the next few 
weeks. So there are opportunities for engagement here and we 
will have that engagement and we will see what comes out of it.
    Senator Klobuchar. Okay. Thank you. Last, as you know from 
your visit, the livelihood ranchers in Minnesota depends on the 
prices that they receive for their cattle, the cost to raise 
them. Can you talk about how the CFTC documents transaction 
data within cattle markets and cattle future markets, help to 
determine what is irregular, what is regular with the 
fluctuations, and during the CFTC's collaboration with GAO, 
were there any initial findings about the cattle markets that 
you can share with our Committee today.
    Mr. Giancarlo. So, you know, the cattle contract has been a 
concern of mine for some time. It became quite clear, over the 
last few years, that there were some convergence issues in that 
contract and other problems. We communicated with the CME, 
which operates that contract, our concerns, and to their credit 
took a number of steps to restructure that contract and improve 
that contract.
    Now we continue to watch it to see how these improvements 
are working--as of last year it looked like they were 
addressing a number of concerns of the cattlemen. It was one of 
the very subjects I spoke to Minnesota Cattlemen about when I 
was up there. How is it working? Are these changes making--
having an impact?
    There still may be a number of issues there. What I would 
say broadly is one of the things I have learned, as Chairman, 
is that it is vitally important for the agency to keep an eye 
on how contracts, especially in the ag market, are working, and 
to let those that operate the contracts at the exchanges know 
that their responsibility is to keep these contracts fresh, 
updated. Sometimes contracts are not even updated for a long 
period of time, many, many years, and that needs to be done 
frequently. These contracts need to be looked at, because they 
need to serve our ag users.
    Senator Klobuchar. Thank you very much.
    Chairman Roberts. Well, Coop, it is 10:17, maybe :16. It is 
not high noon yet. Did you get all the critters rounded up? You 
are recognized here.
    Senator Thune. Terrific. Well, thank you, Mr. Chairman. I 
appreciate you and Senator Stabenow having the hearing today 
and I want to thank Chairman Giancarlo for appearing before the 
Committee.
    I appreciate the CFTC's efforts to bring transparency and 
integrity to crypto-currencies. I understand that the CFTC does 
not have the authority to conduct regulatory oversight on 
virtual currency platforms, but that it is working with a 
number of agencies on multi-regulatory approach for crypto-
currency oversight.
    What are your thoughts on the current multi-agency approach 
and what is the most effective way, would you say, to regulate 
crypto-currency?
    Mr. Giancarlo. Thank you, Senator. It is tremendously 
challenging. Bitcoin or other virtual currencies is a legally 
traded product, and yet there is no Federal agency with direct 
regulatory oversight over those spot markets. What I mean by 
that is the ability to set standards, to determine capital 
adequacy, best practices, how they deal with customers, what 
are their cyber protections, what are their security 
protections. There is no Federal agency that sets those 
standards. We do not have the jurisdiction to do it, as we do 
not in any spot cash market.
    What we do have is enforcement authority for fraud 
manipulation to the extent we are able to see it. As I 
explained to Senator Klobuchar, we are a data-driven agency, so 
having that data, or the lack of that data is very important.
    With our new bitcoin futures products we entered into 
unprecedented arrangements with those two exchanges offering 
those products, to gather data from the five bitcoin spot 
markets so that we can now start analyzing. So for the first 
time, as a Federal agency, we can see data, at least in a 
limited number of cases, in spot markets, so we can police them 
for fraud manipulation.
    Senator Thune. Do you think you need to have more 
regulatory authority and resources to bring greater 
transparency and integrity to those platforms?
    Mr. Giancarlo. I think if it is the policy choice that 
those platforms need direct supervision, then some agency will 
need the resources to do it. We are not an agency that 
traditionally supervises spot platforms, so it would be more 
than a question of resources. It would mean a change of our 
mission, of our mandate, of our approach. So it would be a very 
significant change for us across the board, were we to take 
that on.
    Chairman Clayton and I thought, our first step should be to 
just make sure the policymakers are aware that this is an 
unregulated environment. It is a legal environment but it is an 
unregulated environment.
    Senator Thune. Let me shift gears real quickly. In March 
2016, CFTC and EPA signed an MOU related to RIN markets. The 
purpose of the MOU was, in part, to permit sharing of 
confidential information, business information I should say, on 
the RIN market so that the CFTC could advise EPA on, and I 
quote ``techniques that could be employed to minimize fraud, 
market abuses, or other violations and to conduct appropriate 
oversight in RIN and renewable fuel markets.''
    Have you given EPA any advice, and if so, what was it?
    Mr. Giancarlo. Our advice is that the data that they are 
collecting is--you know, there is an old saying in technology 
and software, you know, garbage in, garbage out. If the data is 
not terribly good, it is awfully hard to make heads or tails of 
it, and one of the problems we had in analyzing the data was 
that it was not really adequate to tell us--what they were 
hoping that we could tell them which was the presence of 
manipulation.
    Senator Thune. So more and better data would help.
    Mr. Giancarlo. Absolutely.
    Senator Thune. Okay. We hope that you are a part of 
providing advice on that subject. Obviously, as you know, there 
is a lot of controversy and a lot of discussion around it.
    Mr. Chairman, thank you, sir.
    Chairman Roberts. I appreciate it, Senator. Let us see. We 
have Senator Brown.
    Senator Brown. Mr. Chairman, I share the concern of a 
number of my colleagues. I know the Chairman has mentioned 
this, Senator Smith mentioned it, about your budget, about the 
fees. I particularly share the concern, I know--I mean, I know 
you say you have enough, but I also know this agency has been 
shorted in too many cases, and as you testified in the Banking 
Committee last week, Mr. Chairman, about the demands created by 
the emergence of virtual currencies, bitcoin and related 
derivatives, that I am even more concerned about your budget. 
So I hope that you will kind of relook at this, reflecting the 
bipartisan concern here about your ability to do some of the 
things that we think you need to do.
    Just a statement. You do not need to respond to that.
    I know that CFTC has recently announced some high-profile 
enforcement cases on market manipulation and virtual 
currencies. I am concerned, though, that the overall trend 
shows a decline in enforcement actions and penalties. Fiscal 
year 2017 showed a significant decline from prior year levels. 
Democrats, especially, on Banking and on this Committee are 
concerned that some of the new Trump regulators are a bit too 
close to the industry, shall we say.
    So explain, in that context, why we--sir, reassure us why 
the downward trend in the enforcement data is not a bad thing. 
It seems like a deliberate pullback in enforcement.
    Mr. Giancarlo. So, Senator, you can understand, I became 
Chairman in the middle of Fiscal Year 2017, and that year 
really reflects the enforcement priorities of my predecessor, 
not me, because enforcement actions take time to generate.
    Also the Wall Street Journal article which, looked at that, 
compared years where the CFTC had some extraordinarily large 
awards against a few large banks, in the hundreds of millions 
of dollars. So on those two points, a better trajectory is to 
look at just recent activities. Just in the last month alone, 
we have brought $100 million worth of settlements against Wall 
Street banks, just in January alone.
    I think you will see, going forward, an enforcement agenda 
that reflects more of my priorities as opposed to perhaps my 
predecessor's priorities.
    In terms of--and I think if you----
    Senator Brown. Are some of those penalties against repeat 
offenders?
    Mr. Giancarlo. In the--repeat offenders meaning banks that 
have been fined or----
    Senator Brown. Yes.
    Mr. Giancarlo. Yes.
    Senator Brown. Okay. I am concerned about--I mean, you do 
not represent SEC. I understand that. I know that you, your 
agency, and, I think you have--you have continued this--when 
move on an action you send a press release, which is helpful, I 
think, in sending that message. SEC does not always do that. So 
do you believe that publicizing those major actions tends to 
have a dampening effect on cheaters, on people going too far? 
Is that sort of your purpose, and comment on that.
    Mr. Giancarlo. Absolutely, Senator Brown. You know, one of 
the criticisms that has been aired is the lack of criminal 
activity. Now we do not have criminal enforcement activity, but 
under my watch we just completed a very successful joint action 
with the Department of Justice and the FBI in which we brought 
criminal charges against a number of those, at some of these 
Wall Street banks, that were manipulating markets, over the 
last few weeks.
    So I do believe that not only do press releases help but 
also the actions that an agency is willing to take to work 
across the aisle with other agencies to not only bring civil 
charges but also criminal charges, sends a message that we are 
serious about enforcing the laws.
    Senator Brown. Would it help you if SEC would be--is 
visibly troubled, if SEC would send out the same kinds of 
releases you do, to send the message you send, that you think 
is important to send? Would it be helpful if they would also do 
that?
    Mr. Giancarlo. I have to say, Senator, I am not familiar 
enough with their practice to form a judgment as to its 
adequacy. I know that we work hard to make sure that our press 
releases send out the message that we are trying to send, that 
we are serious about enforcement.
    Senator Brown. I guess I would close, Mr. Chairman, by 
asking that--I mean, I know that you and the SEC, you have sat 
together in committee the other day, I know that you seem to 
have a warm relationship. I would hope that you could use--I 
know that you run this agency, he runs that agency, but I would 
ask that you make clear to him, at some point, that you think 
it is really helpful that you send those releases out and use 
that to discourage bad behavior in those whom you regulate.
    Mr. Giancarlo. Thank you, Senator.
    Chairman Roberts. I thank the Senator. I think the message 
the Chairman is trying to send out, there is a new sheriff in 
town.
    Senator Heitkamp.
    Senator Heitkamp. Thank you, Mr. Chairman.
    Just to highlight, maybe, some of the macro issues that we 
are confronting. A farmer, just a couple of minutes ago, gave 
me this. This is U.S. farm income, 2013, $124 billion. U.S. 
farm income, 2018, $70 billion. Farm income has been cut in 
half, driven by low commodity prices, driven by disruption in 
trade, which I know the Chairman is very active on, and we need 
to continue to be active. But, also, I think there is a growing 
challenge that we have in trying to figure out how we can 
expand markets. That is why the RIN question keeps coming up. 
That is why we keep talking about kind of your role in all of 
this.
    The last thing that we can afford is a distorted or 
unproductive market, and for a lot of the commodities that are 
grown in my State, the work that you do is absolutely critical, 
and so preventing fraud, preventing manipulation, and seeing 
market trends is absolutely critical. So, you know, we can talk 
about all the other issues, crypto-currencies, but I think we 
need to stay razor-like focused on how critical commodity 
prices are to making a living on the farm.
    You know, we do not want to--in farm country in my State we 
want to grow crops, we want to market those crops, and we want 
to make a living, and, you know, the ability to access the 
market is critical, which takes me back to a question Senator 
Klobuchar asked, which is about the cattle markets. I want to 
thank you, Chris, for coming out to North Dakota. We had a 
great trip where we talked about cattle markets, but we also 
had an opportunity to talk about oil and oil futures, and 
understand kind of what that shale play is. I took him to an 
oil rig, so it was all very exciting----
    Mr. Giancarlo. It was.
    Senator Heitkamp [continuing]. in North Dakota. Your wife 
is from South Dakota?
    Mr. Giancarlo. No. My wife is from Long Island, New York.
    Senator Heitkamp. Oh, well, that is too bad.
    [Laughter.]
    Senator Heitkamp. Well, you said she would have had fun.
    Mr. Giancarlo. She was a 4-H girl and she understood a lot 
better than I did on some of the farm issues.
    Senator Heitkamp. Okay. So I just have a couple of 
questions on crypto-currencies. I know--I did not get a chance 
in Banking to ask you some of these questions, but one of the 
stories that was recently highlighted in the media is that most 
of the trading and most of the work that is being done on 
crypto-currencies, whether it is bitcoin or other currencies, 
is really going under the tax radar. So that the disruption 
that may happen in other kinds of participation in markets may 
transition to a crypto-currency market, because it is, you 
know, the new hot thing. Also if you think that you can gain 35 
percent, 20 percent, whatever your effective tax rate is, by 
moving over, you know, that has some destabilizing effects, it 
seems to me.
    So can you comment about the tax consequences on crypto-
currency and what you think you and the SEC could be doing to 
highlight that concern? After all, you know, Al Capone even had 
to pay taxes, so even if we do not think that this is all 
legitimate and some of it is nefarious, we need to know what it 
is.
    Mr. Giancarlo. Senator, thank you for that question, and I 
know that a lot of people in the crypto community may be 
watching this hearing so this is a very good opportunity to 
remind them that taxes are due on crypto-currency transactions 
that may be taxable. So this is not a, you know, off-the-grid 
from a tax point of view environment. U.S. law still applies, 
whether it is a crypto-currency transaction or anything else.
    Senator Heitkamp. Typically, tell me what the 1099 
consequences are of crypto-currency transactions.
    Mr. Giancarlo. Well, the IRS treats it--I am not an expert 
in this, but it treats it as an asset, and the depreciation in 
the value of an asset means that a tax may be due for that 
appreciation as a capital gain.
    Senator Heitkamp. Yes. But typically, how the IRS would 
know if I made a trade in the equity markets or in your markets 
is I would get a 1099, and then there would be accountability.
    Mr. Giancarlo. That is exactly right.
    Senator Heitkamp. So tell me whether you think 1099s are 
being enforced in the crypto-currency space.
    Mr. Giancarlo. I do not have data to that. My suspicion is 
not to a great extent.
    Senator Heitkamp. Well, this is a problem, and it is a 
problem that is going to continue to grow without some early 
intervention. So, again, another whole incentive to move over 
as people read that and say, ``Hey, if I can get a 20 percent 
tax-free gain on, you know, a $10,000 investment, that looks 
pretty good.''
    Mr. Giancarlo. Mm-hmm.
    Senator Heitkamp. So more reason to elevate our concern 
about this----
    Mr. Giancarlo. Yes.
    Senator Heitkamp [continuing]. because it, in fact, maybe 
become a choice that people make to move over.
    Mr. Giancarlo. Indeed. Indeed.
    Senator Heitkamp. Okay. Thank you, Mr. Chairman.
    Chairman Roberts. Senator Boozman.
    Senator Boozman. Thank you, Mr. Chairman. I appreciate the 
shout-out for 4-H. My girls were all State record book winners, 
and it is truly an excellent program.
    I wanted to get you to comment on, I know that you have 
started, under your leadership, a process of simplifying and 
modernizing the rules so that they are easier to comply with, 
not weakening the rules but rather a way to make them less 
burdensome. Can you update us on Project KISS?
    Mr. Giancarlo. I would be delighted to, and it gives me a 
chance to clarify any misunderstanding.
    Project KISS is not about changing policy. It is a policy-
neutral program. It is about simplifying and making our laws 
and our rules, our rules and regulations less complex, less 
costly, less burdensome. When you think about it our desire in 
the market is to bring more market participants in. When rules 
are complicated it is real easy for the big players to hire the 
lawyers necessary to go through complicated rules, but it is 
harder for small firms. The simpler we can make our rules, with 
the same policy implications, then the more accessible our 
markets are for small and medium-sized firms, which, as we 
know, are the engines of growth and job creation in this 
country.
    So we, just this morning, announced one of the elements of 
our Project KISS initiative. Now our rules--our laws were first 
written in 1937, in a number of cases, and some of our 
provisions go back. One of the provisions is that all the 
defined terms are alphabetized, and after you get to Z you 
start over again. So you go from Z to AA, and then you go to AA 
to ZZ, then you go to AAA. Well, we have gotten up to 
quadruple-Z in our definition system, and that runs then 
through the whole body of law that you have got to reference 
back, and it makes for a tremendous mess when you are trying to 
read these provisions.
    So we are getting rid of the alphabetized approach. We are 
just putting the defined terms in as they are, but it requires 
us to go back through the whole rule set to redefine it.
    This may seem like a lot of nothing, but believe it or not, 
it simplifies the rule book, and it is just part and parcel of 
good government. Every so often rules need to be simplified so 
they are more accessible to the small and medium-sized 
companies that might want to come into our marketplace, and 
just find the rulebook too daunting. Now it may mean some less 
billable hours for some Wall Street law firms or Washington law 
firms, but you know what? It is good for American business.
    Senator Boozman. Thank you, Mr. Chairman. It is refreshing 
to hear that we are trying to simplify things, and, as you say, 
that is one of the greatest deterrents to people not 
participating, just simply not understanding something. So 
thank you very much.
    Chairman Roberts. Thank you, Senator.
    Mr. Chairman, triple-Z?
    Mr. Giancarlo. Quadruple-Z.
    Chairman Roberts. Quadruple-Z. Better go back to triple-Z. 
That sounds like a ranch. It is the Triple Z Ranch, or 
something like that. Well, thank you for trying to clear that 
up and get rid of that mess.
    We are waiting on Senator Daines, who is on the way. Let me 
just ask a real quick question.
    You noted in your testimony, even as I speak--Senator 
Daines, you are up, if you are ready, and I know you are always 
ready.
    Senator Daines. Mr. Chairman, thank you, and thanks for 
testifying in front of the Committee. Good to see you, Mr. 
Chairman.
    Mr. Giancarlo. Thank you.
    Senator Daines. With the emergence of market volatility 
last week--I guess it was called the re-emergence; it happens 
from time to time--it is times like this that emphasize the 
CFTC's importance to regulating derivatives that allows 
businesses like farmers, ranchers, and manufacturers to hedge 
their risks. These instruments lock in their profits, which 
could otherwise be eroded by either rising input costs or lower 
sales. It is important that we do get regulations right, 
including with your regulatory counterparts in the EU, as well 
as in emergent technologies.
    Last September, in Columbia Falls, there was a school 
district that was hacked. It was allowing overseas hackers to 
issue death threats to children in the Flathead region, and 
their preferred method of payment was crypto-currency. It had a 
chilling effect for many, many families in Montana, 
particularly those up in the Flathead region.
    A few weeks ago we had a Homeland Security Committee 
meeting on preventing opioid producers from shipping fentanyl 
into the country. Committee staff directly interfaced by email 
with the sellers, learning how they actually operated. Their 
preferred method of payment? Crypto-currency.
    Mr. Chairman, could you share your guiding philosophy for 
how the CFTC balances licenses to innovate with the need to 
guard against the proliferation of illicit activity?
    Mr. Giancarlo. Thank you for that, Senator. It is sobering 
and upsetting, especially when we think about the children 
involved and what we have been through in the last day. It is 
troubling to know, but we do know that with a lot of these 
crypto-currencies there is a lot of illicit use. Examples like 
this give us an indication but we do not know, with hard data, 
percentage-wise, how much of it is used for illicit activities, 
but we do know it is being used in cases for illicit activity.
    I met recently with the new head of FinCEN, the financial 
crimes unit, and they assured me that their anti-money-
laundering procedure are in place for all domestic virtual 
currency trading platforms, which we do not regulate at the 
CFTC but about which we are concerned. We are broadly concerned 
about the use of these virtual currencies for activities like 
this, and yet no Federal regulator has direct authority. That 
is something that I think, as policymakers, Congress, but also 
the regulatory agencies, need to probably put first and 
foremost on our list of what are the next steps and where we do 
go next.
    I think the industry itself has something to do in this 
area as well. I know that in the UK now a number of virtual 
currency platforms are banding together to develop a self-
regulatory organization to clean up the industry of this, and I 
think that is something that they have not been called out on, 
but to the extent that people who are advocates for virtual 
currencies are listening, I think they need to know that they 
have got a responsibility in cleaning up this industry, if they 
really want it to be something that earns respect and becomes 
part of not only our future but their future as well.
    Senator Daines. I want to shift gears and talk about 
blockchain. Both of the chairmen, my Chairman to my right and 
my Chairman to the left here, were in Montana for our Ag 
Summit. I thank both of you for coming, Mr. Giancarlo, and 
thank you for that, Mr. Chairman.
    You spoke about Project KISS.
    Mr. Giancarlo. Yes.
    Senator Daines. Keeping It Simple, Stupid--which is in 
keeping with President Trump's broader regulatory agenda to 
eliminate outdated and unnecessary regulations. We know that 
reporting requirements, unregistered market participants poses 
great overhead costs. I saw that firsthand when I was in the 
private sector.
    Could you share some of your efforts through LabCFTC to 
pioneer blockchain technology?
    Mr. Giancarlo. Sure. So before you joined us, Senator, I 
was talking a little bit about Project KISS, and I was saying 
that one of its goals is to simplify our rules so that small 
and medium-sized companies can enter. I gave an example of 
something we announced this morning.
    I would like to give another example. One of the things 
that an agency like ours does is use no-action relief to make 
adjustments in the rules, and that body of no-action relief 
appears in letters, but in no formal way that someone new to 
the market can understand, really, the way our rules work. So 
another element of Project KISS is to embody all of that--
hundreds of no-action letters into actual rulemakings so, 
again, our rules are easier to understand for new players 
coming into the market.
    LabCFTC is our focal point for how we interact and how we 
learn about all these new innovations. Fintech is probably the 
most creative area of technology innovation right now. It is 
transforming financial markets. We needed to find a way that we 
could bring in talented people that understand these 
technologies and open up a window. So with our LabCFTC, we have 
held office hours in New York, Chicago, and recently in Silicon 
Valley, because you cannot sit in Washington and say 
``innovators, come to us.'' You have got to go to them, onto 
their turf, and understand what they are doing, and have them 
do demos. So that is what we are doing with LabCFTC.
    Senator Daines. I am out of time, but Chairman Giancarlo, I 
want to thank you. Your last comment, the fact that you are 
getting out of this ivory tower of Washington, DC, out to where 
the action is actually occurring. There is a lot of inaction in 
this town, and you are out there where the people are. You 
mentioned New York, you mentioned Chicago, you mentioned 
Silicon Valley. You also came to Great Falls, Montana, for our 
Ag Summit, and I appreciate that. Thank you.
    Mr. Giancarlo. Thank you.
    Chairman Roberts. Senator Daines, thank you very much for 
some very pertinent questions.
    That will conclude our hearing today. To the Chairman, 
thank you for sharing your views on these important topics. You 
have given this Committee much to think about as we continue to 
look forward to the CFTC reauthorization and that challenge.
    To my fellow members, we would ask that any additional 
questions you may have for the record be submitted to the 
Committee clerk five business days from today, or by 5 p.m. 
next Friday, February the 23d.
    The Committee is adjourned.
    [Whereupon, at 10:47 a.m., the Committee was adjourned.]

      
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