[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]



 
        THE STATE OF THE COMMODITY FUTURES TRADING COMMISSION

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

                                HEARING

                               BEFORE THE

        SUBCOMMITTEE ON COMMODITY EXCHANGES, ENERGY, AND CREDIT

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 1, 2019

                               __________

                            Serial No. 116-4
                            
                            
                            
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                    
 


          Printed for the use of the Committee on Agriculture
                         agriculture.house.gov
                         
                         
                             _________ 

                 U.S. GOVERNMENT PUBLISHING OFFICE
                   
 36-362 PDF                WASHINGTON : 2019                               
                         
                         
                         


                        COMMITTEE ON AGRICULTURE

                COLLIN C. PETERSON, Minnesota, Chairman

DAVID SCOTT, Georgia                 K. MICHAEL CONAWAY, Texas, Ranking 
JIM COSTA, California                Minority Member
MARCIA L. FUDGE, Ohio                GLENN THOMPSON, Pennsylvania
JAMES P. McGOVERN, Massachusetts     AUSTIN SCOTT, Georgia
FILEMON VELA, Texas                  ERIC A. ``RICK'' CRAWFORD, 
STACEY E. PLASKETT, Virgin Islands   Arkansas
ALMA S. ADAMS, North Carolina        SCOTT DesJARLAIS, Tennessee
    Vice Chair                       VICKY HARTZLER, Missouri
ABIGAIL DAVIS SPANBERGER, Virginia   DOUG LaMALFA, California
JAHANA HAYES, Connecticut            RODNEY DAVIS, Illinois
ANTONIO DELGADO, New York            TED S. YOHO, Florida
TJ COX, California                   RICK W. ALLEN, Georgia
ANGIE CRAIG, Minnesota               MIKE BOST, Illinois
ANTHONY BRINDISI, New York           DAVID ROUZER, North Carolina
JEFFERSON VAN DREW, New Jersey       RALPH LEE ABRAHAM, Louisiana
JOSH HARDER, California              TRENT KELLY, Mississippi
KIM SCHRIER, Washington              JAMES COMER, Kentucky
CHELLIE PINGREE, Maine               ROGER W. MARSHALL, Kansas
CHERI BUSTOS, Illinois               DON BACON, Nebraska
SEAN PATRICK MALONEY, New York       NEAL P. DUNN, Florida
SALUD O. CARBAJAL, California        DUSTY JOHNSON, South Dakota
AL LAWSON, Jr., Florida              JAMES R. BAIRD, Indiana
TOM O'HALLERAN, Arizona              JIM HAGEDORN, Minnesota
JIMMY PANETTA, California
ANN KIRKPATRICK, Arizona
CYNTHIA AXNE, Iowa

                                 ______

                      Anne Simmons, Staff Director

              Matthew S. Schertz, Minority Staff Director

                                 ______

        Subcommittee on Commodity Exchanges, Energy, and Credit

                     DAVID SCOTT, Georgia, Chairman

JEFFERSON VAN DREW, New Jersey       AUSTIN SCOTT, Georgia, Ranking 
FILEMON VELA, Texas                  Minority Member
STACEY E. PLASKETT, Virgin Islands   ERIC A. ``RICK'' CRAWFORD, 
ABIGAIL DAVIS SPANBERGER, Virginia   Arkansas
ANTONIO DELGADO, New York            MIKE BOST, Illinois
ANGIE CRAIG, Minnesota               DAVID ROUZER, North Carolina
SEAN PATRICK MALONEY, New York       ROGER W. MARSHALL, Kansas
ANN KIRKPATRICK, Arizona             NEAL P. DUNN, Florida
CYNTHIA AXNE, Iowa                   DUSTY JOHNSON, South Dakota
                                     JAMES R. BAIRD, Indiana

               Ashley Smith, Subcommittee Staff Director

                                  (ii)
                                  
                                  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Conaway, Hon. K. Michael, a Representative in Congress from 
  Texas, opening statement.......................................     4
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, opening statement...................................     6
Scott, Hon. Austin, a Representative in Congress from Georgia, 
  opening statement..............................................     3
Scott, Hon. David, a Representative in Congress from Georgia, 
  opening statement..............................................     1
    Prepared statement...........................................     2
    Submitted letter.............................................    39

                                Witness

Giancarlo, Hon. J. Christopher, Chairman, Commodity Futures 
  Trading Commission, Washington, D.C............................     6
    Prepared statement...........................................     8
    Submitted questions..........................................    41


         THE STATE OF THE COMMODITY FUTURES TRADING COMMISSION

                              ----------                              


                         WEDNESDAY, MAY 1, 2019

                  House of Representatives,
   Subcommittee on Commodity Exchanges, Energy, and Credit,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10:12 a.m., in 
Room 1300 of the Longworth House Office Building, Hon. David 
Scott of Georgia [Chairman of the Subcommittee] presiding.
    Members present: Representatives David Scott of Georgia; 
Van Drew, Vela, Plaskett, Spanberger, Delgado, Craig, Maloney, 
Kirkpatrick, Axne, Peterson (ex officio), Austin Scott of 
Georgia, Crawford, Bost, Rouzer, Marshall, Dunn, Johnson, 
Baird, and Conaway (ex officio).
    Staff present: Lyron Blum-Evitts, Carlton Bridgeforth, 
Emily German, Matt MacKenzie, Troy Phillips, Isabel Rosa, 
Ashley Smith, Paul Balzano, Rachel Millard, Patricia Straughn, 
Justina Graff, Dana Sandman, and Jennifer Yezak.

  OPENING STATEMENT OF HON. DAVID SCOTT, A REPRESENTATIVE IN 
                     CONGRESS FROM GEORGIA

    The Chairman. [Audio malfunction in hearing room] First, I 
want to thank you for joining us here today to receive this 
report on the state of affairs at the Commodity Futures Trading 
Commission. We are happy to have Chairman Giancarlo with us 
today. Thank you, Mr. Chairman, for being here. And as this is 
our first Subcommittee hearing, I look forward to a productive 
Congress alongside the distinguished Ranking Member and my 
fellow Georgian, Mr. Austin Scott.
    But before we start, I want to take just a second to 
reflect on the loss of Mr. Bart Chilton this past weekend. He 
was a good man, a great man, and those of us who have been on 
the Committee for some time knew Bart from a career that spans 
the USDA, Farm Credit Administration, the Farmers Union, and 
both the House and the Senate; but everyone knows his 
contributions as a Commissioner at the CFTC. He was a strong 
advocate for transparency and common sense in regulation, and 
we will miss him very, very much.
    Now, the CFTC was established as an independent agency 
outside of the Department of Agriculture through the Commodity 
Futures Trading Commission Act of 1974. The Commission states 
that its mission: ``is to foster open, transparent, 
competitive, and financially sound markets.'' Dodd-Frank was 
passed as a result of the financial crisis and expanded the 
CFTC at that time to regulate swaps.
    Title VII of Dodd-Frank added safety and soundness to the 
markets by including market transparency and required clearing.
    Challenges facing the CFTC today are final implementation 
of Dodd-Frank, cross-border issues, and new technologies such 
as automated trading and cryptocurrency.
    For 2019, the CFTC is funded at $268 million. In Fiscal 
Year 2020, the Commission is requesting a total of $315 
million. This budget request consists of two separate requests: 
the annual Commission operational funding of $284 million, and 
a new request to support the relocation of three regional 
offices at $31 million.
    It is also worth noting the purview of the CFTC in real 
terms: the total nominal value of the U.S. swaps is $282 
trillion and U.S. futures are at $27 trillion. That is real 
money and it conveys real weight to what we have to do here.
    And for years, I have tried to draw attention to the very 
large job the CFTC has, and I have been a long-time supporter 
of increased funding for the CFTC, and I hope our Subcommittee 
and the full Committee, and the entire Congress will see the 
growing responsibilities of the CFTC, and that it is important 
that we give them adequate funding.
    Now, there is another issue I want to raise though, and it 
is an important one. Yesterday, CFTC Commissioner Rostin Behnam 
sent a letter to the CFTC's Office of Minority and Women 
Inclusion detailing the diversity and representation profile of 
the senior and executive staff at the Commission. He lays out 
some troubling numbers and asks some very pointed questions, 
and they are things that we are going to look into on this 
Subcommittee. But let me say this, it is important. Diversity 
is our strength, and it has been our strength from the very 
first foundation of this country. It will make the agency, the 
CFTC, stronger, not only by the varied viewpoints and 
backgrounds that women, LGBTQ employees, and employees of color 
bring, but also through the credibility that the agency will 
gain by accurately reflecting the diversity of our great 
country.
    Mr. Chairman, it is my hope that you will take your 
colleague's thoughts and concerns to heart and move forward in 
a constructive manner on this very important issue of 
diversity.
    In closing, I want to recognize the work of our Chairman, 
Chairman Giancarlo, and all that he has done, and the openness 
with which he has approached his interactions with me and with 
the Committee. It is certainly a roadmap for a productive 
relationship that I hope subsequent Chairmen will follow.
    [The prepared statement of Mr. Scott follows:]

 Prepared Statement of Hon. David Scott, a Representative in Congress 
                              from Georgia
    Thank you for joining us here today to receive this report on the 
state of affairs at the Commodity Futures Trading Commission. We're 
happy to have Chairman Giancarlo with us today, and as this is our 
first Subcommittee hearing, I look forward to a productive Congress 
alongside the distinguished Ranking Member and my fellow Georgian, Mr. 
Scott.
    Before we start, I want to take a second to reflect on the loss of 
Bart Chilton this past weekend. Those of us who have been on the 
Committee for some time know Bart from a career that spans USDA, Farm 
Credit Administration, Farmers Union, and both the House and the 
Senate; but everyone knows his contributions as a Commissioner at CFTC. 
He was a strong advocate for transparency and common sense in 
regulation, and we will miss him very much.
    The CFTC was established as an independent agency outside of the 
Department of Agriculture through the Commodity Futures Trading 
Commission Act of 1974.
    The Commission states that its mission: ``is to foster open, 
transparent, competitive, and financially sound markets.''
    Dodd-Frank was passed as a result of the financial crisis and 
expanded the CFTC to regulate swaps.
    Title VII of Dodd-Frank added safety and soundness to the markets 
by including market transparency and required clearing.
    Challenges facing the CFTC today are final implementation of Dodd-
Frank, cross-border issues, and new technologies such as automated 
trading and cryptocurrency.
    For 2019, CFTC is funded at $268 million. In FY 2020, the 
Commission is requesting a total of $315.0 million. This budget request 
consists of two separate requests, the annual Commission operational 
funding of $284 million and a new request to support the relocation of 
three regional offices of $31 million.
    It's worth noting the purview of CFTC in real terms: the total 
nominal value of the U.S. swaps is $282 trillion and U.S. futures $27 
trillion. That's real money and it conveys real weight to what we do 
here.
    For years I have tried to draw attention to the large job the CFTC 
has, and I've been a long-time supporter of increased funding for the 
CFTC.
    There is an issue I want to raise though, and it's an important 
one. Yesterday, CFTC Commissioner Rostin Behnam sent a letter to the 
CFTC's Office of Minority and Women Inclusion detailing the diversity 
and representation profile of the senior and executive staff at the 
Commission. He lays out some troubling numbers and asks some pointed 
questions, and they are things that we're going to look into on this 
Subcommittee, but let me say this: diversity is a strength. It will 
make your agency stronger not only by the varied viewpoints and 
backgrounds that women, LGBTQ employees and employees of color bring, 
but also through the credibility the agency will gain by accurately 
reflecting the diversity of our great country. Mr. Chairman, it's my 
hope that you will take your colleague's thoughts and concerns to heart 
and move forward in a constructive manner on this important issue.
    In closing I want to recognize the work that Chairman Giancarlo has 
done, and the openness with which he has approached his interactions 
with me and the Committee. It is certainly a roadmap for a productive 
relationship that I hope subsequent Chairmen will follow.
    With that I would like to recognize my Ranking Member, the other 
distinguished Mr. Scott from Georgia, for 5 minutes.

    The Chairman. Now with that, I would like to recognize my 
Ranking Member, the other distinguished Mr. Scott from Georgia, 
for 5 minutes.

  OPENING STATEMENT OF HON. AUSTIN SCOTT, A REPRESENTATIVE IN 
                     CONGRESS FROM GEORGIA

    Mr. Austin Scott of Georgia. Thank you, Mr. Chairman.
    I want to congratulate you on the Chairmanship, and we have 
had a great relationship for 25+ years, and I look forward to 
continuing that. Some of the best discussions we have are in 
the Delta 10C and 10D seat, which is a good opportunity for us 
to speak about things that matter on the way home to our state.
    I also want to welcome the new Members to the Committee, 
and of course, Chairman Giancarlo. I know your wife is here 
with us today, so I want to say a special thank you to her for 
her service as well as yours, and ma'am, welcome to the 
hearing.
    It is good to have you back here one last time before you 
and your family head back to New Jersey. Your service at the 
Commission has been honorable, and I want to thank you for 
that. I appreciate the opportunity to work with you over the 
last couple of years.
    We have some unfinished business, reauthorizing the CFTC. 
This Committee and the House of Representatives has moved in a 
very bipartisan manner three times in the last 6 years to send 
a bill to the United States Senate. Chairman Scott and I have 
worked together on that, as well as the other Committee 
Members, and here we are. We are going to do it again, and 
maybe the fourth time will be the charm.
    As you know, last year Darren Soto and I introduced the 
CFTC Research and Development Modernization Act. The 
legislation would modernize the CFTC research and information 
programs and provide the Commission with new tools to engage 
with developers and learn about technology. This bill was 
developed in response to testimony that you gave, Chairman, 
about the difficulty in engaging with the private-sector, and I 
look forward to hearing more about the work you are doing to 
engage on FinTech so that we as a Committee can get a better 
understanding of the needs of this bill as we work to refine 
it.
    Mr. Chairman, over the last 5 years, you have been a 
consistent voice for reason regarding some of the most complex 
work this Committee engages in, and again, I appreciate your 
steady hand in the negotiations over how to regulate cross-
border derivative transactions and other complex issues. And 
while halting progress and moving goalposts have been 
frustrating for me to watch, it has been comforting to know 
that you have been our man in the room, and we look forward to 
your testimony on where we stand and what work your successor 
has left to do.
    For 9 years, we have been promising end-users they would be 
held harmless as we imposed new regulations to protect 
financial markets from opaque risk, and how we complete these 
international negotiations are key to that promise.
    That is one of the most important facts this Committee 
cannot forget. The markets must work for the people who need to 
manage risk.
    Chairman Giancarlo, in closing, I want to say thank you 
again. Today's hearing might be a little more like an exit 
interview than a typical hearing, but I think it is a good 
place to start this new Congress with all of our new Members on 
this Subcommittee. I look forward to your wisdom, and leaving 
us with a bigger picture of the importance of these markets and 
the regulatory structure in getting it right.
    Thank you again. Ma'am, thank you for being here. Mr. 
Chairman, I turn it back over to you.
    The Chairman. All right. Thank you very much. Now I 
recognize our distinguished Ranking Member, our distinguished 
former Chairman, and my friend, Michael Conaway, for any 
opening statements that he would like to make.

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

    Mr. Conaway. Well thank you, Mr. Chairman. I would not 
normally say much at this juncture, given the good work that 
this Subcommittee needs to do, but congratulations on you 
becoming the Chairman of the Subcommittee. You and I worked in 
a similar role when I was Chairman of the Subcommittee and you 
were Ranking Member, so congratulations on that. I appreciate 
your indulgence for letting me say a couple of words about my 
friend, the distinguished Chairman of the CFTC.
    First off, Chris, thank you. Thank you for your service. 
Thank you for your diligence, thoughtfulness, and candor, and 
thank you for your relentless curiosity. And most of all, thank 
you for your bottomless reservoir of optimism.
    Everyone on this dais knows how hard it is to hold a 
position of public trust, but you never once have shown that 
burden. Rather, I have seen a man engrossed in understanding 
the burden of others and consumed with understanding how his 
work might ease their difficulties. I saw it firsthand when you 
came to San Angelo. Your speech lit up a room of oilmen by 
connecting challenges found in the oilfields of Texas to 
financial markets in New York and around the world. And then 
you graciously talked to every person and shook every hand in 
the hour it took you to get out of the room.
    I also saw in the letter that you wrote to the congregation 
for the Doctrine of Faith at the Vatican. It is strange to 
think of a letter about derivatives as moving, but your careful 
explanation of why derivatives are important to the most 
vulnerable among us was a moving reminder about why these 
markets matter and why this Committee should be diligent in its 
work in this area.
    I also want to thank your family. Your wife, Regina, your 
children, Henry, Luke, and Emma, and recognize their role in 
your success. For the last 5 years, they have had to patiently 
share your time and attention with strangers. No doubt, well, 
there may be no doubt they are looking forward to having your 
undivided attention as you move into this next chapter.
    Let me close by saying that first off, you closed your own 
testimony noting that you tried to do what your parents taught 
you, and that is to leave places that you visit better than you 
found them. Let me close by saying that you learned that really 
well. The CFTC is a better place because of your tenure as 
Chairman. I suspect that this Committee is also a better place 
because of your service. You worked hard to break down the 
ideological divisions and positions supported by evidence and 
experience that were not rooted in the pitched battles of the 
past.
    I have greatly appreciated the opportunity to work with you 
and to learn from you these past 5 years. As you return to New 
Jersey, I don't suspect you will be retiring in any of the 
traditional senses. I have no doubt that you will continue to 
put your intellect, passion, and values to work on behalf of 
the public. And as you pick that next path, I wish you your 
well-earned happiness, and Godspeed.
    Before I yield back, Mr. Chairman, I too want to add my 
condolences on the passing of Commissioner Bart Chilton. I did 
not know Commission Chilton as well as some of you in the 
audience, but I knew him well enough to know that he cared 
deeply about his work. In a career that ran from Capitol Hill 
to the Whitten Building to the CFTC to his farm in Arkansas, 
his unwavering focus was on how the government can protect the 
most vulnerable. I appreciate the opportunities I had to work 
with him, and know that he will be missed. His family and 
friends are in my prayers and thoughts with these difficult 
days ahead.
    With that, Mr. Chairman, I yield back. Thank you.
    The Chairman. Thank you very much, Ranking Member.
    Now, I recognize our distinguished Committee Chairman, Mr. 
Peterson, for any opening statement he would like to make.

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

    Mr. Peterson. Thank you, Mr. Chairman, and I want to 
associate myself with the remarks of the Ranking Member about 
Mr. Chilton. He was a great public servant, and somebody I 
worked with a lot in a number of different capacities, and it 
is a shock to all of us what happened there. And so, our 
thoughts and prayers are with his family.
    And Mr. Chairman, welcome back to the Committee. I think 
the last time you were in this room, we were playing guitars 
together, right? That is probably more fun than this.
    But anyway, we appreciate you coming back to the Committee, 
and we appreciate the job that you have done over at the CFTC. 
I think you have done an outstanding job, and you have been 
very good to work with and very transparent. I am not happy to 
see you leave, but, it is part of the way it works, so thank 
you so much for your service, and good luck with whatever you 
are going to do, going forward. We look forward to your 
testimony. Thanks for being here.
    Thank you. I yield back.
    The Chairman. All right, thank you, Mr. Chairman.
    The chair would now request that other Members submit their 
opening statements for the record so the witness may begin his 
testimony, and to ensure that there is ample time for 
questions.
    And certainly, Chairman Giancarlo, I welcome you as our 
witness, and I share the parting remarks that our Ranking 
Member and our Chairman made. I hate to see you go. We have had 
a great and long and very beneficial partnership and 
relationship with you and with the CFTC.
    And so now, I would like to open it up to you, welcome you, 
and thank you for being here. And we will now proceed to 
hearing your testimony, Mr. Chairman, and so you will have 5 
minutes to give your prepared remarks.

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

    Mr. Giancarlo. Thank you, Chairman Scott, and Ranking 
Member Scott, thank you, Committee Ranking Member Conaway and 
Committee Chairman Peterson, thank you all for that, and thank 
you for those kind remarks.
    Before I begin, I would also like to add my note on the 
recent passing of former CFTC Commissioner Bart Chilton. On 
behalf of the CFTC, I want to say all of us are deeply saddened 
by his passing.
    I came today and I am wearing my CFTC pin. I don't normally 
wear it on Committee appearances in deference to the oversight 
of this Committee over our agency. But I wore this pin today 
because this one was actually given to me by Bart Chilton, and 
when he gave it to me, he said, ``Wear this pin with pride 
because you are working for the finest agency in all of 
Washington.'' And I wear that today in memory of Bart. I 
understand today would have been his 59th birthday. He was a 
very fine public servant, and I just want to add my note of 
condolences to him and his family. We will miss him very much.
    Two years ago, as I took up the gavel as Chairman of the 
Commission, I promised to transition the CFTC from a rearview 
focus on the last financial crisis to a forward vision of 
derivative markets as essential to economic growth and broad-
based prosperity, and I set out a three-part agenda: to foster 
economic growth, to enhance U.S. derivative markets, and to 
right size our regulatory footprint.
    First, we announced Project KISS to make existing rules 
simpler, less burdensome, and less costly. We created the 
Market Intelligence Branch to better understand the rapidly 
changing markets that we oversee, and we hired a world-renowned 
Chief Economist to make us a smarter, more quantitative data-
based regulator. We also launched LabCFTC, one of the first and 
most influential FinTech innovation initiatives by a U.S. 
market regulator.
    To enhance financial markets, we worked with other U.S. and 
overseas financial regulators to support bank capital 
requirements and leverage ratios that better balance systemic 
risk concerns with healthy economic growth. And we proposed a 
better regulatory framework for swaps trading and execution.
    We championed cross-border regulatory deference to 
competent overseas regulators while resisting global regulatory 
overreach. And importantly, we refocused our attention on 
agricultural commodity markets, the agency's traditional 
foundation.
    This year in Kansas, we held the CFTC's second annual Ag 
Futures Conference, along with K State University. And we also 
hosted the first ever CFTC Ag Advisory Committee meeting held 
outside of Washington with all five Commissioners in 
attendance.
    On behalf of the CFTC, I have been fortunate to visit 
agriculture producers in over two dozen states, from South 
Dakota, Texas, Arkansas, Indiana, and Iowa, to Minnesota, 
Missouri, New York, Georgia, Mississippi, and Illinois. And 
have walked in wheat fields and harvested soybeans. I have 
tramped through rice farms and beneath pecan groves. I have 
milked dairy cows and toured feedlots, and I have visited grain 
elevators and viewed cotton gins. And throughout, I have been 
moved by America's hardworking families, producing food and 
staples from this abundant land. And it is for them that we 
have reset our regulatory footprint by conducting agency 
affairs with regular order and procedure with thorough 
econometric analysis, and a reduced docket of new rules and 
regulations to be absorbed by market participants.
    But at the same time, we have been resolute in holding 
market participants to the highest standards of conduct. In 
fact, by any measure, enforcement has been among the most 
vigorous in the history of the CFTC, including more enforcement 
actions, more penalties, more large-scale matters, more 
accountability, more partnering with criminal law enforcement, 
and more whistleblower awards than in any prior year, in fact, 
the entire history of our whistleblower program.
    By almost any measure, we have been enforcing the law with 
determination and with gusto. Our goal has been to run a 
professional operation keenly responsible to the American 
taxpayer, who are our ultimate shareholders. Looking back, I 
feel we have stayed true to this agenda.
    Now looking forward, before I leave the Commission, I 
intend to maintain a steady but brisk course advancing policy 
proposals on cross-border regulation and position limits, to 
progress rule harmonization with the SEC, to stay focused on 
initial margin implementation, and to move away from LIBOR 
(London Interbank Offered Rate), and to defend our markets 
against threats, whether those threats are cyber-maliciousness, 
or a result of geopolitical events such as Brexit.
    If I have been consistent in anything in my almost 5 years 
at the CFTC, it is in voicing the value proposition of 
derivative trading markets as foundational to U.S. economic 
health and broad-based prosperity. Robust markets for commodity 
and financial derivatives make it possible for Americans to 
find plenty of food at stable prices in our grocery stores, 
affordable energy to warm homes and drive cars, and steady 
rates to pay home mortgages and invest their retirement 
savings.
    As I end 5 years on the Commission, I remain a champion and 
defender of free market capitalism, the disciplined and 
independent financial regulation that safeguards it, and the 
outstanding work of the CFTC. I greatly appreciate the 
thoughtful oversight of this Committee and the Subcommittee, 
and I am grateful to my wife and my family for their love and 
support. And I thank God for the blessings of having led the 
fine men and women of the CFTC, and having served this 
wonderful country.
    Thank you very much.
    [The prepared statement of Mr. Giancarlo follows:]

    Prepared Statement of Hon. J. Christopher Giancarlo, Chairman, 
         Commodity Futures Trading Commission, Washington, D.C.
Introduction
    Thank you, Chairman Scott, Ranking Member Scott, and Members of the 
Subcommittee. I appreciate the opportunity to appear before you today 
to discuss issues before the Commission.
    Before I begin, I would like to note the recent passing of a former 
CFTC Commissioner, Bart Chilton. All of us at the agency, from the 
staff to the five Commissioners, are saddened by this sudden loss. With 
his trademark flair and enthusiasm, Bart was an unceasing advocate for 
American's farmers and ranchers, acting as their voice in Washington. 
In the aftermath of the financial crisis, Bart used panache and humor 
to draw attention to pressing issues for the agency and the markets at 
large. With his passing, the commodities world has lost some unique 
sparkle and luster. There will never be another quite like Bart 
Chilton.
    As you know, the Commodity Futures Trading Commission (CFTC) 
oversees the futures, options and swaps markets. While most Americans 
do not directly participate in these markets, businesses of all sizes 
use derivatives markets to manage commercial and market risk. These 
markets are one reason why American consumers enjoy stable prices, not 
only in the supermarket, but in all manner of consumer finance from 
auto loans to household purchases.
    Derivatives markets influence the price and availability of heating 
in American homes, the energy used in factories, the interest rates 
borrowers pay on home mortgages, and the returns workers earn on their 
retirement savings.
    Today, American derivatives markets are the world's largest, most 
developed, and most influential. They are relatively unmatched in their 
depth and breadth, providing deep pools of trading liquidity, low 
transaction costs and friction and participation by a diverse array of 
global counterparties. They are also some of the world's fastest 
growing and technologically innovative.
    American derivatives markets are also the world's best regulated. 
The United States is the only major country in the Organisation for 
Economic Co-operation and Development to have a regulatory agency 
specifically dedicated to derivatives market regulation: the CFTC.
    There is a connection between having the world's most competitive 
derivatives markets and independent Federal regulation. For over forty 
years, the CFTC has been recognized for its principles-based regulatory 
framework and econometrically-driven analysis. The CFTC is respected 
around the world for its depth of expertise and breadth of capability.
    The combination of regulatory expertise and competency is one of 
the reasons why U.S. derivatives markets continue to serve the global 
need to hedge price and supply risk safely and efficiently. It is why 
well-regulated U.S. derivatives markets, by allowing low-cost and 
effective hedging, are of great benefit to American producers and 
consumers and to the rest of the world.
    In short, America's well-regulated derivatives markets are a 
national advantage in global economic competition. However, we must not 
take this advantage for granted. In order for U.S. derivatives markets 
to remain the world's best, U.S. markets must remain the world's best 
regulated.
    It was 5 years ago this spring that I first testified before the 
Senate Agriculture Committee concerning my nomination to serve on the 
Commission. I knew that if confirmed, I would bridge the last years of 
the Obama Administration and the early years of a new Administration. 
In 2017, as Chairman of the Commission, I set out my agenda for moving 
the Agency forward. I pledged to make sure that our derivatives markets 
performed their essential role moderating price, supply and other 
commercial risks--shifting risk to those who can best bear it from 
those who cannot. I said that our markets should be neither the least 
nor the most prescriptively regulated--but the Best regulated--
balancing market oversight, health and vitality. To do that, we would 
follow a three-part agenda: completing unfinished business of the past, 
improving current operations, and preparing for the future, what I call 
becoming a 21st Century digital regulator.
Agricultural Commodity Futures
    Under my leadership at the Commission, we have refocused our 
attention on agricultural commodity futures, the agency's traditional 
foundation.
    During almost 5 years on the Commission, I have traveled the 
country and visited agriculture producers in over two dozen states from 
Montana, Texas, Arkansas, Louisiana and Iowa to Minnesota, Missouri, 
New York, Georgia, Mississippi and Oklahoma. I have walked in wheat 
fields and harvested soybeans, tramped through rice farms and beneath 
pecan groves, milked dairy cows and toured feedlots, visited grain 
elevators and viewed cotton gins. I have also met with our energy 
producers, going 900 underground in a Kentucky coal mine and 90 in 
the air on a North Dakota oil rig. Throughout, I have been moved by the 
diverse beauty of this country. I have come to love its hard-working 
families producing food and energy from this abundant land. These 
visits have been a great privilege for me.
    This year in Kansas, we held the CFTC's second annual agricultural 
futures conference along with Kansas State University.\1\ Panelists 
discussed current macro-economic trends and issues affecting our 
markets, such as market speculation, algorithmic trading, trade data 
transparency, novel hedging practices and market manipulation. Our 
common purpose was to hear from end-users who use our markets to hedge 
risk and consider and address issues of emerging market structure and 
trading practices.
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    \1\ 2nd Annual Agriculture Commodity Futures Conference, April 11-
12, 2019, at: https://www.k-state.edu/riskmanagement/conference1.html.
---------------------------------------------------------------------------
    We also hosted a CFTC Agricultural Advisory Committee meeting in 
Kansas where panelists discussed the future of Futures Commission 
Merchants (FCM) and cash market innovations, as well as the evolution 
of electronic trading in agricultural markets, both very timely and 
important topics. I believe this was the first ever CFTC advisory 
committee meeting held outside of Washington with all five 
Commissioners in attendance.
21st Century Regulator
    I have frequently talked about transforming the CFTC into a 21st 
Century regulator amidst today's increasingly digital and algorithmic 
markets. I recently identified several factors that are challenging the 
work of regulators: the extraordinary pace of exponential technological 
change, the disintermediation of traditional actors and business 
models, and the need for technological literacy and big data 
capability.
    I said that the CFTC's response to rapidly changing markets and 
technological developments, including blockchain technology and 
cryptocurrencies, is built upon the following four cornerstones:

   adopting an ``exponential growth mindset'' that anticipates 
        the rapid pace of technological innovation and the need for 
        appropriate regulatory response;

   becoming a ``quantitative regulator'' able to conduct 
        independent market data analysis across different data sources, 
        including decentralized blockchains and networks, without being 
        reliant on self-regulatory organizations and market 
        intermediaries;

   embracing ``market-based solutions'' to determine the value 
        of technological innovations, as we witnessed with the launch 
        of crypto-asset-based futures products; and

   establishing an internal FinTech Stakeholder to address the 
        opportunities and challenges that FinTech presents and manage 
        the ever-present tension between innovation and regulation.

    For us, that stakeholder is LabCFTC, which was launched under my 
chairmanship almost 2 years ago. In that time, it has had over 250 
separate interactions with innovators big and small. It has offices in 
New York City. It conducts ``lab hours'' in places where innovators 
work: from Silicon Valley, California to Silicon Hills, Texas and from 
the South Bank of London to Singapore Center. LabCFTC is not a 
``sandbox.'' It does not try to pick winners from losers, nor does it 
exempt firms from CFTC rules.
    Instead, LabCFTC provides us both an internal and external 
technological focus. Internally, it means explaining technology 
innovation to agency staff and other regulators and advocating for 
technology adoption. Externally, that means reaching out and learning 
about technological change and market evolution, while providing a 
dedicated liaison to innovators. It has entered into FinTech 
cooperation agreements with regulators in London, Singapore and 
Australia. It has published well-regarded technology primers and 
requests for comments. I am proud to say that LabCFTC has become a 
category leader. Every U.S. Federal financial regulator has either 
created or is creating a program similar to LabCFTC.
    The work of LabCFTC has highlighted an important issue that U.S. 
regulators face. We have certain limitations in the ability to test, 
demo, and generate proof of concepts around these complex emerging 
technologies and systems. Specifically, the CFTC lacks the legal 
authority to partner and collaborate with outside entities engaging 
directly with FinTech and innovation within a research and testing 
environment, including when the CFTC receives something of value absent 
a formal procurement. The general rule is that without such authority, 
the CFTC must forego the increasing number of opportunities to engage 
in research that may benefit the derivatives markets that the agency 
oversees, as well as the CFTC's own activities.
    The Commission would like the ability to partner, collaborate, or 
engage in a cooperative agreement regarding emerging financial and 
compliance technologies with persons or entities; Federal, state, or 
local agencies or instrumentalities; or foreign governments or 
international organizations. Legislation introduced last Congress by 
Representative Austin Scott provides such authority and would greatly 
enhance the Commission's ability to keep pace with emerging technology, 
explore its potential, and facilitate its adoption.
Enforcement
    Two years ago, I issued a warning to those who may seek to cheat or 
manipulate our markets that they would face aggressive and assertive 
enforcement action by the CFTC. I pledged there would be no pause, let 
up or reduction in our enforcement of the law and punishment of 
wrongdoing.
    During my watch, the CFTC has been resolute in holding market 
participants to the highest standards of behavior. In fact, by any 
measure, enforcement has been among the most vigorous in the history of 
the CFTC, including more enforcement actions, more penalties, more 
large-scale matters, more accountability, more partnering with criminal 
law enforcement at home and abroad and more whistleblower awards than 
in prior years.\2\
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    \2\ See, generally, ``Regulatory Enforcement & Healthy Markets: 
Perfect Together!'', Remarks of Chairman J. Christopher Giancarlo at 
Economic Club of Minnesota, October 2, 2018, Minneapolis, Minnesota, 
at: https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo56.
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    The Commission has strengthened its rules and procedures to better 
protect whistleblowers, brought new impactful enforcement cases, and 
successfully resolved other important enforcement cases. In addition, 
enforcement resources have been enhanced through the internal 
realignment of the Market Surveillance Branch in 2017 to report 
directly to the Director of Enforcement. This is one of several actions 
the Commission has taken to better utilize resources across the 
Commission.
    At the same time, I have strived to make sure CFTC enforcement 
staff is committed to providing incentives for companies and 
individuals to engage in ethical corporate behavior--to develop a true 
culture of compliance, to do the right thing. The cooperation and self-
reporting policies issued by the Division make clear that companies and 
individuals could receive a recommendation for a Commission reduction 
in penalty if they fully cooperate with enforcement investigations, 
timely remediate, and, most importantly, self-report the misconduct 
before the Commission learns about it.
    In further implementation of providing incentives for self-
reporting and cooperation, the Division recently issued an advisory on 
cooperation and self-reporting concerning foreign corrupt practices. As 
noted in remarks accompanying the advisory, James McDonald, the 
Commission's enforcement director, made clear that if a company or 
individual not registered (or required to be registered) with the CFTC 
timely self-reports a violation of the CEA involving foreign corrupt 
practices, fully cooperates, and appropriately remediates, the Division 
will apply a presumption, absent aggravating circumstances, that it 
will not recommend a civil monetary penalty.
Economic Modeling and Econometric Capabilities
    One of the most important jobs of the CFTC now and in the coming 
years is to boost the agency's ability to monitor systemic risk in the 
derivatives markets by increasing both its analytical expertise and its 
capacity to process and study the voluminous data provided by market 
participants since the passage of the Dodd-Frank Act. This resulting 
work will further enhance the Commission's understanding of market risk 
or systemic risk and derivatives market structure and participants, 
including end-users, intermediaries, and traders, and connections 
between futures, cleared swaps, and uncleared swaps.
    Improved economic and econometric analysis will benefit the 
analytical and empirical foundations of the Commission's policies and 
rules and better inform its cost-benefit considerations. It will also 
further enable the Commission to provide more of its analysis to the 
public.
Dodd-Frank Rulemaking
    The CFTC has been a consistent leader among regulators of the 
world's major swaps and derivatives markets in enacting effective 
regulation and oversight. By 2014, it was the first regulatory agency 
to implement most of the internationally agreed swaps reforms. As 
result, we now have more than 4 years of U.S. experience with the 
current CFTC regulatory framework with its varied strengths and 
deficiencies. Four years provides a significant sample size, if not a 
long period of history, to evaluate the effects of these reforms and 
their implementation. Based on a careful analysis of that data and 
experience, we are in position to recognize success, address flaws, 
recalibrate imprecision and optimize measures in the CFTC's initial 
implementation of swaps market reform.
    I have long been a public supporter of the swaps market reforms 
passed by Congress in the Dodd-Frank Act.\3\ I believe that market 
regulators have a duty to apply the law in ways that enhance trading 
markets and their underlying vibrancy, diversity and resilience. That 
duty includes continuously reviewing past policy applications to 
confirm that they remain optimized for the purposes intended. It means 
adopting a forward-looking approach that considers the impact of 
technological innovation and anticipates changing market dynamics.
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    \3\ Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. 
L. No. 111-203,  721-774, 124 Stat. 1641, 1641-1807.
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    The Commission has continued to make progress on completion of 
Dodd-Frank Act rulemaking. On November 5, 2018, a five-Member 
Commission voted unanimously on the threshold for swap dealer de 
minimis to provide the market with certainty that the threshold will 
not fall from $8 billion to $3 billion.\4\
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    \4\ ``Commission Approves Final Rule on Swap Dealer Registration De 
Minimis Exception'', November 5, 2018, at: https://www.cftc.gov/
PressRoom/Events/opaeventstaffmeeting110518.
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    In addition, all five Commissioners have committed to Congress to 
move forward with a final position limits rule. I believe the final 
rule must be responsive to the public comments and ensure that 
regulatory barriers do not stand in the way of long-standing hedging 
practices of American farmers, ranchers, producers and manufacturers, 
who depend on our markets. I intend to put forth such a position limits 
rule proposal before the end of the second quarter of this year.
SEF Reforms
    The CFTC's particular implementation of its swaps trading rules has 
long been a concern of mine. I believe the current framework is 
inconsistent with the Dodd-Frank Act by being too prescriptive, too 
burdensome and too modeled on futures markets. The framework is also 
highly subjective and overly reliant on a series of no-action letters, 
staff interpretations and temporary regulatory forbearance that may 
change at anytime.
    That is why, last November, the Commission issued a proposed rule 
to amend the SEF regulations and the trade execution requirement and a 
request for comment on the practice of ``post-trade name give-up.'' \5\ 
I believe there are two crucial reasons to improve the SEF rules: risk 
and opportunity. The impermanence of the current SEF rule framework 
poses risk for market participants. At any time staff may well change 
or withdraw the numerous interpretations, guidance and compliance 
expectations that underpin the current framework. Moreover, the current 
restrictions on methods of execution may turn out to be, by themselves, 
a source of trading risk during a liquidity crisis--when swaps 
counterparties need to be found through less prescriptive and more 
flexible means of execution.
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    \5\ Federal Register, November 30, 2018, at: https://
www.federalregister.gov/documents/2018/11/30/2018-24643/post-trade-
name-give-up-on-swap-execution-facilities.
---------------------------------------------------------------------------
    On the other hand, improving the SEF rules presents opportunity--
opportunity for service innovation by existing and new market entrants 
that has waned under the current framework. It is the opportunity to 
boldly create a regulatory framework that actually fosters innovation, 
entrepreneurship, competition and increased market vibrancy rather than 
stifle it. Improving the SEF rules also increases the chance that the 
SEC will draw on the new framework in whole or in part for their 
security-based SEF regime. It would create a common U.S. regulatory 
approach for all swaps products, reducing operational and compliance 
costs and risks.
    I do not support merely tinkering with the current SEF rules to fix 
their most glaring shortcomings or perpetuating the many no-action 
letters and staff guidance on which they rely. Such a step would be 
unworthy of the regulator of the world's most vital derivatives 
markets. Instead, the agency must be unafraid to build a better and 
more durable regulatory framework for swaps execution that supports 
vibrant markets and broad-based prosperity for a generation or more.
Increased Examinations of Clearinghouses
    The agency's work to conduct regular examinations, in concert with 
the Commission's surveillance and other functions, is a highly 
effective method to maintain market integrity so that American 
businesses can rely on these markets. The Commission leverages 
resources by conducting joint examinations across Commission divisions 
and through coordinated examinations with the Federal Reserve and the 
SEC, where possible. This effort allows the Commission to be more 
efficient with its limited resources and at the same time, reduce 
burdens for dual registrants.
    In addition, examinations of clearinghouses help the Commission 
identify issues that may affect a clearinghouse's ability to control 
and monitor its risks. These are among the most important examinations 
that the Commission conducts, as clearinghouses have become critical 
single points of risk in the global financial system. Furthermore, the 
number of clearinghouses, the scope and complexity of the examination 
issues and the importance of these examinations to overall financial 
stability are all increasing.
    In addition to U.S. clearinghouses, the Commission has six 
registered clearinghouses located overseas and exempted four foreign 
clearinghouses. The Commission anticipates new applications for 
clearinghouse registration resulting from the explosion of interest in 
cryptocurrencies; an area in which protection of the cryptocurrencies 
will be one of the highest risks.
    The Commission has an active, data-driven, daily risk surveillance 
function, and expects to continue investing additional resources on 
human capital, data, and technology to improve our current analytical 
capabilities to keep up with growth in both the scale and complexity of 
risk transmission in the derivatives markets. Given the emphasis of G20 
and Dodd-Frank reform efforts on central clearing as a critical tool to 
help mitigate systemic risk in the global financial markets, the 
Commission expects to grow our stress testing program to help ensure 
that the clearing ecosystem continues to be resilient to absorb both 
market and systemic shocks.
Effective International Engagement
    Recently, the CFTC along with the Bank of England and the Financial 
Conduct Authority (FCA), with support from Her Majesty's Treasury, 
issued a joint statement providing assurances to market participants on 
the continuity of derivatives trading and clearing activities between 
the UK and U.S. regardless of the outcome of the UK's withdrawal from 
the EU.\6\ Together, the four authorities are taking measures to avoid 
regulatory uncertainty about the continuation of derivatives market 
activity between the UK and U.S. These measures should give confidence 
to market participants about their ability to trade and manage risk 
across the Atlantic. It is a great credit to the decades-long 
cooperation between the CFTC and the Bank of England, FCA, and HM 
Treasury, that we are able to work together to take these steps.
---------------------------------------------------------------------------
    \6\ ``Joint Statement by UK and U.S. Authorities on Continuity of 
Derivatives Trading and Clearing Post-Brexit'', February 25, 2019, at 
https://www.cftc.gov/PressRoom/PressReleases/7876-19.
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    It is critical that the CFTC continues to work positively with its 
overseas regulatory counterparts, not just in the UK, but in all 
financial centers. I am a firm believer that by working together with 
my regulatory counterparts across the globe, in a cooperative spirit, 
we can strengthen our economies while keeping our financial system 
resilient and stable.
    That is why the afternoon after the CFTC-UK announcement, I 
traveled to Brussels to meet with European Commission Vice President 
Valdis Dombrovskis and Director-General Olivier Guersent to discuss how 
to broaden cooperation between the CFTC and the EC.
    In addition, I am proud to report that we achieved a significant 
milestone on March 13 as the CFTC and the Monetary Authority of 
Singapore announced the mutual recognition of swaps trading venues in 
our respective jurisdictions.\7\ In this regard, the CFTC exempted 
certain Singapore trading venues from the SEF registration 
requirements. This exemption reduces the burdens associated with 
duplicative and overlapping regulations, mitigates market 
fragmentation, enables U.S. market participants to access Singaporean 
markets to manage risks effectively, and enhances cross-border business 
opportunities for both U.S. and Singaporean firms.
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    \7\ ``Joint Statement of the CFTC and the Monetary Authority of 
Singapore Regarding the Mutual Recognition of Certain Derivatives 
Trading Venues in the United States and Singapore'', March 13, 2019, at 
https://www.cftc.gov/PressRoom/PressReleases/7887-19.
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    Recently, EU co-legislators reached a political agreement on the 
new amendments to the European Market Infrastructure Regulation (EMIR 
2.2) pertaining to the regulation and supervision of central 
counterparties (CCPs). To mark this occasion, I issued two statements: 
a joint statement with Valdis Dombrovskis (Dombrovskis), the Vice 
President of the European Commission (EC), and a separate statement as 
Chair of the CFTC. The statements publicly affirm that the CFTC's 
concerns regarding the potential adverse impact EMIR 2.2 on U.S. CCPs 
and the broader U.S. financial markets remain a significant issue for 
the U.S. and it is our expectation, that EU authorities will address 
our concerns during the EMIR 2.2 legislative process.
    The joint statement with Dombrovskis asserted that the CFTC will 
continue to engage with EU authorities on EMIR 2.2 through the next 
phase of the legislative process, the drafting of the implementation 
regulations (the Level 2 process), and that the EC will consider the 
CFTC's concerns during this Level 2 process. It also states that it is 
the expectation of the EC and the CFTC that the implementation of EMIR 
2.2, along with the CFTC's on-going review of its cross-border regime, 
will result in a future transatlantic relationship between the EU and 
the CFTC, which will be based on greater deference than there is now.
    In my separate statement, I reaffirmed my understanding that 
although the application of EMIR 2.2 to U.S. CCPs is not likely to 
occur until the end of 2020 or beyond, EU authorities, including the EC 
and the European Securities and Markets Authority (ESMA), will work 
with the CFTC to address U.S. concerns during the legislative process. 
Further, I state that the starting point for any future recognition 
assessment of U.S. CCPs must be the current 2016 Equivalence Decision.
    These statements taken together are meant to provide market 
participants who transact in both U.S. and EU markets assurances that 
the CFTC and the EC will continue to work on through our differences to 
mitigate the impact of unnecessary regulatory and supervisory burdens, 
and to foster economic growth and stability for our global CCPs.
    Six months ago, I released a White Paper on cross-border swaps 
regulation that proposed updating the agency's current cross-border 
application of its swaps regime with a rule-based framework based on 
regulatory deference to third-country regulatory jurisdictions that 
have adopted the G20 swaps reforms.\8\ As our regulatory counterparts 
continue to implement swaps reforms in their markets, it is critical 
that we make sure our rules do not conflict and fragment the global 
marketplace. That is why I believe the CFTC should move to a flexible, 
outcomes-based approach for cross-border equivalence and substituted 
compliance and operate on the basis of comity, not uniformity, with 
overseas regulators.
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    \8\ ``Chairman Giancarlo Releases Cross-Border White Paper'', 
October 1, 2018 at: https://www.cftc.gov/PressRoom/PressReleases/7817-
18.
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    Before I leave my post, I intend to put before the Commission a 
rule proposal to address the registration of non-U.S. CCPs clearing 
swaps for U.S. persons. I also intend to put forth a rule proposal 
addressing the registration and regulation of non-U.S. swap dealers and 
major swap participants. In particular, the proposal will address the 
risk that non-U.S. swap dealing activity poses to the United States, 
but do so in a way that does not apply the swap dealer rules 
extraterritorially without sufficient consideration of whether the 
activity truly poses a ``direct and significant'' risk to the U.S. 
financial system, as Congress intended.
Cybersecurity
    As market leaders and regulators, we must continue to take every 
step possible to thwart cyber-attacks that have become a continuous 
threat to U.S. financial markets. In the coming year, the Commission 
plans to strength cybersecurity and network defenses, support the 
LabCFTC 2.0 initiative, and invest in the agency's multi-year cloud 
strategy.
    The Commission has requested from Congress new IT security 
resources to continue progress towards achieving compliance with 
Federal Information Security Management Act (FISMA) and related Office 
of Management and Budget (OMB) security mandates and ensuring the 
protection of sensitive market participant data.
    The same vulnerabilities hold true in the case of futures 
commission merchants where customer accounts hold records and 
information that requires protection. We as an agency will work hard to 
ensure that regulated entities live up to their responsibility to 
ensure their IT systems are adequately protected from attacks and 
customers are protected.
Agency Reform and Project KISS
    Two years ago, I announced the launch of Project KISS. It 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. It has resulted in a range of rule and process 
improvements that are reducing regulatory costs and burdens.\9\ Many 
KISS initiatives were recommended by market participants, but many were 
also initiated by our own agency staff that saw ways to reduce undue 
obligations on registrants and market participants. There are still 
more Project KISS initiatives in the pipeline. It is my belief that 
this effort should continue upon my departure and be a regular part of 
the agency's mission.
---------------------------------------------------------------------------
    \9\ Michael Gill, Chief of Staff, U.S. Comm. Fut. Trading Comm'n, 
Remarks at the National Press Club, CFTC KISS Policy Forum, Washington, 
D.C. (Feb. 12, 2018), available at https://www.cftc.gov/PressRoom/
SpeechesTestimony/opagill2.
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Conclusion
    Looking to the past, I will be pleased that I have furthered and 
confirmed much of the Dodd-Frank mandate for swaps. Where I have 
identified flaws in implementation, I have proposed comprehensive 
solutions. In my view, now is the time to create better frameworks that 
are more flexible, more durable and more supportive of deep and liquid 
markets, in good times and in bad.
    As for the present, I have tried to do what my parents taught me--
to leave any place I visit in a better condition than I found it: 
better run, better funded, more transparent, more accountable and more 
efficient in its vital mission overseeing American markets.
    As for the future, I will be satisfied that I have raised the 
profile and reputation of the CFTC and set it on a course for the 
digital Twenty-First Century. So much is changing, and changing rapidly 
in our commodity derivatives markets. As market regulators, we must be 
ready to listen, and work to understand. The greater the pace of 
change, the greater must be our capacity to keep pace, understand and 
harness it.
    The CFTC is well along the course of that new direction set 2 years 
ago--a course that is sustainable and true.
    Thank you for a privilege to speak to you today.
    It has been my honor to serve you, our dynamic markets and the 
American people.

    The Chairman. And thank you, Chairman, for that very 
informative and, indeed, touching presentation. It is evident 
of why many of us hate to see you leave. You have great 
experience.
    I would like to start and I will start with this question. 
I have long been concerned and worked with you, as you know, 
through the years, on our cross-border. Right now, our 
derivatives swaps, that area is valued at over $820 trillion 
piece of the world's economy. But we need to get our arms 
around this issue with Brexit.
    Mr. Giancarlo. Yes.
    The Chairman. It is presenting some very troubling winds 
that I think we need to look at.
    And I have done some background on it, but I would like to 
get your perspective on this whole issue and the impact on our 
markets and our market participants. This Brexit thing keeps 
worrying me.
    My understanding that, of course, the United Kingdom is in 
the middle of what I call a drawn out, bitterly difficult 
divorce from the European Union, and Prime Minister May has 
negotiated a withdrawal agreement with the EU last year. But 
Parliament has voted it down three times, even though a UK exit 
without an agreement promises nothing but chaos.
    The EU gave the UK an extra 6 months to come up with a way 
to leave on negotiated terms, but so far, there is no deal, 
much less any consensus on how to move forward.
    Mr. Chairman, during your negotiations with the Europeans 
on swap trading venue equivalence, you have been closer than 
anyone here to the process of the UK leaving the European 
Union. It seems that there is a desire in Europe to make it 
pretty hard on the UK for deciding to leave the Union. Have you 
seen any of those attitudes bleeding into your discussions on 
equivalence?
    Mr. Giancarlo. Thank you for the question. It is a very 
complicated subject, as you have outlined in your remarks.
    It is appropriate for the United States, as a public 
official of the United States, to make clear to our European 
friends on either side of the English Channel that we take no 
view as to what is entirely a European decision about Britain's 
staying or going, and what that means politically for Europe.
    But economically, it has a tremendous impact on us in the 
United States. There are two sides to our derivatives markets. 
There are our listed markets, our futures markets that trade on 
exchange, which in many ways may be considered an export 
business, an important export business for the United States. 
The global swaps markets, which are not traded on exchange, are 
traded over-the-counter, of which U.S. banks and financial 
institutions make up as much as perhaps \2/3\ of the liquidity 
provision in those markets. And yet, that entire swaps market 
is centered in London. London has emerged over the last several 
decades as the servicing center of this global swaps market 
that in your remarks you referred to in the hundreds of 
trillions of dollars in gross size, and that marketplace for 
historical reasons has become centered in London.
    As the regulator of both our domestic export futures 
business and of the swaps--the U.S. involvement in the swaps 
markets, we have been keenly focused on the impact of Brexit on 
these markets that we are charged to oversee.
    The Chairman. I am also very concerned, and I want to be 
cognizant with our time here.
    Mr. Giancarlo. Yes.
    The Chairman. But I am deeply concerned about something 
else, and that is there is this new EU law that is bubbling up, 
and it is called EMIR 2.2.
    Mr. Giancarlo. Yes.
    The Chairman. Which could have major effects on our United 
States clearinghouses, potentially setting up the EU as a 
primary regulator over our own United States clearinghouses. 
This is a problem, and our U.S. clearinghouses, in addition to 
that, may even be required to fund ESMA, the EU regulator of 
all EU finance, through surcharges.
    Mr. Giancarlo. Yes.
    The Chairman. Just for the privilege of their regulating 
us. I am hoping that you will tell me that I have it all wrong. 
I am hoping. I know you are deeply engaged in the 
implementation phase of EMIR 2.2. Should we have hope that 
these dramatic outcomes can be avoided?
    Mr. Giancarlo. Well, I wish I could tell you that you have 
it wrong, but you have it right, and to some degree, you don't 
even know how right you have it.
    This new law, EMIR 2.2, which has passed the European 
Parliament, is now going to a process where they write the 
technical rules, but the law has been passed. It assigns to a 
European body based in Paris, called ESMA that you referenced, 
oversight over non-European clearinghouses, including 
potentially American ones, but deems them to be unqualified to 
regulate European ones. They have the capacity not to regulate 
European clearinghouses, but to regulate non-European ones. It 
is completely unprecedented. in the geopolitical realm, I know 
of no other body that has such powers, nor does it have 
experience in doing this because it has never regulated 
clearinghouses before. Unlike the CFTC, which in your opening 
remarks, you noted for 40 years, we have been doing it as an 
independent agency, for another 30 years before that as part of 
the Department of Agriculture. We have 70, 80 years of 
experience regulating clearinghouses, and suddenly now, under 
this EMIR 2.2, we face the prospect of having to share 
oversight of our domestic American clearinghouses with a 
foreign regulator that is not competent to regulate its own 
clearinghouses, but is competent somehow to regulate American 
ones.
    I have said publicly, Mr. Chairman, that at least under my 
watch, and I know my pending successor, Heath Tarbert, has said 
the same thing. This will not happen. U.S. markets will stay 
under U.S. regulation under the oversight of its respective 
committees in Congress. That is our constitutional system. That 
is our duty, and that is the way it will remain.
    The Chairman. Very quickly, yes or no. In your view, is 
there something at work here where the EU is trying to wrestle 
the clearing business in particular and the financial services 
business in a general way from London?
    Mr. Giancarlo. I believe so.
    The Chairman. Okay, thank you.
    Now I will yield 5 minutes to our distinguished Ranking 
Member, Mr. Scott.
    Mr. Austin Scott of Georgia. Thank you, Mr. Chairman.
    Chairman Giancarlo, with regard to CFTC R&D Modernization 
Act, you discussed that in your testimony. You obviously helped 
us with that legislation. I hope that we are able to include it 
in CFTC reauthorization this year.
    My question for you is while the focus on this legislation 
has been on the expanded transaction and gift authority, it 
also reorients the Commission's statutory research and 
development purpose. Can you talk about the importance of 
having a focused plan for research and development activities?
    Mr. Giancarlo. Absolutely. When I meet with farmers and 
ranchers around the country, they often will say to me what is 
going on in the markets? These markets are driven by algorithms 
and high frequency traders, and we feel like we are being run 
over in the markets.
    Well, they are right. The markets are changing 
dramatically. They are moving from human markets to computer-
driven markets. And if we are going to provide the function 
that Congress requires us to do to oversee these markets, we 
need to keep pace with those changes in the markets.
    Some of our overseas regulators, such as the UK, are 
actively participating in new technological advancements to see 
whether they can both help the regulator to keep pace, but to 
better understand the markets. In many cases, we found we are 
prohibited from participating in new technological innovations 
because if we were to participate in what they call proofs of 
concept or beta tests of technology, it would be considered a 
gift to the agency. And we couldn't accept a gift. We would 
have to go through a procurement process.
    And as I understand the legislation, the legislation would 
allow us to participate in some of these technological 
innovations in a way that would benefit the agency to do its 
job so we can make sure these markets stay safe and sound and 
able to be used by our American agricultural and commodity 
producers.
    Mr. Austin Scott of Georgia. I am going to come back to 
that word gift in a second, but I want to talk about FinTech 
and 21st century regulating. Can you talk more about LabCFTC 
with regard to the R&D Modernization Act, and how it can help 
the agency explore new tools that will help improve the 
regulatory and oversight activities?
    Mr. Giancarlo. Absolutely. As I say, things are rapidly 
changing. Just as in every element of our lives today, going 
from analog to digital, so are our markets. And there is a lot 
of innovation going on right now, and innovation will come to 
the agency and often be faced with regulators who are familiar 
with the rule book, but not necessarily familiar with their 
technological innovation. And LabCFTC allows us to have a 
dedicated team within the agency that are familiar with some of 
these technological innovations that can help translate the 
language of innovators to language we are traditionally used to 
in our markets.
    It provides a stakeholder within the agency who is focused 
on technology change and can help us understand it, adapt to 
it, evolve with it.
    Mr. Austin Scott of Georgia. One of the issues is how fast 
things are changing, as you have said. And we have the Gift 
Acceptance Authority.
    Mr. Giancarlo. Yes.
    Mr. Austin Scott of Georgia. And I think that those three 
words perhaps give a false impression of what is actually 
happening when somebody shares something with the Commission. 
Can you talk about what a gift is in the context of the 
Commission's budget, and what sort of a gift the Commission is 
seeking to accept to further its research and development 
mission?
    Mr. Giancarlo. Sure. I will give you an example that we are 
facing right now. There is this new innovation called the 
blockchain. The blockchain potentially could have enormous 
transformational advantages for us, as an agency, to be able to 
actually see trading in the market in real-time and to see the 
counterparty exposure of one large financial institution to 
another in real-time. Right now, we do that the old-fashioned 
way. We get data from the market and then we try to piece it 
together, and hopefully we can understand. But if we could 
participate in the blockchain, we could see it in real-time.
    We have been offered the opportunity by many innovators to 
actually participate in blockchain experiments, but I have been 
advised by our General Counsel's office that if we were to 
participate, it would be considered a gift, which we couldn't 
accept. And so, we are missing out on participating in 
innovations that are going on right now, which ultimately, we 
have a role to play in. We should be a part of these 
innovations. And as I understand the legislation, it would 
allow us to participate and not deem our participation as a 
gift, under the law, which we could not accept.
    Mr. Austin Scott of Georgia. I think that is an accurate 
portrayal of what we are trying to accomplish, and whatever the 
language is, if we need to make minor language changes, I want 
my Chairman to know that we simply need to get you the 
authority to be able to participate in these so that we as the 
regulators understand better what is happening in those fields.
    And so, again, I will yield the 24 seconds that I don't 
have back, but I want to thank you for your service. And ma'am, 
thank you for your service as well.
    The Chairman. And now I will recognize Ms. Spanberger, for 
5 minutes.
    Ms. Spanberger. Thank you very much, Mr. Chairman, for 
being here today.
    Thank you to the Chairman. I spent most of my career as a 
CIA case officer, and as someone who has been deeply involved 
in counterterrorism efforts, I know how vital it is to follow 
the money, and how these efforts can illuminate and track down 
terrorist groups and prevent future attacks.
    A recent RAND report concluded that if a future 
cryptocurrency provided better anonymity than bitcoin and 
became widely adopted, it could be particularly useful for 
terrorist organizations and therefore, make it much more 
challenging for our intelligence and law enforcement agencies 
to counter.
    The current U.S. regulatory approach to cryptocurrency is a 
patchwork and involves a SEC, IRS, DOJ, Treasury Department, as 
well as the CFTC. What would you say is the biggest gap in 
cryptocurrency regulation right now, and do you think new 
regulatory authorities are needed to address the security 
concerns surrounding cryptocurrency?
    Mr. Giancarlo. The gap right now are spot cryptocurrency 
platforms for spot markets, not derivative market 
cryptocurrencies, non-ICOs. That is the gap between ourselves 
and the SEC that exists.
    Now, FinCEN (Financial Crimes Enforcement Network) examines 
them for money laundering purposes. There are state regulation 
that are partial, not comprehensive. But we do not regulate 
non-derivative trading platforms. We don't have the requirement 
that they register with us, nor are they subject to our 
oversight and supervision. That is the gap that exists.
    Ms. Spanberger. Okay. Would you make any broad-brush 
generalizations of recommendations of where we could close that 
gap and how, from Congress' perspective, we could anticipate 
any future concerns, be able to address those gaps?
    Mr. Giancarlo. Yes. If it is on the derivative side, as it 
is with bitcoin futures, we have it, and it fits within our 
traditional capabilities. If it is like a security, then the 
SEC has it. We work very closely with the SEC. We have an ad 
hoc working group on cryptocurrencies, and I could see how that 
ad hoc working group could be further developed into something 
that could be more routine. If it were adequately funded by 
Congress, and could, with some extension of jurisdiction, legal 
jurisdiction, it could take a more active role on those spot 
exchanges. Right now, we don't have the legal authority and we 
don't have the resources. But with resources and authority, 
that is something that could be developed.
    Ms. Spanberger. Thank you very much.
    My second question, switching gears, is talking about 
LIBOR. With the transition from LIBOR to SOFR (Secured 
Overnight Financing Rate) as the new recommended benchmark 
being voluntary, I am particularly concerned about farmers in 
my district in central Virginia who have loans based on LIBOR, 
as well as other constituents who have business loans, 
mortgages, and student loans that are currently based on LIBOR 
and could be affected by this transition. I know that the 
CFTC's Market Risk Advisory Committee has been working on this 
transition, and based on the current state of their work, what 
is the plan to make sure that these transitions happen smoothly 
to communicate these transitions and to provide stability for 
farmers, homeowners, and others who might have loans based on 
LIBOR?
    Mr. Giancarlo. Yes, thank you for that. It is something we 
have been very focused on, and the work of the Market Risk 
Advisory Subcommittee on LIBOR has been doing some great work 
in this area, as has a number of work streams, both 
domestically and internationally.
    If I could just take a moment, because your constituents 
are probably wondering why we need to move away from LIBOR? 
Well, LIBOR was something that was started 30, 40 years ago 
when banks actually financed themselves by lending to each 
other in overnight markets. Over the last several decades, that 
has dwindled down to less than a dozen trades a day, and less 
than $1 billion worth of trades a day of banks lending to each 
other. Banks simply don't finance their operations with 
overnight lending anymore. They use repo markets and other 
longer-dated instruments. There is virtually no LIBOR market 
left, and yet, we have trillions of dollars of loans--some to 
your constituents--that are based on a market that doesn't 
really exist anymore. It is like a house that only has one 
stone left as its foundation and could collapse at any time. 
And that is why in an act of great responsibility, world 
financial regulators have said let's not wait until the crisis 
happens. Let's take steps in advance of the crisis to move to 
another rate. And the rate that has been selected through a 
combination of regulators and industry is called SOFR, the 
Secured Overnight Financing Rate, which is based upon how banks 
actually do their overnight funding or their dated funding, 
their lending funding, their repo funding. It is a much more 
stable rate. It has now been tested.
    And now to answer your question, there has been a lot of 
development on it. Our exchanges at the CME and ICE have 
launched a future based on this, so there will be some pricing 
point references for the new rate, and they had great success 
in the development of that. An organization called ISDA, the 
International Swaps and Derivatives Association, is working on 
protocols that the marketplace will use for how the transition 
works. And there is a timeline. We are in a very critical 
phase, but I must say, every milestone that has been set has 
either been reached on time or early so far. The public-private 
partnership to move away from LIBOR is working very well. There 
are more mountains to cross, but we have crossed many so far, 
and I am optimistic we will get there within the next several 
years.
    Ms. Spanberger. Thank you very much. I yield back.
    The Chairman. Thank you. Now, I will recognize Mr. 
Crawford, for 5 minutes.
    Mr. Crawford. Thank you, Mr. Chairman, and Mr. Giancarlo, 
Chairman, thank you for being here.
    I am going to frustrate my staff a little bit and go off 
script. I had some questions I was going to ask you, but 
something is on my mind. We have had this conversation before, 
and I probably wouldn't have asked it this way 2 or 3 years 
ago. But being that you are starting a new phase in your life, 
I am going to ask you to speculate, which I wouldn't ordinarily 
ask.
    But you mentioned this before that you visited farmers and 
ranchers. You have walked rice fields and you have been out 
there. And one of the things that I hear from my farmers back 
home is just really a fear in participating in the market. And 
so, to me, what we have lost, and the irony of the fact that 
this is the Agriculture Committee and this is the kind of thing 
that we are supposed to be talking about, to provide a level of 
support to our farmers and ranchers who provide the very food 
and fiber that we rely on. But we have blocked them, in effect, 
from participating in what is the quintessential capital market 
and the free market tool that they should be using to secure 
their production.
    And so, when I suggest to farmers, you really need to rely 
on a hedge instrument, primarily I suggest options because the 
fixed cost and nature of options and you don't have to make 
margin calls and there is a level of security there. And they 
are just afraid. And what that contributes to is greater 
volatility. And what it points to, and you mentioned this 
before, we have algorithms, we have hedge funds, and we have 
all those other things that keep farmers from participating and 
being a part of price discovery, which they relied on up to 
really just not that long ago. But they are afraid to get in 
it.
    And I wonder if you could offer some suggestions or some 
reassurance on how we get farmers back in the market, creating 
that liquidity, and stabilizing the market basket?
    Mr. Giancarlo. Thank you for that, and let me free think on 
this, because it is the essential question. You put it very 
well. These markets serve two purposes for our commodity 
producers, to hedge their price risk, for the most part, and to 
provide a stable price point so even if they are not engaged in 
the markets, when they go to the grain elevator, when they sell 
their production, they are looking at a price point that comes 
out of the exchanges, and that is where they are negotiating 
price on, and they want to know it is a reliable price. They 
want to know these markets are not manipulated. Whether they 
have been manipulated by old-fashioned bad guys, or whether 
they have been manipulated by algorithmic trading or other new 
technologies in the markets. And that is what keeps us up at 
night at the agency is thinking about how are our markets 
changing, and are they changing in a way that is distorting 
either that price discovery point or the ability to hedge 
production? And they are changing rapidly, just like everything 
else in our lives, whether the way we hail a taxi today or book 
a hotel room. Our markets are going through that same digital 
transformation. And it is a force much bigger than any of us. 
It is not like we are going to get out there and say, ``Stop, 
these markets have to stay analog,'' because we will get run 
over. We can't stop it. What we have to do is understand it. 
And we have to stay in pace with it, and then see if there are 
distortions, where they are, and take steps to address it. 
Which is why we need this new authority so we can be involved 
in all these technologies.
    But farmers and ranchers are smart people. I mean, they 
know things are changing. They can sense it all around them. 
Sometimes when I talk to them, I feel like I am talking to 
somebody who could be a car driver driving a Ford Pinto down a 
2019 highway, and getting passed by by much faster vehicles, 
vehicles that can turn on a dime, can stop on a dime. And 
that's what these algos allow their users to do. It is not just 
about high frequency trading. It is about the sheer ability of 
them to change and morph and use artificial intelligence to 
learn from what else is going on in the market. I mean, it is a 
really dynamically rapidly changing market, and the challenge 
is us keeping pace, which is why we have brought in a world-
ranked Chief Economist. It is why we have created a market 
intelligence unit. We really need to focus on understanding the 
evolution of these markets and coming up with some answers to 
whether there is manipulation, whether there is still a fair 
deal for the individual user of these markets. And options are 
a way that I have seen a number of ag hedgers use and use 
successfully. But, the old-fashioned futures product is still a 
good product as well.
    I stated for you a lot of concerns, but in spite of those 
concerns, I fundamentally believe our markets remain sound. In 
fact, the use of our markets has only grown, not diminished. 
They have become global markets, just as our ag products are 
global export products. Our futures markets are used by users 
year-round. Argentinean wheat growers use the price out of 
Chicago. Brazilian cattle farmers use the live cattle product. 
I mean, our markets have only grown in global stature, despite 
all these changes.
    It is a complex area. It has been my great pleasure to 
focus on it for the last 5 years, but these challenges are not 
going away. They will remain, and they will grow. Challenges 
and opportunities, I should say.
    Mr. Crawford. Let me thank you for your years of service, 
and to you and your family, I wish you all the best in the 
future.
    Mr. Giancarlo. Thank you, Mr. Crawford.
    The Chairman. I now recognize the gentleman from New York, 
Mr. Maloney, for 5 minutes.
    Mr. Maloney. Thank you, Mr. Chairman. Nice to see you 
again, Chairman Giancarlo.
    Last year, we heard from the former Chairman, Chairman 
Gensler, and your Chief Innovation Officer. We heard from you a 
couple weeks later on the subject of cryptocurrencies, and you 
touched on this with my colleague from Georgia. But I wanted to 
invite you to say another word on this subject. There is a lot 
about it I don't understand, but I am very interested in it, 
and I am interested in the issues that it poses for capital 
formation and risk transfer. I am interested in the impact that 
it has on the capital and derivative markets.
    Like you, I believe it is transformational and presents an 
enormous opportunity, but it comes with some opportunities to 
screw it up as well. I am hoping you could say a word: there 
was broad agreement last year that the CFTC has a greater role 
to play here, and that is going to require some changes to the 
Commodity Exchange Act. Can you say a word about that, and what 
changes we should be considering to the CEA?
    Mr. Giancarlo. There could be some changes in terms of 
jurisdiction, as mentioned before. Our existing tools, though, 
allow us to oversee areas of cryptocurrency derivatives. As you 
know, we have cash settled cryptocurrency derivatives that have 
come through our process and have worked quite well. In fact, 
the San Francisco Fed did a study that said that more than 
anything else, it was the launch of CME's bitcoin future that 
popped the bitcoin bubble. And I take great satisfaction in 
that, because the knock on regulators coming out of the last 
financial crisis is that they didn't see the bubble building, 
and they did nothing. Well, in the first post-crisis bubble 
that we saw in 2017 in bitcoin futures, it was actually a 
market-based product overseen by our agency that did more than 
anything to perhaps correct that bubble. And so, I think that 
is an area of some satisfaction.
    We do find the issue of physically settled bitcoin more of 
a challenge, because it comes down to where are those bitcoins 
housed in a physically settled bitcoin. And the way our statute 
works is that while we have oversight over clearinghouses, when 
it comes to actual custody, it is usually done through state-
based organizations, banks or trusts. And so, physically 
settled presents more novel challenges for us which we are 
working through, through a number of applications right now.
    I am not sure we need new legislation in that area, but it 
is something that if we did, we would certainly come to----
    Mr. Maloney. Just because I have limited time, you wouldn't 
make any changes to the CEA?
    Mr. Giancarlo. I do think we do need to think about the 
spot-based exchanges, but for derivatives, I don't have any 
recommendations to make at this time.
    Mr. Maloney. And what about the potential for a race to the 
bottom, if the U.S. doesn't lead in this and we see 
international markets regulating in an inferior way? And could 
you also say a word about how we can assure people that this is 
something that is good for them, for their families? There is a 
tremendous lack of understanding about the nature of 
cryptocurrencies. Some of the press around it has been quite 
scary in terms of its ability to kind of facilitate wrongdoing, 
the old silk road website, the rest.
    Now, can you say a word about sort of concerns about a race 
to the bottom, number one, and number two, about just how we 
assure people that this is something that is good, not bad?
    Mr. Giancarlo. Yes. We have the challenge of both a race to 
the bottom with some jurisdictions. We also have a race to the 
top with some jurisdictions. France, for example, has just put 
forward a very forward-looking new law, the PACTE Act (Plan 
d'Action pour la Croissance et la Transformation des 
Entreprises), on encouraging coin offerings to take place under 
French law. And there are a number of other jurisdictions. 
Germany is looking at one right now. I think both are 
challenges to the United States, in that this may develop 
offshore in a way that would be hard for us to control and our 
citizens could be taken advantage of in a race to the bottom 
with jurisdictions. But, there is also a challenge that other 
jurisdictions will come up with some really good protocol, 
legal protocols, that will attract business that we will then 
miss out for the United States.
    The reason why I think cryptocurrencies, crypto-assets are 
here to stay is because a good portion of the globe, maybe \1/
3\ or more, does not have a functioning currency. And you are 
already seeing new payment systems outside of our bank-based 
payment systems take place in places like southeast Asia and 
others, and I can see how crypto-assets could be perceived in 
many parts of the world as far more stable than the nominal 
currency used by their governments.
    If you visit parts of the developing world, their local 
currency may be sufficient to buy vegetables in the local 
market. But if you want to buy a Toyota, they won't accept the 
local currency. They are going to require a hard currency like 
the dollar or the euro. And yet, I could see where those 
jurisdictions could go to a crypto-asset based currency.
    We are in a dollar-based jurisdiction. We don't often think 
about challenges to the dollar. But, long-term, there are many 
parts of the globe that are searching for something that is 
electronic, that is stable, that is mobile telephone-based, and 
I can see where you could see crypto-assets taking off in many 
parts of the globe.
    Mr. Maloney. Thank you. I yield back, Mr. Chairman.
    The Chairman. Now I recognize the lady from the Virgin 
Islands, Ms. Plaskett, oh, I am sorry, Mr. Rouzer.
    Mr. Rouzer. That is all right, Mr. Chairman. Thank you 
much.
    Mr. Chairman, let me add my voice to those who have thanked 
you for your service. It has been very, very commendable, and I 
really appreciate you being here today.
    Late last year, you proposed a significant overhaul of the 
swaps trading rules. I know this is an area you feel very 
strongly about and have worked very hard to be thoughtful and 
deliberate in your approach.
    I am interested in two particular aspects of your 
testimony, the reliance on staff interpretations and guidance, 
and the potential impacts to liquidity during a crisis.
    First question, can you elaborate on which parts and how 
much of the SEF trading rules are dependent on staff 
interpretations and guidance, and then why should we be 
concerned about that?
    Mr. Giancarlo. Thank you very much. Broadly, whenever 
regulators operate through no-action relief or staff guidance, 
that makes it easy for large institutional players in the 
markets to hire the lawyers necessary to parse through that no-
action relief and know what they can do and what they can't do. 
But it makes it very hard for new entrants in the market that 
may not have those types of big law firm resources to go and 
know where the law is. And that it is always better to have our 
rules clear and easily understandable.
    Our SEF regime right now is held up in a whole range of key 
areas by a series of no-action relief, by a series of staff 
guidance, and in many cases, by simply staff forbearance of 
enforcing some of the rules. And so, my SEF proposal would be 
to incorporate all those into the proper text of the rule and 
to make it clear. But it also would make our system, as I 
believe Congress intended it to be, much more flexible in 
approach. The current rule-set really flies in the face of the 
clear instruction of Congress. For flexibility, it is very 
prescriptive, and it is overly based upon the listed futures 
market.
    But, more broadly, our markets compete on a global basis 
day in and day out with foreign markets. Why shouldn't we have 
the best regime? I have always said the goal is not to have 
either the most regulation or the least regulation. That is a 
false argument. We should have the best regulation. We should 
have regulation that attracts new entrants, new business 
models.
    Since our rules went into effect, we have had no new 
entrants come into this space. We have had no new trading 
protocols. We have had no innovation. As Americans, to have no 
innovation just goes against our nature. It goes against who we 
are. And I would like to bring innovation back to this area of 
the market.
    Mr. Rouzer. There are some market participants, obviously, 
that suggest proposed changes would impose significant cost on 
them. What are your views on rather than having a major 
overhaul, having more of a targeted approach?
    Mr. Giancarlo. Yes. There are those who believe we can take 
around the edges and just take some of that no-action relief 
and codify it. But we are still left with a regime that is 
overly prescriptive, a regime that is based upon the wrong 
model, which is a listed exchange model, and a regime that 
would really squelch innovation as the current regime has done.
    Mr. Rouzer. Moving on, I have a couple other topics I want 
to hit real quick. Last week, the CFTC's Energy and 
Environmental Markets Advisory Committee meeting included a 
discussion about the SA-CCR (Standardized Approach to 
Counterparty Credit Risk) proposal, its impact on energy 
derivatives. I am a little bit concerned about that because 
many of the advisory committee participants indicated that if 
the proposal was not changed, it would reduce the ability of 
energy companies to hedge their risk, and the resulting 
volatility would be passed on to rate payers. Can you explain 
what these energy firms are concerned about, and share your 
thoughts on the matter?
    Mr. Giancarlo. I am really glad you asked that question, 
because it is a very important matter and it is one that is 
right before us right now, and the time to fix this is now.
    Global standards emerged in the wake of the financial 
crisis on dealer capital, and we are a great supporter of 
those. I believe in those reforms. But in some cases, U.S. 
regulators have gold-plated those international standards, and 
added additional requirements on top of them. In the case of 
what is called the supplementary leverage ratio, our U.S. 
Prudential Regulators at the Fed, the FDIC, have gold-plated 
those standards, and the OCC have gold-plated those standards 
by adding an additional 40 percent capital requirement on 
energy. And not just the more volatile energy products, but 
also in some relatively stable price points like natural gas. 
And this gold-plating is not borne out by any type of data that 
shows it is necessary. What is increasingly clear is that it is 
going to have a cost all the way down the energy food chain and 
impact consumers, institutional and residential consumers of 
energy with additional costs that are really not borne out by 
systemic risk concerns.
    It is an area that our Energy and Environment Markets 
Committee explored. We looked at some very good data, and my 
fellow Commissioners and I, on a bipartisan basis, Republicans 
and Democrats, have written to our fellow regulators asking 
them to reconsider this gold plating so that we don't impact 
our U.S. energy consumers and energy users.
    Mr. Rouzer. Thank you very much. My time has expired.
    The Chairman. Thank you very much. I now recognize the 
gentlelady from Iowa, Mrs. Axne.
    Mrs. Axne. Thank you, Mr. Chairman, and thank you, Mr. 
Giancarlo, for being here. It is a pleasure to meet you on what 
appears to be some of your last days in this position, so it is 
a pleasure to meet you.
    You just heard I am from Iowa. My apologies, I just came 
from another event with some folks from Iowa downstairs, with a 
lot of them in agriculture.
    I want to express that I am concerned, and of course, 
Iowans are concerned about agriculture and where we are at, and 
certainly our farmers are concerned. And the recent Ag Economy 
Barometer Report in March was, I am sure you know, at 133, down 
from 136 in February. And when farmers were asked if they were 
less optimistic about the future, 52 percent agreed that they 
were.
    I understand why they feel this way, of course. They are 
facing uncertain trade markets and in China in particular, of 
course, they are looking at a lot of alternative trading 
partners. We are losing those businesses. And of course, we are 
waiting for those tariffs to stop and for trade negotiations to 
conclude.
    I want to ask you in thinking about these things about our 
futures, and would you agree that the uncertainty over tariffs 
and trade agreements brings volatility into the commodity 
prices and our futures markets?
    Mr. Giancarlo. Yes.
    Mrs. Axne. And the longer the trade agreements linger 
unresolved, will it have a negative impact on the stability of 
our markets?
    Mr. Giancarlo. It certainly impacts volatility in the 
markets.
    Mrs. Axne. I appreciate that. And of course we have seen a 
devastating increase in small refinery exemption waivers from 
the Renewable Fuel Standard, and that absolutely affects our 
ethanol supply in Iowa. And are you seeing impacts from that in 
the futures market?
    Mr. Giancarlo. We certainly are seeing the impacts in 
ethanol from the recent flooding that has been devastating for 
the area. And, transportation costs have had an increased 
impact.
    One of the things we do at the Commission is we look at our 
commodity prices daily, and we do a weekly recap every Friday. 
And we look at all the impacts that are triggering volatility, 
whether they be tariff issues, whether they be political risks, 
whether they be weather-related risk, and it is not ours to 
determine whether the price is right, but we are always 
searching to see what are the shocks are to the marketplace, 
and how is the market processing those inputs to make sure that 
the price establishment is fair, so that producers can rely on 
the price signals that come out of our markets and trust that 
they are accurately reflective of all the externalities that 
are impacting those markets.
    Mrs. Axne. I appreciate that. Thank you.
    Moving forward, while prices for resilient biofuel, for 
example, have increased by 19 percent, ethanol futures were 
down for June by about one percent for 2019. And as we know in 
Iowa, we just talked about where ethanol goes, that is where 
corn goes.
    Mr. Giancarlo. Yes.
    Mrs. Axne. And as of, I believe, April 23, speculators held 
a net short position of 322,215 futures and options, which is 
the U.S. Commodity Futures Trading Commission data that they 
reported. And this figure, obviously, measures the difference 
between bets on a price increase and wagers on a decline, and 
that has been the most negative, as I know you are aware, since 
2006.
    Are you concerned about the impact that U.S. trade and 
policy decisions are having on the markets you oversee?
    Mr. Giancarlo. Yes. Let me distinguish, again, part of our 
discipline is not to determine whether a given price is a good 
price or a bad price for producers. I know prices affect 
producers, right? But as a markets overseer, what we are 
looking to see is whether that price discovery mechanism is 
accurate. It may be accurately setting a low price, which may 
be disappointing to many, but if it is an accurate price 
determination, then we have done our job.
    And so, we are always looking at the range of 
externalities. We are looking at factors, and analyzing whether 
the market is doing the right job of establishment, including 
the different roles of different participants in markets, 
whether they be speculators, whether they be natural hedgers, 
whether they be large merchandisers. We are always looking at 
the different roles of different participants, and I am 
confident that the market is providing its essential function 
of working through all those inputs to come out with an 
accurate price point. Now, we know that prices have been 
falling in many commodity markets for American producers for 
the last several years, and in some cases, may be almost 
reaching an economic crisis point for many. But our job is to 
make sure whatever the price is, it is fairly arrived at and 
our markets are doing their job pricing it.
    Mrs. Axne. I appreciate that. I have lots of questions I 
would love to ask you, but let me just close. Obviously, we 
also have ag land that is declining in prices, so I look at all 
these variables as creating volatility for our futures. And I 
would ask you, as I go back this weekend again and talk to the 
farmers in my district, what should I tell them about their 
confidence in the markets right now?
    Mr. Giancarlo. Well, you can tell them they should have 
confidence in the markets. Now, they may not like the price 
signal coming from the market. I understand that. My experience 
with meeting America's farmers and ranchers is an enormous 
amount of respect and sympathy for the challenges they face. I 
think they have some of the most challenging jobs in our 
country. But I believe our markets are sound and operating 
effectively.
    Mrs. Axne. I will let them know. Thank you.
    The Chairman. Thank you, and now I recognize the gentleman 
from Florida, Mr. Dunn.
    Mr. Dunn. Thank you very much, Mr. Chairman, and thank you, 
Mr. Giancarlo, for your time and effort here, not just today, 
but also in your agency.
    You have written extensively about the importance of 
derivative markets and how it protects consumers from price 
fluctuations in every day items. I believe you have found a 
balance between smart regulation and over-regulation, over-
burdensome regulation, and our country is better for that 
attitude. It is not just bankers who suffer, it is actually the 
farmers and ranchers who depend on the stability of those 
derivatives to make a living.
    And I know that you have worked with SEC, Chairman, to 
prioritize to the coordination and harmonization of the rules 
that you share, swaps and hedges. And I wonder if you could 
describe for us the to-do list you have worked on, what you 
have checked off, and also what you are facing now, going 
forward?
    Mr. Giancarlo. Yes. When I came into the chairmanship 2 
years ago, one of the true disappointments I had was that there 
was no harmonization effort ongoing between our two agencies. 
And yet, there are so many places where our agencies have 
either overlapping or very close jurisdiction that require 
almost a continuous process.
    And so, Chairman Clayton and I, in one of our very first 
meetings, we sat down together and said, ``Let's create an 
ongoing harmonization process, both in our policy areas, but 
also in things like our enforcement areas,'' things like our 
response to new emerging technologies like cryptocurrencies. 
And so, we have a number of ad hoc working groups. One is to 
look at policy harmonization, rule harmonization, and for that 
we have each nominated members of our Commission. In the case 
of our agency, it is Commissioner Brian Quintenz, and at the 
SEC it is Hester Peirce, who lead this process of looking at 
policy harmonization.
    Our heads of enforcement have a regular ongoing meeting to 
talk about enforcement cases, and we have done more partnering 
with the SEC on enforcement matters in the last 2 years than 
has been done in the history of our two agencies.
    And then also in the area of new emerging things like 
cryptocurrencies, we have coordinated virtually every step we 
have made. We just last week put out an advisory to retail 
participants in cryptocurrencies to warn them about some of the 
risks in this area, and it was coordinated between our two 
agencies.
    We have an unprecedented level of cooperation.
    Now, in terms of actual policies, there are several 
challenges. One is in areas where our rules are set and their 
rules are set, and they may have different approaches. How do 
we bring them closer together? We are working on that in a 
number of areas that would require us to make some changes, for 
them to make some changes, and I am hoping that we are on the 
verge of doing that very soon.
    The other area is in new policy matters. For example, the 
SEC right now is working on some capital rules and margin 
segregation rules. And we have already put our rules in place. 
We have been working with them to bring their rule-set closer 
to where ours is, so that when they go final with it, it is 
much more harmonious. And you will also see some action on that 
with any bit of luck even before I leave the Commission, but 
certainly sometime this summer I would imagine those would be 
finalized.
    Mr. Dunn. Thank you very much for that. I also want to 
thank you for the improved economic analysis that you have made 
a cornerstone of your time as Chairman. I think good data can 
solve a lot of disagreements.
    Regarding that, as we contemplate the reauthorization of 
the CFTC, are there any statutory changes that would help 
support you with this high-quality research and analytic work 
on economics at the Commission?
    Mr. Giancarlo. Yes. No statutory changes, but I think that 
the future for the agency is to become what I call a 
quantitative regulator. We have to be able to do data analysis 
on par with the most sophisticated firms operating out of 
Silicon Valley in California, whether they be Facebook or 
Google. We have to be able to do data analysis on billions and 
billions of data sets and on trillions of dollars of markets to 
truly take our place as the foremost global regulator of 
derivatives. And that is the future for us, and that is 
something that involves a long-term conversation with Congress, 
both in terms of funding, and how do we get there? But if we 
are going to do our job in these markets, we have to move 
ourselves from an analog approach to data to a highly digital, 
highly sophisticated, highly data automated process. The type 
of work that Facebook and eBay and Amazon do every day, we need 
to be able to that same type of analysis of data in our 
marketplaces.
    Mr. Dunn. Well, thank you for your commitment to that, and 
we look forward to working with your Commission to make that 
happen.
    Mr. Chairman, I yield back. Thank you.
    The Chairman. All right, thank you. Now I will recognize 
the gentlelady from the Virgin Islands, Ms. Plaskett.
    Ms. Plaskett. Thank you very much, Mr. Chairman, and thank 
you, sir, for being here this morning.
    I wanted to ask you about something that was alluded to 
earlier, blockchain, but in the context of automated trading, 
which is growing and has contributed to some of the market 
disruptions and some automated trades aren't reflective of the 
true value of companies, but are actually related to the speed 
at which those transactions occur.
    Since probably more than half of the trading in agriculture 
futures is automated, what is the status of regulated automated 
trading, and when can we expect to see or should there be any 
action from the Commission in this area? That is the first 
part.
    And then the second part would be how blockchain may affect 
this automated trading, and is that a mechanism by which you 
can be more reflective and monitor what is happening in this 
area?
    Mr. Giancarlo. Right. My predecessor, Chairman Massad, 
under his watch put forward a proposal called Regulation AT, 
which stands for automated trading. By some estimates, that 
proposal would have required over 2,000 automated trading firms 
to register with the CFTC. It also would have given the CFTC 
the authority to take control of their source code behind their 
trading mechanisms without a subpoena. I did not support that 
regulation. I thought it was overly broad. I didn't think we 
had the resources to take on 2,000 new registrants, and quite 
frankly, I thought that taking the source code without a 
subpoena was, frankly, unconstitutional. I didn't support that, 
and I have been clear that I don't support it today.
    What I do support, though, is what Chairman Massad was 
trying to get at in that regulation, which was better insight 
and understanding of the role of automated trading. Whether it 
be that subset that is high frequency, or generally the use of 
automated trading mechanisms in our market. I believe that is 
the right thing to do, and that is why we have created our 
Market Intelligence Branch. And our Market Intelligence Branch 
just released a study on the role of automated trading in our 
markets. And that study found that they don't materially 
contribute to volatility in the market. I think that was an 
important piece of work.
    But we have much more analysis to do on the role of 
automated trading in the markets, and I know our Technology 
Advisory Committee is going to take up what should be the path 
forward for the agency with regard to automated trading.
    Ms. Plaskett. And what are your thoughts on that?
    Mr. Giancarlo. Well, I don't believe in a registration 
scheme. What I do believe in is market intelligence. I don't 
believe you can hold back technology, but what we need to know 
is where those technology changes--if they are manipulating the 
market, if they are distorting the market, where they are. And 
that is where the search has to be. But we don't yet have 
evidence that they are either distorting or manipulating.
    Ms. Plaskett. And do you believe the blockchain is a 
mechanism by which that can be monitored or reviewed?
    Mr. Giancarlo. Yes. I have said this many times. I think 
blockchain could be for regulators a quantum leap forward in 
how we understand markets, how we digest information. And so, I 
am a big supporter of the use of and the development of 
blockchain in the regulatory process.
    Ms. Plaskett. In utilizing blockchain it is often attached 
in discussions to cryptocurrency and bitcoins. Outside of 
cryptocurrencies, are there any new other asset classes that 
have come into the market since Dodd-Frank has been put in 
place, and what are those and how should we in this Committee 
be looking at those?
    Mr. Giancarlo. Our markets have a great track record of new 
innovation. Some of it is in new versions of old fashioned, 
different commodity products. Some are launched and don't gain 
traction and disappear. There recently was an attempt at a new 
cotton contract. It is a very old staple, but it was a new 
contract. It didn't gain the traction that its promoters 
wanted, but it is an example of some of the new products that 
we see.
    We continue to see new types of crypto-assets coming to the 
market. I am not familiar, though, with any technological 
innovation is similar to those that have come about in the last 
2 years, but it won't surprise me if there is something right 
around the bend that we haven't seen.
    Ms. Plaskett. Before my time runs out, there was an 
exchange I had this morning regarding aluminum, a disruption 
that may be perceived in the aluminum market, which are not 
entirely related to the tariffs that the President has put on.
    I know the Secretary, Wilbur Ross, acknowledged that there 
may be antisocial, as he put it, behavior in the marketplace 
related to Midwest premium and aluminum. Can you elaborate on 
that?
    Mr. Giancarlo. Yes. We monitor that very carefully for 
areas of manipulation, and we have been looking at aluminum for 
years. There have been concerns about that, but we have not 
found manipulation in the market. There are concerns about the 
way the index--used by some of the index providers--is 
constructed, but not from the point of view of manipulation, 
but from the point of view of the way it is constructed and 
whether it leads to the most accurate pricing point.
    That is an area that is actually outside of our 
jurisdiction. We do not regulate the formulation of benchmarks. 
We only oversee where there may be manipulation that it would 
affect one of our derivative markets.
    Ms. Plaskett. Thank you, and I yield back. Thank you, sir.
    The Chairman. I now recognize the gentleman from South 
Dakota, Mr. Johnson, 5 minutes.
    Mr. Johnson. Thank you, sir. I do want to save a couple of 
minutes for us to talk about the SA-CCR method, Mr. Giancarlo, 
but I want to give you an opportunity for 1 minute or 2 to talk 
a little bit more about Brexit. In the interest of time, the 
Chairman had to cut you off, to round out your answer a little 
bit and end with any sense of whether or not the end-users 
could be impacted by Brexit.
    Mr. Giancarlo. Well, I think that if London is 
substantially destabilized as the global processing center for 
over-the-counter swap derivatives, which is an enormous market, 
whether measured in notional or even net terms. There is 
something like 17 to 20 net notional of derivatives cleared in 
London. That is something that would work its way all the way 
into the real economy. It would affect interest rates. It would 
affect everything in the real economy. We are very concerned 
and very focused, and we have taken a bit of a leadership role 
on this area at the Financial Stability Oversight Council of 
alerting them to concerns we have as to the destabilization of 
London. If that business were to leave London, it is a question 
of where it would migrate to and how that would be done.
    We view the dollar and dollar-based instruments as a global 
currency and global instruments. We believe our markets are 
export markets, so we don't seek to dictate where the market 
servicing reside. If the dollar is truly a reserve currency, 
then clearing of dollar-based instruments can take place in 
London. But if London is displaced in that role, then we do 
have a concern as to where that goes.
    Mr. Johnson. Is there speculation about the two or three 
most likely homes?
    Mr. Giancarlo. Well, as the Chairman noted, there certainly 
have been efforts out of Europe to force relocation of some of 
that to the continent. London is unique in its skills, in its 
historic and in its common law-based regime and in its ability 
to innovate. I am not sure there is any place else in Europe 
that quite matches it, and we will have a concern as to the 
migration of that business because American financial 
institutions play such an outsized role in those markets.
    We are also concerned about efforts by our colleagues in 
Brussels to expand their jurisdiction over institutions outside 
the EU. As I say, we have a long history of successful 
oversight of our domestic clearinghouses. Our domestic 
clearinghouses did not fail during the financial crisis, and 
some of that was due to strong oversight by the Commission that 
I have the honor to serve.
    We would be very concerned about a new regulator without a 
track record of regulating these markets suddenly asserting 
their jurisdiction here in the United States.
    Mr. Johnson. Yes, I think that is well said.
    I do want to shift back to the SA-CCR proposal, and I was 
impressed by the letter that you and your colleagues sent. I 
share your concerns with regard to the proposed rule and its 
impact on the supplementary leverage ratio.
    I was just mystified that you had to send it at all. To me, 
it is as clear as day that the proposed rule, if not changed, 
the real negative impact won't be to the big banks or the big 
boys and big girls that sometimes are made out to be bogeymen, 
but rather to low volume traders, manufacturers, community 
banks, producers.
    I know you have had some conversations with Vice Chair 
Quarles. Do you get the sense we are making any progress?
    Mr. Giancarlo. It is not for me to criticize any other 
agencies. I know how challenging it is to run an agency. But in 
my conversations with the head of those agencies, they 
understand the issue. The challenge is in moving a rule change 
through and the bureaucracy and the challenge of doing that. I 
can sympathize with that. I know it is. But as I said earlier, 
the time is now. We have to get this right now. And no other 
important economy outside the United States has done this gold 
plating the way we have. There is no need to do it.
    Mr. Johnson. Very well said. Thank you for your time today, 
sir.
    Mr. Chairman, I yield back.
    The Chairman. Thank you very much, and now I recognize the 
gentleman from Indiana, Mr. Baird.
    Mr. Baird. Thank you, Mr. Chairman, and Chairman Giancarlo, 
we really appreciate you being here today, and appreciate your 
testimony.
    I understand that your tenure with the CFTC is ending in 
the next few months, so what I want you to know is very 
important to Hoosiers, and I can assure you that farmers and 
small business owners greatly appreciate all that you and 
everyone else at the CFTC has done to ensure that a robust 
derivatives market is available to Indiana business owners and 
farmers who want to really manage their risk.
    I have heard the statistics about reductions in the FCMs, 
or future commission merchants, including that nearly half have 
left the business in the last 2 decades. And so, I am concerned 
about the lack of FCMs, particularly those that have previously 
served our small end-users, especially those rural communities 
and agricultural producers.
    So, my question is really two questions here maybe. What 
role does an FCM play in this derivatives ecosystem, and then 
what is the impact of fewer FCMs on market participants, 
especially our farmers and ranchers?
    Mr. Giancarlo. Well, the short answer to your question, 
FCMs play a vital role in connecting end-users to our 
marketplaces. They are the gateway from the farmer in his cab 
who is looking to hedge his harvest time price risk to that 
futures market. They play a vital role.
    And the impact of lessening FCMs is not being felt by large 
firms, by large manufacturers. DuPont doesn't have a problem 
getting Goldman Sachs FCM to serve their business. It is the 
very farmers and ranchers that you are talking about where the 
diminishment of the FCM business is really playing out.
    Ten years ago there were several dozen smaller FCMs that 
were focused on agriculture customers, serving their needs. Now 
that business is increasingly being concentrated in Wall Street 
banks, and quite frankly, they don't have the skills, they 
don't have the reach, they don't have the interest in serving 
those smaller agriculture and commodity producers that need to 
hedge risks.
    You have your finger on a concern that has been a great 
concern. It has been a bipartisan concern. I mean, I have 
spoken to Commissioner Berkovitz and Commissioner Behnam, my 
two Democratic colleagues, as well as Commissioners Stump and 
Quintenz on this very subject, and it is something we are all 
very concerned with at the CFTC.
    Now, there has been a number of reasons for that. Some of 
that has been the low interest rate environment. I mean, shame 
on some of those FCMs that built their business model on a bit 
of the carry trade on higher interest rates. We have had a 
prolonged interest rate burn, and that has hurt their business 
model. Some of it was sheer fraud and manipulation. I am 
thinking of Revco, I am thinking of Peregrine Financial, and I 
am thinking of MF Global, for mishandling of their business 
model that are no longer in business.
    But some of it simply is that we are in an age where 
consolidation and cost mitigates the bigger firms to have the 
economies-of-scale to operate in this market, and it is very 
hard for the smaller FCMs to work. And that is one of the 
reasons why we have created something called Project KISS, to 
simply look at our rules and see if we can make them more 
straightforward, less costly, less burdensome, so that smaller 
players continue to operate these markets and make a reasonable 
profit to make it worthwhile to continue to compete in the 
business.
    Mr. Baird. Thank you. You really have great insight, 
because you answered my third question as well.
    But I might move on to another point. I thought I would 
give you an opportunity. I know you have made a real effort to 
get out to know the rural community and the farmers and the 
ranchers, and so would you want to just make a comment or two 
about the topics and the agenda that was at the Agriculture 
Commodity Futures Conference in Kansas, just to give us a feel?
    Mr. Giancarlo. Yes. One of the things we looked at was the 
dwindling number of FCMs and whether we could do our part to 
perhaps lessen some of the burden for them.
    We also heard from our large agriculture chains at CME that 
talked a little bit about how their algorithm works, and that 
is of great concern to a lot of producers, to understand better 
the markets they participate in.
    And then we also talked about the role of these markets in 
setting price for spot markets. It is interesting and it is 
something folks don't readily understand. It is actually the 
derivative markets that set the price that takes place in the 
cash or the spot market, and that is why the job we do is so 
vital to make sure our markets serve in a way that is free of 
manipulation that they provide accurate prices. When a farmer 
takes his production to the elevator or wherever the point of 
sale is, he knows the price he is getting is a fair price.
    Mr. Baird. Thank you very much, and I yield back.
    The Chairman. Thank you, and now I will recognize the 
gentleman from Kansas, Mr. Marshall.
    Mr. Marshall. Yes, good morning, Chairman, and if I ask you 
a question that you have already answered, you will have to 
forgive me. This has been the typical morning, running back and 
forth to another committee hearing.
    First question: Could you just maybe provide a little bit 
more information, specific examples of how you are committed at 
the CFTC to focus on the agriculture sector? Just to 
communicate a little bit more with my folks back home.
    Mr. Giancarlo. Well, so I will start with our very recent 
Ag Commodity Futures Conference, which took place in Kansas 
City, but not just any Kansas City, but Overland Park, Kansas.
    Mr. Marshall. And the K of that K State was Kansas State.
    Mr. Giancarlo. And the K in that K State----
    Mr. Marshall. Just in case anyone would think it was 
Kentucky or some other state that started with a K.
    Mr. Giancarlo. Indeed, it was Kansas State. And we held the 
first, as far as I understand, we have done a little bit of 
research, the first time ever we held any CFTC advisory 
committee meeting outside of Washington with all five 
Commissioners also in that same K State, Kansas, in Overland 
Park last month.
    But that is just two very formal things. What we tried to 
do is really readjust the tone at the top. It is understandable 
that in the wake of the financial crisis and when Dodd-Frank 
charged the CFTC to implement a lot of reforms of the global 
swaps market, that the agency's attention went to these big 
institutional financial markets, based in Wall Street and 
London. But what I have tried to do is take us back to our 
roots in agriculture, with, as I say, tone at the top.
    The reason I talk about the 27 states that I have now 
visited, is because as Chairman, it is important to let people 
know that it is worthwhile for the Chairman. It is worthwhile 
for other Commissioners. It is worthwhile for all of us at the 
Commission to keep our focus on agriculture, to understand 
these issues and how it affects America's commodity producers. 
And so, it is tone at the top. It is--the tone that comes from 
a phone call from me down to one of our analysts that is 
looking at the live cattle contract to say when was the last 
time the exchange looked at that? What questions are you 
answering, because I just came back from a meeting--it may have 
been South Dakota, it may have been in Kansas--with ranchers, 
and they are concerned about the delivery point. They are 
worried about other features of the contract. What are we 
doing? Can I get--can you meet with me next week?
    And it is that type of constant asking questions, letting 
the entire agency know that agriculture remains front of mind 
for all of us, from the top of the agency all the way down to 
the bottom.
    Mr. Marshall. To me, it kind of reminds me of fundamentals 
in sports. We talk about blocking or tackling, and agriculture 
is still the blocking, the tackling, the fundamentals of what 
you all do, and it is so important to my providers back home, 
my producers, as well you guys as a management tool to almost 
like an insurance product, in many cases.
    Mr. Giancarlo. Congressman, can I just say one quick thing?
    Mr. Marshall. Absolutely.
    Mr. Giancarlo. In our seal, you see in the center of our 
seal a plow, and in our Kansas office, we have in our lobby 
area that exact same plow which was purchased in a sale on a 
Kansas farm that was owned by one of our Kansas City employees. 
And when people come in our office, they have no doubt about 
the fact that agriculture is front of mind for us, because 
there is that plow right in the center of our lobby area.
    Mr. Marshall. That is a great story. It reminds me of a 
story. My brother has the tractor that my grandfather traded in 
a team of mules for back in the 1950s, so it is a great part of 
our history.
    Let's go back to the big event at Kansas State University, 
CFTC event in Kansas City. My producers were asking me about 
spoofing, and I have to be honest. I wasn't aware at what 
spoofing was, and maybe you can elaborate what it is, and is it 
prevalent? How it is impacting the market? Maybe just give me a 
little insight on spoofing.
    Mr. Giancarlo. Yes. Spoofing is one of a dozen or so 
practices that have been present in markets since the beginning 
of markets, and have always been considered to be inappropriate 
behavior. In some markets, they are banned. In other markets, 
they are shunned. But spoofing is the practice of a market 
participant posting a series of buy orders or sell orders that 
they have no intention of ever fulfilling in. It is just to 
attract other market participants to move in a certain way, and 
then as soon as they do, those bids and offers disappear.
    Dodd-Frank made them illegal in our markets, and we have 
pursued that authority with gusto by the agency. I prosecuted a 
number of spoofers, and take our new authority quite seriously.
    Mr. Marshall. How common is it?
    Mr. Giancarlo. The more successful we are at prosecuting 
them, I am hoping it becomes less and less common.
    Mr. Marshall. Thank you so much. Mr. Chairman, I yield 
back.
    The Chairman. I thank the Member. Now I will recognize Mr. 
Bost, for 5 minutes.
    Mr. Bost. Thank you, Mr. Chairman.
    Mr. Chairman, as we have talked about in length today with 
you, this Committee has voiced its growing concerns over the 
European Union's proposed legislation which would attempt to 
apply the EU law to U.S.-based clearinghouses, which are 
already very competently supervised by your agency.
    I wanted to start by saying thank you, first, for all your 
work in that area, and this was a concern of mine though back 
in 2015, and I appreciate your efforts to forge a new consensus 
on these difficult cross-border issues. But can you share with 
us more detail about what you understand the joint statement 
that you signed with the EU on March 13 to mean, and what, if 
any, action the CFTC or the European Commission agreed to 
furtherance of this statement?
    Mr. Giancarlo. That statement was done after the European 
Union adopted its law, and I met with our colleagues in 
Brussels, and they said, ``Well, our law is passed.'' And I 
said, ``Well, where do we go from here?'' And they now have 
what is called their Level 2 text where they negotiate the 
technical details. And I said we would like to participate in 
that process, but we will only participate on the basis that 
the starting point for discussions is our 2016 agreement, which 
we reached with the European Union. It was a notable 
accomplishment by my predecessor, Tim Massad, and it was one 
that we believed should stand the test of time. We never 
expected 18 months later we might be in a position to 
renegotiate it. And as I told my European colleagues, where I 
come from, a deal is a deal and you don't get to renegotiate it 
18 months later.
    But we will participate in those discussions on the basis 
that the starting point is the 2016 agreement, and that is 
really what was reflected in the statement that we put out with 
the Europeans. And it was important to send a signal to our 
colleagues back at home, our exchanges and our clearinghouses, 
that while we are good corporate citizens on a global stage, we 
will always negotiate in good faith. We are clear as to where 
we think the starting point of the next phase is.
    Mr. Bost. Well, one idea that I have long supported is 
reciprocal recognition of rule-sets, so the market participants 
on both sides of the regulatory border are afforded similar 
relief. Do you think that reciprocal recognition of equivalent 
rules is important to the cross-border regulation framework?
    Mr. Giancarlo. I do, and I believe actually that is what 
was implicit in the 2009 Pittsburgh Accords where global 
authorities of the G20 agreed to adopt certain agreed reforms, 
but to do so in a way that was appropriate for their local 
jurisdictions, but a way that was comparable with one another. 
And I believe that where a jurisdiction, be that Europe, 
Britain, Singapore, Hong Kong, et cetera, have adopted the core 
reforms, done so in a way that is suitable for their market, 
but provided they reach the same outcomes as our reforms, then 
we should defer to them for supervision of their markets, and 
they should defer to us for supervision of our markets. And I 
extend that to our approach to clearinghouses as well, 
clearinghouse supervision.
    Mr. Bost. Thank you, and thank you for giving testimony 
today. With that, I yield back.
    Mr. Giancarlo. Thank you.
    The Chairman. Thank you very much, Mr. Bost.
    I want to thank you, Chairman, for your excellent, 
excellent testimony here this morning, and it is a testament to 
your brilliance, your intellect, your experience. And I want 
you to know that particularly our Subcommittee may want to have 
you on call. I am very serious about that, because we are faced 
with some very, very serious issues, and you have a wealth of 
experience that will be sorely missed. We are going straight 
ahead into some very serious issues. We are going to try to get 
light inside of some of the darkness, so that we can lift 
particularly agribusiness, this most important industry. It is 
all of our commodities. It is the food we eat, clothes we wear, 
our energy, our shelter. All the basics. It is the fundamental 
arm of our trade policies. And so, it is very important that 
everyone knows that an important part of this Subcommittee is 
going to be an ongoing look, taking a look at all the aspects 
of our financial markets and their disrupters, especially 
Brexit. And as you can see from the questions on the Committee, 
this is a primary concern, and we cannot allow our leading 
market participators and our clearinghouses, our banks, our 
entire financial system that deals with cross-border to be 
regulated by a foreign entity, as we have discussed here today.
    And I also plan to bring to the Subcommittee's attention 
credit. The credit situation, particularly facing our farmers, 
biofuels, the energy situation, and developing the rural areas 
toward prosperity in this country. And this is particularly 
timely as we know from the meeting at the White House with the 
President the other week, we are seriously looking ahead now to 
rebuilding and reenergizing our crumbling infrastructure, and 
we have to make a centerpiece of that our rural communities.
    And of course, all these issues will be based on how we 
keep our agribusiness up front.
    And we are going to also look at the issue of the specific 
tariffs that are having such an impact on our commodities, 
cotton, pecans, peanuts, poultry, particularly in China.
    Mr. Giancarlo. Yes.
    The Chairman. These are areas we will look at under the 
commodities section of what we are doing.
    And then, so significant, this whole issue of 
weatherization, climate change. We have to find out and bring 
to this Committee the experts, the scientists, to give us their 
information. We have had, for example, farms in Georgia, my 
home state, that haven't had a crop since 2015, largely because 
of the back to back storms. Then we have the problem of trying 
to find a way to get the help right now. We haven't even gotten 
the help for the emergency aid to our farmers. It is tied up. 
We have to be bold and try to look at some other ways to make 
sure. We may need a private fund, a set aside fund that doesn't 
have to go through the regular appropriations process, the CR, 
because it is tied up in political winds. Somebody doesn't like 
this part, and who suffers? I have farmers down there not 
getting their aid. This isn't good.
    This is a great country. It is America, and we respond to 
our people, but we have not responded to the needs of our 
farmers. And we are going to look at this credit situation, and 
we are going to examine the impact that this is having, and we 
are going to fix this problem so that we will never be in the 
shape where we can't get the direct aid financially quickly, 
and on time to our farmers.
    And our mission in this Committee, which I consider a very 
important Subcommittee, we are the financial arm for the 
Agriculture Committee, and we are dedicated to bringing God's 
light on each of these challenges and bringing the help to our 
nation's agriculture businesses as they need it.
    And so, I am very serious about having you on call because 
of your knowledge, particularly as we reach some of the issues 
we have discussed here. Thank you again. I thank the Committee.
    And with that, I may say 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 questions posed by a Member.
    This hearing of the Subcommittee on Commodity Exchanges, 
Energy, and Credit is adjourned. Thank you for your time.
    [Whereupon, at 11:55 a.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
Submitted Letter by Hon. David Scott, a Representative in Congress from 
                                Georgia
April 30, 2019

  Ms. Sarah Summerville,
  Director,
  Office of Minority and Women Inclusion,
  U.S. Commodity Futures Trading Commission,
  Washington, D.C.

    Dear Ms. Summerville:

    I write to request information regarding the current representation 
of minorities and women on staff at the Commodity Futures Trading 
Commission (``Commission'' or ``CFTC'') and programmatic efforts and 
initiatives aimed at increasing diversity, especially in management 
level positions. Our country's diversity is one of its greatest assets, 
and I believe it is important that public and private sector workplaces 
reflect this diversity. Surveys and interviews with leading businesses 
and their executives have found that diversity in knowledge, 
perspectives, ideas and experiences fosters innovation, and has had a 
positive effect on an organization's success and financial 
performance.\1\
---------------------------------------------------------------------------
    \1\ Forbes Insights, ``Global Diversity and Inclusion: Fostering 
Innovation Through a Diverse Workforce'' (July 2011), https://
i.forbesimg.com/forbesinsights/StudyPDFs/
Innovation_Through_Diversity.pdf; Anna Powers, A Study Finds That 
Diverse Companies Produce 19% More Revenue, Forbes, June 27, 2018, 
https://www.forbes.com/sites/annapowers/2018/06/27/a-study-finds-that-
diverse-companies-produce-19-more-revenue/#2e09fe6a506f.
---------------------------------------------------------------------------
    The CFTC's Equal Opportunity Employer & Diversity Statement 
recognizes that workplace diversity and inclusion are critical to the 
agency's success,\2\ and espouses a commitment to supporting the 
recruitment and maintenance of a truly diverse CFTC workforce. Current 
data suggest that the Commission may be falling short on those 
commitments, and in turn, undermining the agency's success. This is 
especially true with respect to management-level positions. For 
example, according to the most recent publicly-available CFTC 
Management Directive 715 Report, as of Fiscal Year (``FY'') 2017, among 
the CFTC's 705 employees, 298 were women (42%), 117 were African-
American (17%), 69 were Asian-American (10%), 18 were Hispanic-American 
(3%), and 6 were considered ``Other'' (1%).\3\
---------------------------------------------------------------------------
    \2\ CFTC, Equal Opportunity Employer and Diversity Statement, 
https://www.cftc.gov/WebPolicy/EEOStatement/index.htm.
    \3\ CFTC Management Directive 715 Report for FY17 (Table A1), 
https://www.cftc.gov/sites/default/files/2018-06/md715reportfy17.pdf. 
The ``Other'' category includes Native Hawaiian or Pacific Islander, 
Native American or Alaska Native, and ``two or more races.''
---------------------------------------------------------------------------
    The employee breakdown is considerably less diverse at management 
levels. In FY 2017, the CFTC's 148 senior level employees (Grades 15 
and above) included 49 women (33%), 14 African-Americans (10%), 10 
Asian-Americans (7%), and 5 Hispanic-Americans (3%).\4\
---------------------------------------------------------------------------
    \4\ CFTC Management Directive 715 Report for FY17 (Table A3-1), 
available at: https://www.cftc.gov/sites/default/files/2018-06/
md715reportfy17.pdf.
---------------------------------------------------------------------------
    The underrepresentation of minorities and women at the CFTC is 
consistent with the findings in various reports that document the lack 
of diversity in the financial services industry and Federal financial 
agencies. In 2017, the U.S. Government Accountability Office (``GAO'') 
published a study on trends in management representation of minorities 
and women in the financial services industry.\5\ GAO found the 
following:
---------------------------------------------------------------------------
    \5\ U.S. Government Accountability Office, Financial Services 
Industry: Trends in Management Representation of Minorities and Women 
and Diversity Practices, 2007-2015, Nov. 2017, https://www.gao.gov/
products/GAO-18-64.

   Although overall minority representation increased from 
        approximately 17 percent to 21 percent at financial services 
        firms from 2007 through 2015, representation of African-
---------------------------------------------------------------------------
        Americans decreased during this period.

   From 2007 through 2015, representation of women in senior 
        management at financial services firms remained stagnant at 29 
        percent.

    In addition, the Democratic Staff of the U.S. House Committee on 
Financial Services published a report on diversity at certain financial 
services agencies in 2015 (``Report'').\6\ The Report found that, at 
these agencies, minorities and women were underrepresented in their 
workforces and ``significantly underrepresented'' at the senior 
management level in proportion to their overall participation rates.
---------------------------------------------------------------------------
    \6\ Dem. Staff Report, Comm. On Fin. Serv.,The Dodd-Frank Act Five 
Years Later: Diversity in Financial Services Agencies, (Nov. 5, 2015), 
https://financialservices.house.gov/uploadedfiles/fsc_dems_-
_staff_report_-_dodd-frank_five_years_later_-
_diversity_in_the_financial_services_
agencies_-_final.pdf. The Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (``Dodd-Frank Act'') and the Housing and 
Economic Recovery Act of 2008 (``HERA'') included provisions to address 
the lack of women and minority representation in the public and private 
sectors of the financial services industry. Section 342 of the Dodd-
Frank Act directed the establishment of Offices of Minority and Women 
Inclusion (OMWIs) across most of the Federal financial services 
agencies, and required the OMWIs to develop standards to promote 
diverse employment within the agencies, increase participation of 
minority and women-owned businesses that enter into contracts for 
services with the agencies, and assess the diversity policies and 
practices of entities that are regulated by the agencies. Pursuant to 
this section, the agencies required to establish an OMWI are: (A) the 
Departmental Offices of the Department of the Treasury; (B) the Federal 
Deposit Insurance Corporation; (C) the Federal Housing Finance Agency 
(FHFA); (D) the 12 regional Federal Reserve Banks; (E) the Federal 
Reserve Board of Governors; (F) the National Credit Union 
Administration; (G) the Office of the Comptroller of the Currency; (H) 
the Securities and Exchange Commission; and (I) Consumer Financial 
Protection Bureau. Pub. L. No. 111-203,  342, 124 Stat. 1376, 1541 
(2010). Similarly, Section 1116 of HERA required the FHFA to establish 
an OMWI or a functional equivalent. Pub. L. No. 110-289,  1116 (2008). 
The CFTC's OMWI is not required by the Dodd-Frank Act.
---------------------------------------------------------------------------
    The importance of a diverse and inclusive work environment to 
recruitment, retention and career development cannot be overemphasized. 
In February, the CFTC received a $19 million increase in appropriations 
bringing its FY 2019 budget to $268 million. With this appropriations 
increase, the CFTC is able to augment its diversity and recruitment 
efforts, and hire individuals for newly-created positions or mission 
critical positions that have been vacant for some time. With that said, 
I would like to work with your office on diversity and inclusion 
initiatives to improve the statistics set forth above. In order to do 
so effectively, I ask that you respond to this letter by May 17, 2019 
with answers to the following questions:

  1.  What are the CFTC's current recruitment and retention initiatives 
            to ensure and increase racial, ethnic, and gender diversity 
            and inclusion in its workforce? How does the CFTC track and 
            evaluate the success of these initiatives? How does the 
            CFTC communicate these initiatives throughout the agency, 
            and in particular, to officials in recruitment and hiring 
            positions?

  2.  Does the CFTC have a strategic plan for encouraging racial, 
            ethnic, and gender diversity and inclusion throughout its 
            workforce? If so, what are the objectives, performance 
            goals, targets and time horizons for diversity and 
            inclusion efforts? Does the plan include mandatory 
            unconscious bias training? What metrics does the Commission 
            use to evaluate the effectiveness of its plan? Under these 
            metrics, how effective has the plan been with respect to 
            diversity and inclusion?

  3.  Do the CFTC's current initiatives include career planning 
            assistance for and development of lower to mid-level 
            employees (grades 14 and below) aimed at advancement within 
            the agency? If so, do these initiatives endeavor to promote 
            diversity at the management level?

  4.  In addition to workforce diversity and workplace inclusion, the 
            OMWI offices mandated by the Dodd-Frank Wall Street Reform 
            and Consumer Protection Act of 2010 (``Dodd-Frank Act'') 
            are responsible for increasing the participation of 
            minority- and women-owned businesses in contracts for 
            services with the agencies and assessing the diversity 
            policies and practices of entities that are regulated by 
            the agencies. Does the CFTC currently have a program for 
            increasing the participation of minority- and women-owned 
            businesses that enter into contracts for services with the 
            agency? If so, please describe the program, what metrics 
            are used to evaluate its effectiveness, and how effective 
            the program has been under any such metrics.

  5.  The CFTC's OMWI is not mandated by the Dodd-Frank Act. Would 
            statutory establishment of the CFTC's OMWI, putting it on 
            par with the OMWIs of the other financial services 
            agencies, better enable the CFTC's OMWI to increase 
            workforce diversity, workforce inclusion, and participation 
            of minority and women owned businesses in contracts for 
            services with the CFTC? If so, how?

  6.  How has the OMWI performed compared to the OMWIs of the other 
            financial services agencies? If the performance is 
            different, what accounts for the differences?

  7.  How will the CFTC's OMWI benefit from the recent increase in the 
            CFTC's annual appropriation? Will OMWI be able to fund new 
            diversity and inclusion initiatives? If so, what are they?

    Thank you for your attention to this important matter.
            Respectfully,
            
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
            
Rostin Behnam.
                                 ______
                                 
                          Submitted Questions
Response from Hon. J. Christopher Giancarlo, Chairman, Commodity 
        Futures Trading Commission
Questions Submitted by Hon. Jefferson Van Drew, a Representative in 
        Congress from New Jersey
    Question 1. I just want to take a moment to urge you and your 
fellow Commissioners to coordinate and harmonize regulatory programs 
when possible, with other regulators where there may be shared 
jurisdiction--like the SEC. If you can work together not only will it 
ease burdens on market participants, but it will make markets more 
efficient and ultimately make our markets safer and more secure.
    Can you speak a bit on this issue, where there is overlap in is 
regulatory authority, and what steps the CFTC is taking to proactively 
work with other regulators, such as the SEC to harmonize rules and 
procedures in a clear and consistent manner?
    Answer. Early on in my Chairmanship, Chairman Clayton and I 
committed to having our agencies work more closely together on issues 
of regulatory enforcement and rulemaking, and it set a tone from the 
top. Cooperation today between the Securities and Exchange Commission 
(SEC) and the CFTC in matters of enforcement work, virtual currencies, 
Dodd-Frank rule harmonization, and disaster recovery testing and 
planning and more is excellent.
    Most recently, CFTC staff and SEC staff have worked closely to 
harmonize final rules regarding capital, margin, and segregation for 
security-based swap dealers with the corresponding requirements for 
swap dealers. By working to align the regulatory requirements for swap 
dealers and security-based swap dealers, the agencies hope to minimize 
unnecessary regulatory burdens on joint registrants caused by divergent 
rule sets and promote a unified market for both swaps and security-
based swaps trading. As the CFTC moves forward to finalize its own 
capital regime for swap dealers, staff will continue to coordinate with 
their SEC counterparts to minimize differences and harmonize the two 
regulatory frameworks.

    Question 2. Your 2017 Roadmap to improve swaps data reported to the 
Commission indicated you planned to make two or three interrelated rule 
proposals. You recently released one of those proposals and indicated 
in your written testimony that it will be impacted by the future 
release of two further proposals. Why weren't all three proposals 
published at the same time or in a single rulemaking?
    Answer. The 2017 Roadmap review focused on three areas of swaps 
reporting: (i) verifying swap data accuracy by swap counterparties; 
(ii) reevaluating the rules for reporting swap data to swap data 
repositories; and (iii) right-sizing and harmonizing the data fields 
that the Commission requires counterparties to report. Each of these 
areas involves distinct legal, policy, and practical considerations. 
For instance, the goal of real-time public reporting is price 
transparency for market participants, while the goal of regulatory 
reporting is making sure the Commission has the right data to oversee 
the swaps market. We believe three separate proposals will permit a 
thorough analysis of each area that will be manageable for the public 
to comment on.
    The Commission chose to release the first of the three anticipated 
proposals now, in order to provide market participants and the public 
with ample time to review and provide feedback as part of the 
rulemaking process. The recent proposal is the least dependent on the 
other proposals of the three anticipated rulemakings, with most of the 
proposed amendments and additions being unaffected by any other planned 
rulemakings. As discussed in the proposal, the Commission anticipates 
re-opening the comment period for the first proposal when the other 
proposals are released, in order to provide market participants and the 
public with the opportunity to comment on the three proposals 
collectively.

    Question 3. One challenge with incorrect data on swaps is the 
unknown. That is, it is difficult to know if the new prescriptive 
requirements you have for verifying data will be worth the additional 
costs for market participants, including end-users. In your 2017 
Roadmap, you suggested that part of the problem is the number of data 
fields that the rules require to be reported. Should the focus of your 
reforms be on implementing consistent data elements in fewer fields 
than originally required, which could reduce costs and instances of 
what may be seen as ``incorrect'' data?
    Answer. The 2017 Roadmap proposed to advance several complementary 
swaps data reporting initiatives, including both right-sizing the 
number of data elements and implementing a verification solution. The 
Commission expects the future release of proposals to address the goal 
of right-sizing the number of data elements. At the same time, the 
Dodd-Frank Act requires swap data repositories (SDRs) to confirm the 
accuracy of data with both swap counterparties. The 2017 Roadmap 
therefore allowed CFTC staff to identify the most efficient and 
effective solution for counterparty(ies) to meet the Dodd-Frank 
verification requirement.
    When the CFTC solicited comments on the 2017 Roadmap, commenters 
overwhelmingly told us that they did not want phased implementations; 
that implementation costs could be reduced by simultaneously 
implementing the initiatives detailed in the Roadmap. The recent 
verification proposal thus seeks comment on implementing changes to the 
verification process with the expected future interrelated rule 
proposals, including the expected proposal to right-size the number of 
data elements. One drawback to simultaneously implementing 
complimentary solutions is the ``unknown'' that you reference; that it 
is difficult to attribute data improvements to the individual proposed 
changes.
    The Commission is expecting to receive many comments on the recent 
verification rulemaking. We expect to receive comments on the costs and 
benefits of the proposed verification solution. We will seriously 
consider those comments to ensure that the final rule represents the 
most efficient and effective verification solution for counterparties 
to meet that Dodd-Frank requirement.
Question Submitted by Hon. Stacey E. Plaskett, a Delegate in Congress 
        from Virgin Islands
    Question. In the United States, single stock futures are margined 
under a strategy-based margin regime, with a minimum margin of 20% for 
stand-alone positions. Meanwhile, competing products such as cleared 
stock loan are margined under a risk-based margin regime, and over the 
counter equity swaps are margined at 15%.
    What is your perspective on the use of risk-based margin for single 
stock futures?
    Answer. The statute requires a joint rulemaking with the Securities 
and Exchange Commission (SEC). We have been in discussions with the SEC 
and are making progress.
    The Securities Exchange Act of 1934 (Exchange Act) authorized the 
Board of Governors of the Federal Reserve System to delegate its 
authority over margin requirements for security futures products to the 
CFTC and SEC. Pursuant to such delegated authority, any change to 
margin requirements for such products requires joint action by the two 
Commissions in accordance with certain conditions under the Exchange 
Act. CFTC and SEC staffs are making progress on amending the 
regulations that currently govern margin for security futures in order 
to lower the minimum margin requirement from 20% to 15% of current 
market value. This regulatory action by both Commissions would reflect 
a constructive effort to harmonize security futures margin requirements 
with the margin required for comparable products.
Questions Submitted by Hon. Angie Craig, a Representative in Congress 
        from Minnesota
    Question 1. I appreciated hearing in your testimony that you took 
time to visit several producers, including in my home State of 
Minnesota. I understand the Agricultural Advisory Committee meeting you 
held in conjunction with your Agriculture Futures Conference at Kansas 
State discussed Futures Commission Merchants or ``FCMs''.
    The number of FCMs has been in decline for more than 10 years. With 
a smaller number of FCMs with which to do business, farmers, ranchers 
and other derivative market end-users face the prospect of increased 
consolidation within the industry--and potentially higher prices as a 
result as they manage their risks.
    What did you learn about how our agricultural end-users view 
increased concentration among FCMs at the Agricultural Advisory 
Committee meeting? Are you considering any policy changes to address 
the issue? Do you have any recommendations for us on this topic? What 
are some of the reasons for the increased consolidation within the 
industry? What can we do to incentivize new entrants or greater 
competition? Are there any larger market forces at play that might have 
contributed to the decline of FCMs and the increased concentration of a 
few big players in this space?
    Answer. As I mentioned during our Agriculture Advisory Committee 
meeting in Kansas, it is important that the CFTC ``ensures that the 
deepest and most liquid agricultural markets in the world remain a 
place where farmers, ranchers, elevators, producers and processors meet 
to manage risk and discover prices well into the future.'' Our 
commitment to that principle included a discussion with our advisory 
committee members--end-user representatives--on the future of FCMs. 
CFTC staff began the discussion with a detailed presentation on the 
steady decline in the number of FCMs and what that means for end-users 
seeking to access risk mitigation markets.
    There are a number of reasons, including market forces and 
regulatory policy that have shifted the FCM landscape. Some Committee 
Members noted that the CFTC's rules related to ownership and control, 
recordkeeping, and capital impose regulatory burdens fall 
disproportionately on smaller FCMs that traditionally serve 
agricultural and small manufacturing interests more harshly than bank-
affiliated FCMs with more substantial resources. Other compliance 
costs, including staff and technology, particularly in the 
cybersecurity space, have increased over recent years. Under my 
leadership, the CFTC has reviewed our regulations in our ``Project 
KISS'' initiative, with the goal of reducing duplicative or unduly 
burdensome regulations. Part of this workstream has included trying to 
``right size'' our rules for small FCMs so that they do not face the 
same obligations as larger institutions.
    Related, the decreasing interest rates over the last several years 
have not caught up to the late 1990s/early 2000s. FCMs are earning less 
interest income from the investment of customer funds. These low 
interest rates make FCMs less profitable. FCMs are forced to either 
increase commission costs or operate with a decreased revenue stream. 
As a result, many FCMs have had to increase commission costs to 
customers, causing the smaller FCMs to become less price competitive 
than some of the larger FCMs with greater volumes. This also acts as a 
barrier of entry to new FCMs, as they must also charge these higher 
commission costs. Typically the larger FCMs have multiple lines of 
business and can ``carry'' the derivatives line of business despite the 
narrow profit margin.
    We remain committed to ensuring that American derivatives markets 
are accessible and reliable for America's farmers and ranchers. This 
important work includes evaluating the FCM landscape and providing the 
necessary incentives for intermediaries to offer their services to 
commercial end-user customers.

    Question 2. Dairy farmers in my district have raised some concerns 
about the prices in the cash market for cheddar cheese. Normally there 
is about a 3 spread in the price per pound between blocks and barrels, 
but over the last year producers and processors in my district have 
seen that spread widen to as high as 25. The most recent spread 
between barrel and block futures ran between 5 and 10. This spread 
has an impact on the price of Class III milk futures, which in-turn 
impact the Federal Milk Marketing Order formula.
    What has the Commission has done to make sure cheese and milk 
futures are trading fairly and that troubling spreads like these aren't 
a sign of manipulation?
    Answer. As part of its mission to ensure that derivatives markets 
accurately reflect the forces of supply and demand and are free of 
disruptive activity, the CFTC conducts market surveillance of trading 
in futures, options, and swaps. In addition, it conducts research on 
major economic issues related to the derivatives markets and collects 
and reviews market data.
    The Class III milk market is the largest dairy contract at the 
Chicago Mercantile Exchange and cheese prices are an influence on Class 
III milk final settlements. The spot call trade is an indicator of the 
most current supply and demand picture in the market and price spreads 
between block and barrel cheese are watched closely.
    Block-Barrel spread is currently at 4.75/lb premium for Blocks. 
This is below the 10/lb average for the last couple of years and below 
the 30/lb highs of last June. U.S. cheese markets continue to be 
burdened with record large cheese inventories. Stocks of cheese now 
stand just short of 1.4 billion lb., a similar level to a year ago, at 
an all-time record high level. This supply has put significant downward 
pressure on cheese prices that have only recently begun to rebound.
    The agency will continue to monitor ongoing talks around the United 
States-Mexico-Canada Agreement (USMCA), which will open up market 
opportunities for the U.S. dairy industry and producers, as well as 
other supply and demand factors that influence the price of cheese.