[Senate Hearing 116-127]
[From the U.S. Government Publishing Office]


                                                     S. Hrg. 116-127

                NOMINATION HEARING OF HEATH P. TARBERT,
                   OF MARYLAND, TO BE CHAIRMAN AND A
                     COMMISSIONER OF THE COMMODITY
                       FUTURES TRADING COMMISSION

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                                HEARING

                               BEFORE THE

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 13, 2019

                               __________

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


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                  Available on http://www.govinfo.gov/
                  
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                    U.S. GOVERNMENT PUBLISHING OFFICE                    
37-223 PDF                  WASHINGTON : 2020                     
          
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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY


                     PAT ROBERTS, Kansas, Chairman
MITCH McCONNELL, Kentucky            DEBBIE STABENOW, Michigan
JOHN BOOZMAN, Arkansas               PATRICK J. LEAHY, Vermont
JOHN HOEVEN, North Dakota            SHERROD BROWN, Ohio
JONI ERNST, Iowa                     AMY KLOBUCHAR, Minnesota
CINDY HYDE-SMITH, Mississippi        MICHAEL F. BENNET, Colorado
MIKE BRAUN, Indiana                  KIRSTEN E. GILLIBRAND, New York
DAVID PERDUE, Georgia                ROBERT P. CASEY, Jr., Pennsylvania
CHARLES GRASSLEY, Iowa               TINA SMITH, Minnesota
JOHN THUNE, South Dakota             RICHARD J. DURBIN, Illinois
DEB FISCHER, Nebraska

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

                              ----------                              

                       Wednesday, March 13, 2019

                                                                   Page

Hearing:

Nomination Hearing of Heath P. Tarbert, of Maryland, to be 
  Chairman and a Commissioner of the Commodity Futures Trading 
  Commission.....................................................     1

                              ----------                              

                    STATEMENTS PRESENTED BY SENATORS

Roberts, Hon. Pat, U.S. Senator from the State of Kansas, 
  Chairman, Committee on Agriculture, Nutrition, and Forestry....     1
Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan...     2

                               WITNESSES

Cornyn, Hon. John, U.S. Senator from the State of Texas..........     4
Tarbert, P. Heath, of Maryland, to be Chairman and a Commissioner 
  of the Commodity Futures Trading Commission....................     5
                              ----------                              

                                APPENDIX

Prepared Statements:
    Tarbert, P. Heath............................................    26

Document(s) Submitted for the Record:
Roberts, Hon. Pat:
    Ag Coalition, letter of support for nominee..................    30
    Committee questionnaire, Office of Government Ethics 
      Executive Branch Personnel Public Financial Disclosure 
      Report and 5-day letter filed by Heath P. Tarbert.......... 32-70

Question and Answer:
Tarbert, P. Heath:
    Written response to questions from Hon. Pat Roberts..........    72
    Written response to questions from Hon. Debbie Stabenow......    75
    Written response to questions from Hon. Joni Ernst...........    85
    Written response to questions from Hon. Kirsten Gillibrand...    86
    Written response to questions from Hon. Tina Smith...........    88

 
NOMINATION HEARING OF HEATH P. TARBERT, OF MARYLAND, TO BE CHAIRMAN AND 
       A COMMISSIONER OF THE COMMODITY FUTURES TRADING COMMISSION

                              ----------                              


                       WEDNESDAY, MARCH 13, 2019

                                       U.S. Senate,
         Committee on Agriculture, Nutrition, and Forestry,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
328A, Russell Senate Office Building, Hon. Pat Roberts, 
Chairman of the Committee, presiding.
    Present or submitting a statement: Senators Roberts, Ernst, 
Braun, Grassley, Thune, Fischer, Stabenow, Brown, Klobuchar, 
Gillibrand, Casey, and Smith.

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

    Chairman Roberts. I call this hearing of the Senate 
Agriculture, Nutrition, and Forestry Committee to order. Today 
we consider the nomination of Dr. Heath Tarbert to serve as 
Chairman and a Commissioner of the U.S. Commodity Futures 
Trading Commission.
    It was a pleasure to meet with you, Doctor, earlier this 
week and I thank you for appearing before the Committee today. 
I recognize you have quite a few members of your family in the 
audience today, including your wife, two sons, mother-in-law, 
and brother. Welcome to the Ag Committee family. If you would 
stand we would like to recognize you please. Thank you very 
much for coming.
    [Applause.]
    Chairman Roberts. I like that bowtie. That is very 
fashionable.
    Before delivering an opening statement I ask the letter of 
support for our nominee from 25 different agriculture groups be 
included in the record. Without objection, so ordered.
    Chairman Roberts. In the letter, the groups voiced strong 
support and appreciation for Dr. Tarbert's experience in the 
financial sector, the effort he has demonstrated to understand 
their priority issues, and his commitment to visiting 
agricultural operations as a way to reinforce the importance of 
these markets to farmers, ranchers, growers, and 
agribusinesses.

    [The letter can be found on page 30 in the appendix.]

    As I have noted before, the CFTC is charged with fostering 
an open, transparent, competitive, and financially sound 
markets while working to prevent any systemic risk. Further the 
Commission is tasked with protecting market users and their 
funds, consumers and the public from fraud and manipulation and 
abusive practices related to derivatives and other products 
that are subject to the Commodity Exchange Act. The regulation 
and oversight provided by the CFTC allows end users--farmers, 
ranchers, commercial companies, municipalities, energy 
companies, pension funds, and others--to hedge commercial risk 
using the derivatives markets. These markets allow companies to 
generate jobs and produce goods and services for our entire 
economy.
    While it was not the farmer or the rancher or rural 
cooperative or electric utility who contributed to the 
financial crisis of 2008, it is often these folks who shoulder 
the heaviest burden when regulators write and implement rules. 
Today this Committee will hear from a nominee who is no 
stranger to public service. His experience clearly shows he has 
an appreciation of what led to the financial crisis 10 years 
ago, and he understands how these markets are impacted by 
actions taken by Congress and the U.S. Federal regulators as 
well as our legislative and regulatory partners around the 
world.
    As the current Assistant Secretary for International 
Markets at the Department of Treasury, this nominee has exactly 
the right experience at the right time to lead the CFTC, as the 
world awaits important decisions throughout Europe on how 
regulators will treat U.S. interests and other market 
participants operating across that continent.
    Current CFTC Chairman Chris Giancarlo has done a great job 
advocating U.S. interests and the importance of equivalency, 
and there is no doubt this nominee is prepared to continue this 
legacy when confirmed.
    Dr. Tarbert, our meeting earlier this week shed light on 
your policy positions regarding immediate, specific, high-
profile issues such as Brexit, and you highlighted your views 
on issues important to agriculture end users, such as position 
limits.
    Again, I thank you, Doctor, for being here today. I look 
forward to your testimony.
    I now turn to my colleague, Ranking Member Stabenow for her 
opening remarks.

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

    Senator Stabenow. Well, thank you, Mr. Chairman, and it is 
good to be with you this morning to consider the nomination to 
this very important position at the CFTC. Mr. Tarbert, 
congratulations. It was a pleasure to meet with you, and 
welcome to your family as well. I am sure they are very proud 
of you.
    The CFTC plays a critical role in providing the certainty 
in our futures and swaps markets for Main Street businesses, 
consumers, and our farmers and ranchers, as we all know. 
Everyone in this room understands that agriculture is a risky 
business, maybe the riskiest business when we look at what is 
happening with the weather. That is why this Committee wrote 
and passed a strong bipartisan farm bill that gives our farmers 
5 years of certainty in uncertain times and why strong 
oversight of the CFTC is so very important.
    Before we begin discussing the future of the CFTC, I must 
comment on the President's budget. I was disappointed to see 
that the proposal would roll back many of the important 
investments we have made in the future of the agricultural 
economy. The budget includes a nearly 31 percent cut to the 
farm bill, on top of a 15 percent cut to the rest of the USDA. 
We must ensure that the USDA has the resources it needs to 
fully implement the bipartisan 2018 farm bill quickly, and I 
know that the Chairman agrees and that we are committed to 
making sure that happens. This is not the time to put a target 
on our farmers and our families.
    I also strongly support providing the CFTC with the funding 
it needs to protect our financial markets, and we talked about 
that. It is very important you have the resources you need. The 
CFTC has been underfunded for many years, which puts our 
financial system at risk.
    In addition to robust funding, the CFTC also needs strong 
leadership. Mr. Tarbert, you have a great deal of experience 
and expertise in financial markets. You also have first-hand 
experience in the development of the Dodd-Frank Act. I would 
like to hear more about how you would continue the significant 
progress that the CFTC has made over the past 9 years in 
implementing this historic law.
    The CFTC must continue to prioritize strong customer 
protections and it must remain vigilant in bringing wrongdoers 
to justice through the enforcement program. The CFTC must bring 
certainty to its rule book by finalizing the Dodd-Frank rules 
that remain incomplete, like setting speculative position 
limits and establishing minimum capital requirements for swap 
dealers. The CFTC must continue to be forward-looking to 
address emerging risks, such as cybersecurity and automated 
trading.
    A decade has passed since the Great Recession. We must 
never forget that over 8 million people lost their jobs and 
countless families and farmers and small businesses faced 
foreclosure and financial ruin. The CFTC needs leadership that 
is committed to moving forward, not backward, on the critical 
reforms enacted in 2010 to safeguard our markets and protect 
our customers.
    Mr. Tarbert, I am also encouraged that you have shown a 
strong interest in addressing issues facing our agricultural 
economy, which is obviously so important to all of us on this 
Committee. I look forward to hearing more about your plans and 
your vision.
    Thank you, Mr. Chairman. Also, welcome to the senior 
Senator from Texas. We are glad to have you with us today.
    Chairman Roberts. Well, before I introduce my distinguished 
friend, and thank you, sir, for coming, from the great State of 
Texas, I want to echo the comments by the Ranking Member with 
regard to the administration's budget proposal, which got 
tossed through the transom back here in the back room. We 
looked at it for a little while and decided to throw it back.
    I am not trying to impugn the motives and the efforts of 
the administration to try to get a hold of our deficit spending 
and the national debt and all of that, but we just passed a 
farm bill in a bipartisan fashion, and the No. 1 issue that we 
heard all around the country, for two years we traveled around 
the country, every region, every crop, every commodity, and the 
No. 1 concern was crop insurance.
    The recommendations reflect past efforts from past 
administrations and for some reason they do not quite get it in 
terms of crop insurance. That particular, quote, ``reform'' is 
not a reform. It would gut the program and even places in 
Texas, Oklahoma, Kansas, Nebraska, all of the High Plains would 
be impacted. We are not doing that.
    I now am most happy to introduce my good friend, a very 
distinguished Senator from the great State of Texas. He is 
known for his leadership qualities, passing legislation, and is 
a country-and-western aficionado, as I am. Senator Cornyn, 
thank you for coming. Please proceed.

 STATEMENT OF HON. JOHN CORNYN, U.S. SENATOR FROM THE STATE OF 
                             TEXAS

    Senator Cornyn. Well, thank you, Chairman Roberts and 
Ranking Member Stabenow. It is a pleasure to be with the Ag 
Committee today and it is my honor to introduce Dr. Heath 
Tarbert.
    Looking at his resume it makes one wonder what we have done 
with our life. He has done so much and I am not going to go 
into great detail, although I will point out that not only does 
he have a JD, which is a Juris Doctor, he has an SJD, which is 
a Scientific Juris Doctor, which entitles him to be addressed 
as Doctor. Ordinary lawyers are not, even though they have a 
Juris Doctor. I know you wanted to know all about that. He also 
has a Doctor of Philosophy from Oxford, so he has earned that 
title, and, of course, he has now been nominated to serve as 
Commissioner of the Commodity Futures Trading Commission.
    He brings with him a wealth of experience from the private 
and public sectors. Throughout his work in the private sector 
he amassed a vast understanding of the Dodd-Frank regulations 
and developed an expertise in banking and securities law as 
well as financial compliance law. His time in public service 
has been spent in all three branches of government and includes 
serving as Special Counsel to the Senate Banking Committee, 
Associate Counsel to President George W. Bush, and Law Clerk to 
Justice Clarence Thomas on the U.S. Supreme Court.
    He currently serves as the Assistant Secretary for 
International Markets at the Treasury Department where he works 
to advance the U.S.'s interests in various international issues 
including financial regulation. He also serves--and this is 
where our lives intersected the most recently--he also serves 
as the Policy Chair of the
    Committee on Foreign Investment in the United States, a 
body which, as the Committee knows, that reviews foreign 
investments to protect our national security interests.
    I will just note that Heath did yeoman's work on behalf of 
the Treasury Secretary, Secretary Mnuchin, as Secretary Mnuchin 
did, in helping us get through a very complex and not 
particularly a politically attractive topic but one which is 
essential to protecting our national security, and that is to 
upgrade our rules and regulations with regard to foreign 
investment in the United States.
    If all of these impressive qualifications were not enough, 
he also happens to be an Eagle Scout. Notwithstanding his 
stellar credentials, he has a well-earned reputation for being 
bipartisan, collaborative, and an honest broker, just what you 
would want.
    As I said, I saw this first-hand as we worked together on 
the Foreign Investment Risk Review Modernization Act, or 
FIRRMA. We know that in complex matters sometimes it is 
difficult to strike the right balance, and Heath was 
instrumental in working with members in both the House and the 
Senate to do just exactly that, and I am confident he will do 
the same in his new capacity.
    This bipartisan track record is something that I believe 
will serve him well should he be confirmed as the next Chair of 
the CFTC, especially since the Commission works with this 
Committee to strike a balance between market integrity and 
market access. As you know, the CFTC serves a critical purpose 
to foster transparent and competitive markets. Americans across 
the country depend on well-functioning markets to manage their 
businesses and mitigate risk, and this Committee knows these 
market participants well. They are our farmers, our ranchers, 
our utility companies, and manufacturers. The CFTC must also 
enhance stability and confidence in derivatives markets, 
ensuring end users and the public that they are protected from 
fraud.
    So, in conclusion, let me just say I think Heath is an 
excellent choice to lead the CFTC. He has shown a dedication to 
work hard across the aisle and in tandem with multiple branches 
of government toward an end result that is in the best interest 
of the American people. So I believe the Committee will enjoy a 
productive relationship with him as you work to promote market 
access and market integrity.
    So I thank you for the opportunity to come and say a few 
words on this outstanding nominee, Heath Tarbert, and I know he 
is eager to continue serving our country in this new role.
    Thank you, Mr. Chairman.
    Chairman Roberts. I thank the distinguished Senator from 
Texas and agree with virtually everything that you have said.
    As is the tradition and custom of the Committee, before 
nominee witnesses provide testimony I need to administer the 
oath. Secretary Tarbert, if you would please stand and raise 
your right hand.
    First, do you swear that the testimony you are about to 
present is the truth, the whole truth, and nothing but the 
truth, so help you God?
    Mr. Tarbert. I do.
    Chairman Roberts. And second, do you agree that if 
confirmed you will appear before any duly constituted committee 
of Congress if asked to appear?
    Mr. Tarbert. I do.
    Chairman Roberts. Thank you. Please proceed with your 
testimony, sir.

  STATEMENT OF HEATH P. TARBERT, OF MARYLAND, NOMINATED TO BE 
 CHAIRMAN AND A COMMISSIONER OF THE COMMODITY FUTURES TRADING 
                           COMMISSION

    Mr. Tarbert. Chairman Roberts, Ranking Member Stabenow, and 
distinguished members of the Committee, I am honored and 
grateful to appear before you today as the nominee for CFTC 
chair. I appreciate the kind words of Senator Cornyn and I 
would like to thank the Committee staff for their 
professionalism during this process.
    While I have had the pleasure of working with some of you 
in the past I thought I would take a moment to introduce 
myself. I grew up in Baltimore, where my family emphasized hard 
work, education, and the importance of public service at every 
level of government. Both of my grandfathers fought in World 
War II, one with the Army in Europe, the other with the Navy in 
the Pacific. One of my uncles was a police officer, another a 
firefighter. My father went to night school to study accounting 
and eventually served as Comptroller of the Maryland Port 
Administration. In that role, he oversaw the flow of 
agricultural commodity exports and imports through Baltimore. 
Although my father passed away after a courageous battle with 
pancreatic cancer, his commitment to public service remains a 
guiding example for me.
    Each of my adult guests today is or has been a public 
servant. My mother retired as a child support enforcement 
officer and my mother-in-law retired as a public school teacher 
in Ashwaubenon, Wisconsin. My brother, who is a proud Democrat, 
recently completed a term as Deputy Mayor of Baltimore, and his 
wife Bonnie has been an art teacher in the city's public 
schools. Finally, my wife Kate and I met clerking for the U.S. 
Court of Appeals in town, and let me tell you, I definitely 
married up. Kate went on to serve in the Justice Department and 
as a law clerk to Chief Justice John Roberts. She is currently 
a full-time mom to our two young sons, Ben and Nathaniel, also 
here today.
    My family's commitment to public service has inspired me as 
well. Over the course of my career, I have had the privilege to 
serve in all three branches of the Federal Government. During 
that time, I have developed a deep and broad background in 
financial services regulation. Since 2017, I have served as 
Assistant Secretary of the Treasury, managing and leading 12 
offices in the Department's International Division.
    These experiences have reinforced the importance of working 
in a bipartisan way, which I know is in the tradition of this 
Committee. The same is true for the work of the CFTC. The CFTC 
and the markets it regulates are unique. They are connected to 
the real economy in ways that other financial markets simply 
are not. Commodity futures, options, and swaps affect the lives 
of everyday Americans. They moderate the prices we pay for 
literally everything, from our groceries to gasoline, from our 
heating bills and home mortgages.
    Leading such a unique agency comes with special 
responsibilities. Our derivatives markets must remain open, 
transparent, competitive, and financially sound. At the same 
time they need to be free from fraud and manipulation. To truly 
be effective, the CFTC must understand how these markets impact 
sectors and households in the real economy.
    In that regard, no sector is more important than 
agriculture. Our nation's farmers and ranchers depend on 
derivatives to hedge their risks while consumers benefit from 
stable prices. Also benefiting are grain elevators, mills, 
distributors, processors, and other producers. That has been 
the case for more than 100 years, and it is part of the reason 
why America's ag industry is the envy of the world. Equipping 
our ag sector with the tools to hedge risk and receive fair 
prices was, and will always be, the very cornerstone of the 
Commodity Exchange Act. If our commodity derivatives markets 
are not working for the benefit of our farmers and ranchers 
then in my view they simply are not working. Ensuring the 
voices of agriculture are heard and their concerns addressed 
would be a top priority.
    If confirmed, I would expect to make use of this 
Committee's expertise as well as knowledge gained from visits 
with stakeholders across the country.
    In addition to recognizing the CFTC's historic mandate, it 
is important that we not lose sight of the future. Congress's 
enactment of the Dodd-Frank Act has led to significant 
improvements in the swaps markets, and Title VII implementation 
work must be completed. At the same time, we have got to 
acknowledge that our derivatives markets have now been 
transformed by digital technologies, technologies that come 
with risks as well as opportunities.
    The CFTC has to strike the right balance between allowing 
innovations to flourish and protecting our markets and 
customers from harm. We have also got to remain vigilant in 
dealing with new threats like cyberattacks.
    Our futures, options, and swaps markets serve as the global 
standard. On the whole, they are deep, open, liquid, 
transparent, and soundly regulated. If confirmed as CFTC chair, 
I will work hard every day to make sure they stay that way. 
Thank you.

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

    Chairman Roberts. Let me start some questions here for you, 
Doctor. Since being nominated now you have engaged with ag 
stakeholders to better understand their priorities. Will you 
continue to work with these stakeholders and prioritize their 
interests should you be confirmed?
    Mr. Tarbert. Absolutely, Mr. Chairman.
    Chairman Roberts. Senator Stabenow and I wrote to Chairman 
Giancarlo last year raising serious concerns about the EU's 
legislation to regulate our U.S. clearinghouses. I understand 
legislation is about to be finalized and that the EU continues 
to push for directly regulating financial markets within our 
borders. In our letter, we stated we would encourage the CFTC 
to take stock of the regulatory relief it has granted to 
foreign countries--pardon me, foreign entities, in light of the 
EU's proposed aggressive action.
    Could you please tell me the status of the EU clearinghouse 
equivalence issue as you see it, as well as the status of the 
equivalence for trading venues and what more Congress can do, 
if anything, to ensure the CFTC remains the exclusive regulator 
of our U.S. derivatives markets?
    Mr. Tarbert. Thank you, Mr. Chairman. We are watching that 
closely, not only the CFTC and other financial regulators but 
the Treasury Department as well. I believe what they call the 
Level 1 text will be finalized soon, and the Level 2 text, 
which is essentially regulations, will be worked on in the next 
few months.
    I want to be very clear on this. I agree with you 
wholeheartedly that our clearinghouses and exchanges here in 
the United States need to be exclusively supervised and 
regulated by U.S. regulators. Now that does not mean we cannot 
have a collaborative relationship with foreign regulators. They 
have information interests as we do. Their banks and other 
financial institutions use our platforms and ours use theirs. 
But again, I go to the very point that you raised that it is 
very important that the United States have the jurisdiction and 
sovereignty to regulate our own markets.
    Chairman Roberts. At last year's joint CFTC-Kansas State Ag 
Commodities Conference the major issue of concern among our 
Kansas ag constituents was the non-convergence in the hard red 
winter wheat futures contract. Can you provide us your view on 
this issue and your understanding of what market participants 
have done to address this issue?
    Mr. Tarbert. Well, as a general matter, convergence is 
absolutely critical. Having the derivatives markets converge 
with the cash markets is the reason why these instruments can 
be used to hedge. So if there is not convergence or problems in 
convergence the whole point of setting up these instruments in 
the Commodity Exchange Act is called into question.
    With respect to hard red winter wheat, the Kansas City 
contract, my understanding is that some changes have been made, 
I believe going from fixed cost to variable cost. If confirmed 
I would look into that issue, and work with your office as well 
as other commissioners and the exchanges to ensure that the 
convergence is there.
    Chairman Roberts. I appreciate that. It is my hope, along 
with many agriculture end users, that the Commission will move 
on a final rule regarding position limits later this year. What 
do you view are important considerations for the Commission 
when establishing a position limit regime?
    Mr. Tarbert. Thank you, Mr. Chairman. It is important that 
the positions limits rule is finalized. In terms of important 
factors that we would consider, I think first and foremost has 
to be that we must acknowledge that these are ``speculative'' 
position limits, as you mentioned before, and therefore people 
that are bona fide hedgers need to be able to use that 
exemption. So in other words, risk management tools that our ag 
sector have used all along should be taken into account.
    Other issues would include, for example, ensuring that the 
underlying deliverable supply is taken into account--I know the 
Minneapolis Grain Exchange, for example, has had concerns 
there--and then other issues include making sure that there is 
the right parity between the position limits for the three 
major wheat contracts. So those would be all things that, if 
confirmed, I would want to take into account.
    Chairman Roberts. In the interest of time I am going to 
submit, or ask unanimous consent to submit at this point in the 
record questions with regard to Dodd-Frank financial reform, 
blockchain, and the possibility of combining the SEC with the 
CFTC, which I should not even mention.
    So given that, without objection, so ordered.
    Senator Stabenow. Thank you very much, Mr. Chairman. Let me 
first start with enforcement, because it cannot be overstated 
how important it is that the CFTC have a strong enforcement 
program, and frankly, the market participants need to have 
confidence that the markets are free of fraud and manipulation, 
and wrongdoers need to know that they are going to face real 
consequences when breaking the law.
    So how do you believe the CFTC can further strengthen its 
enforcement program?
    Mr. Tarbert. Thank you very much for that question. The 
CFTC right now, the Enforcement Division is the largest 
division by far of any, and if confirmed I would, of course, 
keep it that way and invest resources in enforcement.
    I think in terms of priorities we would want to focus on 
protecting markets as well as protecting customers. There have 
been a lot of issues in the last few years about customer 
protections, using customer margin, which I think undermines 
confidence in the entire system.
    I think also we want to make sure that we have focused on 
individual responsibility. It cannot be that individuals cause 
problems and then they move on to another firm and the firm 
gets fined but they continue to stay in the industry and cause 
more problems.
    Senator Stabenow. Right.
    Mr. Tarbert. Then, finally, I would say it is important 
that the CFTC work with other regulators as well as with the 
law enforcement community--the FBI, the Justice Department--
where criminal charges are appropriate.
    Senator Stabenow. I agree, and when you talk about 
individuals, though, how does that look to you in terms of 
enforcement against individuals? Do you think CFTC has the 
tools to do that right now?
    Mr. Tarbert. I think they have some tools but it would be 
something that, if confirmed, I would want to sit down and 
really think about, talk to the professionals in the 
Enforcement Division and then maybe this Committee as well, if 
you have views.
    Senator Stabenow. When we are doing the reauthorization of 
the CFTC, should we look more at that area to give you better 
tools? I would welcome your input on that, knowing that.
    Mr. Tarbert. Yes, so if confirmed I would look into that 
issue and have that discussion with you.
    Senator Stabenow. Cybersecurity threats.
    Mr. Tarbert. Yes.
    Senator Stabenow. Cybersecurity threats are growing every 
day. I have a deep concern just across the Federal Government 
as well as in the private sector that we are not focused on 
doing as much as we should be doing in protecting our financial 
system. We have to acknowledge that our markets are vulnerable 
right now.
    Your current position at the Treasury Department has 
provided you with considerable perspective on the cybersecurity 
risks facing the financial system. Based on your current 
perspective at Treasury, what are the greatest cyber threats 
facing the financial system and what can we do to strengthen 
our defenses?
    Mr. Tarbert. Without going into classified information what 
I would say is that the real concern that I have, and many 
others in our financial system, is where you take systemic 
risk, on the one hand, which we all know exists, and then you 
map that onto cyber risk, and where the confluence of the two, 
it seems to me that is the area where we want to protect the 
most.
    Treasury has something called the Office of Critical 
Infrastructure Protection, which is led by a former general 
from U.S. Cyber Command and the NSA, which thinks specifically 
about our financial system and vulnerabilities there. So that 
would be something that to the extent the CFTC is not currently 
plugged into, if confirmed I would ensure that the CFTC has the 
relevant access to the information it needs.
    Senator Stabenow. Does the CFTC need additional authority 
to be able to really do what needs to be done on cybersecurity?
    Mr. Tarbert. It could very--well might. At this moment I 
have not taken an in-depth study. I am aware of some tools they 
have, particularly with respect to their current supervisory 
authority over clearinghouses and exchanges. There could be 
areas where the CFTC does not have the tools it needs to 
address cyber.
    Senator Stabenow. Again, as we are looking at 
reauthorization I really would like to have your 
recommendations on this, and if we need to be doing more in 
terms of providing authorities I hope that you will weigh in 
very specifically to be able to help us.
    Let me, finally ask, as it relates to the budget and 
funding, an issue that I raise all the time. If you are going 
to have the tools you need--you have to have the resources you 
need. It concerns me that the CFTC has not devoted enough 
resources also to finalizing the important Dodd-Frank rules, 
such as position limits, even though it has been 9 years now.
    So to confirm, what will you do, as Chairman, to fully 
implement Dodd-Frank and what will you do to advocate for the 
resources that you need to get the job done at CFTC?
    Mr. Tarbert. As I mentioned in my written testimony and 
oral testimony, it is important that we finalize the Dodd-Frank 
Act, particularly those rules that are pending, and as you say, 
ones that were started years ago.
    Secondly, I totally agree with you that this agency needs 
the funding and the tools to get the job done. The American 
people are depending on it. So I will be an advocate for 
ensuring that it has the proper funding, and also look at areas 
where we can increase efficiencies as well.
    Senator Stabenow. We need to get the Dodd-Frank rules 
finally done, and I hope you will commit, as Chairman, if 
confirmed, that you will be the one to get this done as soon as 
possible.
    Mr. Tarbert. I will work on a number of them, and 
particularly position limits.
    Senator Stabenow. We have been working on them for a long 
time.
    Mr. Tarbert. I understand.
    Senator Stabenow. So we need to complete it. So thank you, 
Mr. Chairman.
    Chairman Roberts. Senator Braun.
    Senator Braun. Thank you, Mr. Chairman. I enjoyed our 
quality time we had yesterday to get to know one another.
    I remember vividly, in 2008, having a business where all my 
income was in the automotive arena and all my assets were 
commercial real estate. I remember the feeling in those few 
weeks when we were, you know, staring into the abyss. Hopefully 
we have learned a lot from that. I remember things like credit 
default swaps, bundled mortgages, and I am a finance guy, all 
things that, you know, I did not know much about until, you 
know, it was upon us.
    Is there anything in the commodities arena, within the 
institution that you are going to be a part of, that you would 
want to be wary of, or do you see anything on the horizon at 
all that, you know, would show signs that there are things that 
we need to look at more carefully, or do you think, like you 
said in your opening statement, you want to make sure things 
stay in good shape, like you think they are. Is there anything 
on the horizon out there? Because most of us did not see 
anything coming----
    Mr. Tarbert. Right.
    Senator Braun [continuing]. back in 2007 either.
    Mr. Tarbert. Thank you very much, Senator--I think, as a 
whole, our financial system is stronger than it was before, but 
that said, I think the financial system is far more 
interconnected than it has been before, especially commodity 
markets. As we discussed yesterday, the commodities are global 
markets simply because commodities, by definition, are the same 
around the world. So I would be concerned about a potential 
risk, for example, coming from outside the United States that 
is potentially harmful to the U.S.
    I also think we have to make sure that while we have 
implemented a number of good changes in the last 10 years that 
the seeds of the next crisis are not sown in the response to 
the last one. So while we are pushing more things through 
centralized clearing, for example, we need to make sure those 
clearinghouses really are safe and sound and have the risk 
management practices that they need. There is no reason to 
believe they do not but it is something that I would want to 
look at, if confirmed.
    Senator Braun. One other question. Also being involved in 
farming, I view what the farm economy is going through now. As 
bad as it was back many years ago, I think balance sheets are a 
lot cleaner. I know a lot of farmers are in a situation where 
they do not see a light at the end of the tunnel.
    Assuming the farm economy is going to kind of stay in this 
trough of low prices, does that bring any heightened concern in 
terms of, you know, how your organization would have to be 
vigilant should it persist?
    Mr. Tarbert. Well, I think there are a number of things 
that are facing the American ag community now that go beyond 
the work of the CFTC, but at the very least I do not think the 
CFTC should increase those burdens on the ag community. 
Anything that the CFTC can do to help, whether it is making 
sure that contracts converge properly so they can use risk 
management tools and also making sure that some of the costs 
imposed by regulations are not borne directly by farmers and 
ranchers I think is important.
    Senator Braun. Thank you. I yield the rest of my time.
    Chairman Roberts. Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Mr. Chairman, and 
welcome to you. Thank you. Congratulations on your nomination.
    Yesterday the EPA released a proposed rule to allow for the 
sale of E15 year-round. That is something that we have been 
working on, Senator Smith and I, and Senator Stabenow, and many 
others on this Committee that believe we should have not just 
one kind of fuel but many in this country, and that we should 
be investing in the farmers and the workers of the Midwest and 
not just the oil sheiks of the Mideast.
    The rule also included several changes to the way the 
renewable identification numbers, or RINs, are traded and used 
to track compliance with the law. Based on your experience in 
other markets, Mr. Tarbert, do you believe that providing 
information on trading data in RINs markets in a timelier 
manner would increase transparency?
    Mr. Tarbert. All things being equal, Senator, I would say 
yes.
    Senator Klobuchar. Okay. Then the RFS is also critically 
important and we have long urged the EPA to implement the law 
consistent with congressional intent. As you know, in March 
2016, the CFTC entered into an MOU with the EPA related to the 
RINs market. This included the EPA sharing RIN data and other 
information so the CFTC could better advice about ways to 
minimize any potential fraud and abuse. How would you plan to 
fulfill the MOU agreement with the EPA, and would you commit to 
sharing any recommendations or collaborations with the EPA to 
the Committee?
    Mr. Tarbert. Thank you, Senator. The answer to that last 
question would be, if confirmed, yes, I would be happy to 
discuss with the Committee the work that the CFTC is doing with 
the EPA. I think it is important that the EPA view the CFTC as 
a resource, specifically with a background in markets. So I 
think we would want to provide recommendations, if confirmed.
    Senator Klobuchar. Thank you, because we have had a big 
issue with some of the waivers in this area, that Senator 
Grassley and I--he is not here--took on in a big way, and there 
was a lot of information that was not transparent and it 
created a lot of problems with the previous administrator of 
the EPA.
    So cybersecurity, I know Senator Stabenow asked you about 
this, but Senator Thune and I have a bill to allow people from 
the private sector to come in for 2 years and people from the 
government to go into the private sector to enhance their 
skills--that is a nice Minnesota euphemism--when it comes to 
cyber. You know, we are not like Russia and China where you can 
requisition people and make them be in a warehouse and do all 
kinds of bad stuff, and we want our government to be protected, 
cyber-wise, and to really up our game here.
    Do you think these kinds of exchange programs could help, 
or maybe with academics as well, as we look at how we build our 
cybersecurity?
    Mr. Tarbert. They could potentially help and I will commit 
to taking a look at your joint bill to analyze it and study it. 
I do know that the UK has had a long tradition of secondments, 
as they call it, where they do exactly as you have said. So it 
can be helpful to provide that cross-pollinization.
    Senator Klobuchar. Okay.
    Mr. Tarbert. So I look forward to looking into that.
    Senator Klobuchar. Thank you. I have had a lot of 
conversations with the current Chair of the CFTC, Mr. 
Giancarlo, about the importance of including the needs of 
farmers, ranchers, and energy producers in the mission of the 
CFTC. You mentioned it in your opening. If confirmed, how will 
you ensure that the actions of the CFTC take into account the 
concerns and perspectives of all Americans, including the 
farmers and ranchers directly affected by actions?
    Mr. Tarbert. I think the first thing, Senator, is, if 
confirmed, it is important to listen to the ag community to 
really understand their concerns, and sometimes you cannot do 
that by sitting here in Washington. You actually have to go out 
there and meet with stakeholders in the places where they live 
and work. So that would be a big part, if confirmed, of what I 
would do in the first few months on the job.
    Senator Klobuchar. Very good. How will you ensure that the 
CFTC is accurately documenting and analyzing transaction data 
within cattle and other markets in order to determine what is 
irregular? That is because our cattle ranchers in Minnesota 
depend heavily on the price they receive, and in 2015 there was 
this big 15 percent drop in the cattle market. It raised 
questions about market manipulation. At that time the CFTC 
collaborated with the GAO to review market factors that may 
have affected the fluctuation. They did not find trading 
irregularities in this 2018 report, but it is something that is 
a big concern in the cattle market.
    Mr. Tarbert. Yes, and I am well aware, Senator, of some of 
the issues with the cattle market. I have had the opportunity 
to sit down with people from the cattle industry and receive a 
briefing from the CFTC on the cattle contracts.
    I think it is important that that study, while it 
concluded, at that time, that high-frequency trading and other 
things did not affect it or there was not necessarily market 
manipulation, much of the data was back from 2012.
    Senator Klobuchar. Yes.
    Mr. Tarbert. So I would continue to monitor that market.
    Senator Klobuchar. Quickly, along the lines of new 
technology, you know, we see blockchain, Bitcoin, financial 
technology. How can the CFTC position itself to address the 
changes resulting from these new products and technologies 
coming on the market?
    Mr. Tarbert. Thank you. As I mentioned in my testimony, the 
innovations provide opportunities but they also come with 
risks, and I think we need to be able to focus and balance on 
the two so we really assess what are the opportunities but also 
what are the risks to customers and markets.
    Senator Klobuchar. Okay. Very good. Thank you for getting 
at all those questions, and I can see that you have a well-
behaved child behind you and that is also really good through 
the hearing.
    Mr. Tarbert. Thank you.
    Senator Klobuchar. He did not even notice I mentioned him, 
so very good. He is so engrossed and focused. Thanks.
    Mr. Tarbert. Thank you very much.
    Chairman Roberts. We thank you, Madam President.
    Senator Klobuchar. Thank you very much, Mr. Chairman.
    Chairman Roberts. The Committee was very proud to have four 
members of the Committee running for President, the most of any 
committee in the Senate. However, we now have three. The one 
that withdrew the day before, I said, ``You know, you ought to 
really run.'' Then the next day he withdrew. I wonder if there 
was any connection between the two. Senator Brown, would you 
like to comment on that?
    Senator Brown. I am counting on Kansas.
    Chairman Roberts. I recognize you, sir.
    Senator Brown. I was never running for President. I was 
thinking about it.
    Chairman Roberts. You were thinking about it.
    Senator Brown. So to withdraw you have to have--never mind. 
Yes, I understand.
    Mr. Tarbert, thank you. I am going to ignore him. It is 
good to see you again. Thank you for being here.
    Mr. Tarbert. Thank you.
    Senator Brown. Timely movement of qualified nominees is 
imperative. I am concerned about the delay in nominating 
Democrats and them moving to the Senate. My frustration, Mr. 
Chairman, is not with you about that, or with this Committee, 
but it is a problem that has worsened under Senator McConnell's 
leadership over the past 2 years and it must be addressed. I 
think that view is widely held, not just among Democrats but a 
number of Republicans too.
    Let me get to your questions. The Trump shutdown 
essentially closed the CFTC for five weeks, putting much of the 
enforcement program and market oversight on hold. It begs the 
question, why should we continue to take those kinds of risks, 
understanding we have a President who may do this again, but 
why should we take these kinds of risks? What is the rationale 
for not making CFTC fully funded--self-funded, I am sorry, 
fully self-funded?
    The Fed is self-funded, as you know. The OCC, Office of the 
Comptroller of the Currency is self-funded. The FDIC is self-
funded. The Consumer Bureau is self-funded. Only CFTC and SEC 
are not. What is the rationale for that?
    Mr. Tarbert. Well, I think it is an important issue worth 
discussing but I think what I would say, as an unelected 
official, is that it is a decision that really has to be made 
by elected officials who can consider all the aspects of the 
question, whether the impact on the taxpayer, the effects on 
congressional oversight. I would say it is an important 
question that I think only elected officials should decide.
    Senator Brown. Might you now be in a position, or if 
confirmed be in a position to advocate that on behalf of the 
day-to-day operations of CFTC, understanding that a number of 
your employees, if the President decides to shut the government 
down again, a number of your employees would be either 
furloughed or working without pay, and the disruption in the 
markets every bit as much?
    Mr. Tarbert. What I would say, Senator, is that I totally 
agree that the agency needs the funding to continue doing its 
important work. If confirmed, I would provide whatever 
technical expertise this Committee or any other needed to be 
able to consider the question of various funding mechanisms.
    Senator Brown. I would hope that you would actually 
advocate doing that. I understand your answer.
    Last year I told Chair Giancarlo that I was concerned about 
declines in CFTC enforcement cases and penalties. The trend 
since then has been positive but I have noticed leniency in 
some cases where companies self-report. For example, last year 
the agency settled a fraud case against Deutsche Bank, against 
a Deutsch Bank trader, but did not penalize the bank in any 
way. In fact, CFTC Enforcement Division issued its first-ever 
declination letter closing the case, recommending no action 
against the bank because of its cooperation.
    Do you think such leniency is appropriate, going forward?
    Mr. Tarbert. I do not believe in leniency. I think self-
reporting can be useful, assuming it is followed up with 
systematic self-correction and a record of that. So when I 
emphasize, I think, individuals should be held accountable that 
does not mean that organizations should not be held 
accountable.
    Senator Brown. In this bank, I mean, you surely put aside, 
for purposes of this discussion and the penalties or not for 
Deutsche, but this bank has clearly been one of having one of 
the worst reputations, whether it its dealings with the 
President or its dealings generally in its banking system, its 
European and American banking system, with its behavior. You 
know, this bank compliance system did not stop the fraud in the 
first place, as you know.
    Let me talk about another issue. CFTC finalized last year 
the de minimus threshold that exempts swap dealers from 
registration if their activity is under $8 billion, as you 
know. I supported the original rule, and the original rule 
would have reduced the level to $3 billion. Although the final 
rule did not include broad exemptions that were in the 
proposal, Chair Giancarlo asked staff to look at other carve-
outs that would weaken the purpose of the threshold. So they 
made it $8 billion and then they looked at carve-outs.
    Will you commit to maintain the $8 billion threshold, not 
succumb to the temptation of a different number, and would you 
commit to not considering any of the changes that would weaken 
the registration requirements established under the Wall Street 
Reform Act?
    Mr. Tarbert. Senator, my understanding was that was a 
unanimous decision by the Commission to keep the threshold at 
$8 billion and also not to have the exemption. So, if 
confirmed, I do not see that as an issue that I would try to go 
back in and reopen.
    Senator Brown. Okay. One last thing. If confirmed, it is 
imperative--I believe it is imperative that you follow the lead 
of those like Sheila Bair in work to halt the CFTC's harmful 
campaign to undermine critical financial safeguards which help 
protect against excessive risks. I am concerned about your 
working with the Fed and the FDIC and Treasury. This is an 
administration that every week, as the Ranking Member of the 
Banking Committee, I hear every week another example--and 
Senator Smith sits on that committee with me--I hear, almost 
every week, another example of weakening rules, as if there is 
this collective amnesia that nothing bad happened a decade ago 
because of Wall Street greed and Wall Street malfeasance and 
misfeasance. Thank you.
    Mr. Tarbert. Thank you, Senator. I will just say that 
Chairman Sheila Bair is a personal friend and mentor of mine, 
and my views and hers closely align on a number of issues.
    Senator Brown. Good. I like to hear that. Thank you.
    Chairman Roberts. Senator Smith.
    Senator Smith. Thank you, Mr. Chair and Ranking Member 
Stabenow, and Dr. Tarbert, Secretary Tarbert, thank you for 
being here and welcome to your family, and thank you for your 
willingness to serve.
    We had a great conversation the other day and I think that 
you heard--in that conversation you heard my deep concern about 
the struggles that we are seeing in the ag economy in Minnesota 
and across the country, and, you know, the foundation values 
around having fair prices and fair markets and managing the 
risk. So with that spirit, I just have a couple of questions to 
ask you.
    You know, I am concerned about the concentration in the 
swaps market. We know that 70 percent or so of all reported 
swaps are sold by five big Wall Street firms, and that 
represents 80 percent of the total value traded. This high 
level of concentration shows that the largest dealers are 
sitting on considerable market power, and no matter how you 
slice and dice it, it is clear that these big banks are really 
dominating the market.
    Commissioner Berkovitz recently warned, in a speech, and I 
am quoting here that ``these high levels of concentration 
present potential systemic risks since the failure of one of 
these firms in a highly connected market,'' as you said, 
``could have significant impacts on all the other firms in the 
market.''
    So, Dr. Tarbert, could you--are you concerned about this 
level of concentration?
    Mr. Tarbert. Thank you very much, Senator Smith. The issue 
of concentration is one that I think I would want to look into 
a little bit more to truly understand it, and it sounds like, 
as you are saying, there may be possibly a competition law 
dimension to all of this.
    What I will say, with respect to the systemic risk part of 
your statement, is that it is critically important that initial 
and variation margin be imposed on all of these financial 
institutions, and that is critical to making sure that we do 
not have what we had 10 years ago----
    Senator Smith. Mm-hmm.
    Mr. Tarbert [continuing]. where you had all of these 
interconnections between institutions and there was no margin 
held by anyone, so when one fell, another fell----
    Senator Smith. The domino.
    Mr. Tarbert [continuing]. the daisy chain effect, exactly.
    Senator Smith. Exactly. So what can we do? That gets to my 
sort of followup here, which is what can we do to promote a 
competitive market as we look at this increasing concentration?
    Mr. Tarbert. Well, I think the more that we can move swaps 
through centralized clearing and through swap execution 
facilities, and ultimately to be traded on exchanges, will make 
the market more open, more transparent, greater liquidity, and 
you will not have it dominated by a small group of dealers.
    Senator Smith. Mm-hmm. So the other thing I wanted to get 
your perspective on, you know, we mitigated many risks since 
the 2008 financial crisis, hopefully, but I am wondering if 
that is creating new risks that we should be aware of. You 
know, Dodd-Frank put in place important measures to move away 
from this unregulated trading between two parties and toward a 
centralized clearing, which makes it easier to monitor risks. 
At the same time I wonder if that creates a new concern, which 
is that all of that counter-party risk that promoted the 
Congress to push for central clearing is now concentrated in 
one place, in the clearinghouses themselves.
    I know most folks see this as a good thing, because we can 
understand it better and we know where the risks are, but could 
you talk a little bit about now that we have all those risks 
located in one place, what we are doing to better understand 
and manage the risk there.
    Mr. Tarbert. I could not agree with you more, Senator, and 
that is essentially what the Dodd-Frank Act did, was that 
although it reduced risk it also concentrated risk. So we still 
have high levels of risk but they are in clearinghouses now.
    I think it is critically important that the CFTC supervise 
clearinghouses to make sure they have got the requisite 
capital, liquidity, risk management tools they need, and that 
also they have resolution and recovery plans, particularly 
recovery plans. So if the largest clearing member fails, or the 
two largest clearing members fail, they have got a plan of 
action for that and they have got enough of a cushion to 
withstand that.
    Senator Smith. Mm-hmm. Yes. Do you think that the failure 
of a major clearinghouse could lead to the sort of daisy chain, 
ripple, domino effect that we were just talking about?
    Mr. Tarbert. It possibly could, yes.
    Senator Smith. If a clearinghouse were to fail, do you 
think that the Federal Government has the authority--sufficient 
authority to fix--to resolve that, and where do you think that 
authority should go? Is it better in the CFTC or FDIC, or where 
do you think?
    Mr. Tarbert. It is a great question, Senator, and it is one 
that is pretty complex. Right now it could potentially go into 
a bankruptcy proceeding, but if Title II of the Dodd-Frank Act 
was triggered it would be the FDIC that would actually oversee 
the resolution of a clearinghouse. I think you raise a good 
question as to whether that is the right regulator or whether 
another regulator, such as the CFTC or the SEC, depending on 
the type of clearinghouse, may be appropriate.
    Senator Smith. Last question. Dr. Tarbert, you have 
significant experience in financial regulatory areas, and as 
you and I discuss you are building your experience in 
agriculture. For farmers and ranchers in Minnesota, what 
happens at the CFTC affects them. So can you just comment on 
how you will work to build that agricultural experience, should 
you be confirmed?
    Mr. Tarbert. Thank you. As I mentioned in my oral testimony 
and here, one of the things that I think would be really 
helpful is to actually go out----
    Senator Smith. Come to Minnesota.
    Mr. Tarbert. Well, we----
    Senator Gillibrand. And New York.
    Mr. Tarbert [continuing]. and New York, absolutely. In 
fact, we have got a family vacation planned for Minnesota this 
summer so maybe we can tag on something.
    Senator Smith. Oh, good. We will get a plan.
    Mr. Tarbert. But, yes, thank you, Senator.
    Senator Smith. Thank you, Mr. Chair.
    Chairman Roberts. You may have to go to virtually every 
State that is represented here.
    Well, Coop, you are up.
    Senator Thune. High Noon, Mr. Chairman. All right. Thanks 
for having this hearing and thank you, Dr. Tarbert, for your 
willingness to serve.
    This is ground that has been plowed a little bit already, 
but I would like to just sort of reiterate, if I might, or have 
you reiterate your commitment with respect to this Memorandum 
of Understanding between EPA and CFTC dealing with RIN markets, 
and whether or not you intend to follow through on that and 
share any recommendations, you know, that process might come up 
with, with this Committee.
    Mr. Tarbert. Yes, Senator. Thank you. If confirmed, I would 
commit to share--maybe not publicly share but to meet with the 
Committee and brief the Committee and its staff.
    Senator Thune. Okay. Yesterday there was an announcement by 
the EPA on the expansion of E15, allowing for year-round sales, 
and also a reform of the RINs Market. I guess the followup 
question to that last question would be, do you see the CFTC 
perhaps being able to have a role in sharing ideas about how to 
create greater transparency in the ethanol market, assuming, 
again, that the RINs reforms that have been in this--that are 
put forward in this proposed rule are designed--I at least hope 
they are designed to bring greater transparency. Could you 
offer some of your insights about that as well, and that 
process?
    Mr. Tarbert. Yes. Thank you, Senator. I think it is 
important that the markets have a degree of transparency that 
makes them open, competitive, and does not lead to volatility 
and manipulation. So I think under the MOU with the EPA I 
would, if confirmed, assemble the right team, meet with the 
EPA, understand exactly what is going on with their transaction 
monitoring system now. I understand there are a number of 
fields that are filled, but, for example, price may not be one 
of them. So there are simple things like that that I think 
could add to the transparency and the data collection.
    Senator Thune. Yes. Good. There is a widely held view in 
farm country that the RIN market distorts and negatively 
impacts ethanol prices, and it is a very opaque market and 
there are a lot of questions and doubts about its transparency. 
So I think that anything that you and your organization and 
team can do to provide advice, insight, recommendations with 
respect to how to make that market more transparent I think 
would be greatly appreciated.
    Let me ask you, we hear complaints, and especially from our 
livestock producers, that the Chicago Mercantile Exchange, or 
CME, is not performing as it should. In other words, that 
cattle producers often think that it negatively impacts cattle 
prices, or affects cattle prices. Do you have any thoughts 
about that?
    Mr. Tarbert. I have had a briefing, both from members of 
the cattle industry as well as the CFTC. I think that there 
have been issues with cattle contracts in the past, and my 
understanding is that a great deal of work has been done. 
Perhaps more needs to be done, but certainly a great deal of 
work has been done, carcass delivery requirements, there are a 
number of things that have been put in place to make sure that 
the convergence problem either goes away or certainly is not 
acute. It is something that I think is still of concern to the 
cattle industry, and if confirmed, I would certainly look into 
that and keep that discussion ongoing.
    Senator Thune. Thank you. With the oversight of the CME 
that you will have at CFTC, based on what you know now, are 
there any CME activities that concern you regarding 
transparency or price manipulation?
    Mr. Tarbert. Based on what I know now, no.
    Senator Thune. All right. Well, I hope that as you get into 
the job and take a look at some of these issues, you know, 
obviously we hear from the front line, the people who are 
actually out there on the farm and the ranch on a daily basis. 
Having effective, transparent markets that allow them to 
effectively manage their risk is critically important. So we 
hope that, in your new role you will be able to focus on that, 
and if you have insights as you get into that role that you can 
share with us that would be greatly appreciated.
    So thank you again for your service. Mr. Chairman, I yield 
back the balance of my time.
    Chairman Roberts. I thank the distinguished Senator. 
Senator Gillibrand.
    Senator Gillibrand. Thank you, Mr. Chairman. In 2016, then 
candidate Trump campaigned on the idea of separating commercial 
banking from riskier financial activities. Has President Trump 
or anyone in the White House, including his economic team and 
the National Economic Council, spoken to you or anyone at the 
CFTC about reinstating an updated version of Glass-Steagall or 
any action that would divide commercial banking from more 
riskier financial activity?
    Mr. Tarbert. No, Senator Gillibrand. No one has spoken to 
me about that.
    Senator Gillibrand. Have you examined how the CFTC may be 
employed through regulation and enforcement to separate 
derivatives dealing from commercial banking under a new Glass-
Steagall rule?
    Mr. Tarbert. I personally have not, nor have I been 
directed, in my current capacity in the International Division.
    Senator Gillibrand. I would be grateful if you would 
consider it and give advice to our office, just so we know what 
your perspective on that issue is, because it is an issue that 
will be debated again and one that is important to New York.
    Second, the increasing dominance of automated trading is 
one of the biggest transformations occurring in the financial 
markets today. Automation has made trading faster and, in some 
cases, cheaper, but it has also contributed to the disturbing 
number of significant market disruptions in markets ranging 
from equities to treasures to commodities. The CFTC has 
investigated and documented repeated flash crashes in CFTC-
regulated markets.
    The Commission proposed a rule, Reg AT, to create better 
oversight and protections around automated trading but progress 
on this rule appears to have stopped in recent years. Will you 
reopen Reg AT and do you believe we need to take steps for 
better oversight of automated trading?
    Mr. Tarbert. Thank you, Senator. Yes, if confirmed, Reg AT 
would be something I would want to get back up and running in 
terms of the process of considering it. As I mentioned in my 
oral statement, we have got these new technologies. They come 
with opportunities and they also come with risk.
    I also think what is important is that the CFTC continue 
its analytical studies. They have done some studies in the past 
but those are using old data, so I think it is something that 
we continually need to monitor. I think also the clearinghouses 
and the exchanges need to also put in relevant risk management 
dealing with automated algorithmic trading.
    Senator Gillibrand. I am concerned, you know, the stock 
market and stock prices used to reflect the value of a company, 
and under this new environment I do not think flash trading 
does that, actually. I think it is not related to value. It is 
related to speed of trading. Do you have any thoughts on that?
    Mr. Tarbert. That would be a concern, in that we are seeing 
lots of volatility. Many of the exchanges over the years, for 
80 years, have actually had sort of circuit breakers and things 
that they have had in effect that have reduced the ability of 
huge price swings, and I think those would be the kinds of 
things we would want to look at, to make sure that prices are 
actually reflecting the underlying demand and not something 
else, and certainly not fraud and manipulation.
    Senator Gillibrand. Right. The U.S. derivatives market is 
approximately worth $337 trillion. Currently the CFTC's budget 
is $268 million for Fiscal Year 2019, far below other 
prudential regulators with similar regulatory responsibilities. 
While previous budgetary requests asked for a 32 percent 
increase, do you not think that Congress should look at how 
other prudential regulators, like the SEC, use mandatory 
funding mechanisms to provide more reliable and standard 
funding sources for the CFTC? Also related, how would a capital 
infusion help CFTC better carry out its regulatory 
responsibilities, specifically for technology upgrades, live-
time reporting, and retaining qualified staff?
    Mr. Tarbert. Thank you. First of all, the CFTC absolutely 
has to have the resources needed to do its job. As to how it 
gets those resources, I mentioned before that I think it is a 
decision for elected officials, and that if you decide to go in 
one direction or another, just given the important issues at 
stake--congressional oversight, tax----
    Senator Gillibrand. I do not think it is just our job. I 
think you have to make recommendations, because it is your job 
to do what the CFTC is required to do. So your input will be 
necessary for Congress to make those decisions.
    Mr. Tarbert. If confirmed, we would provide the relevant 
technical expertise to be able for you to understand the 
relevant tradeoffs. Absolutely.
    Senator Gillibrand. Correct. I am little concerned, now 
that you mention resources, that as we consider your nomination 
there are many, many posts in the financial regulatory 
ecosystem that are sitting empty, mainly with minority party 
nominees. With this process controlled by the Trump 
administration the CFTC has a full commission, but there are 
open seats in critical agencies such as the SEC and the FDIC. 
You want to be the chairman of one of these regulators. You 
currently work at Treasury, where you are deeply involved with 
many actors and financial market participants.
    Do you not agree that commissions like the CFTC and your 
counterparts operate best when they have representatives from 
both majority and minority, as contemplated by the statute that 
created them?
    Mr. Tarbert. Yes, I do.
    Senator Gillibrand. In your experience at Treasury and 
elsewhere, what problems have you seen from regulators with 
open seats?
    Mr. Tarbert. Well, one issue--and the CFTC faced this a few 
years ago--was quorum. Because they only had three people none 
of the commissioners could actually talk with one another, so 
it was a very bizarre situation. They could not even take the 
same elevator up.
    Senator Gillibrand. Thank you. Thank you, Mr. Chairman.
    Chairman Roberts. Thank you, Senator. Senator Fischer.
    Senator Fischer. Thank you, Mr. Chairman. Mr. Tarbert, our 
farmers and ranchers rely on commodity markets to hedge or to 
ensure the price of their products for harvest, and as farm 
commodity prices decrease, which we are seeing, the ability to 
hedge is more critical than ever before. These hedges are often 
the difference between a profitable year and an unprofitable 
one for my neighbors in Nebraska. When markets become illiquid 
it is harder for them to hedge their crops. It may also raise 
the cost of these hedges.
    Can you, broadly speaking, identify what you see as the 
biggest threats to this liquidity?
    Mr. Tarbert. Yes. I think one of the big threats to 
liquidity that I have seen, or at least heard about from 
briefings, is convergence, that some of the contracts are not 
actually converging, and therefore farmers and ranchers in 
Nebraska and other States cannot actually use these contracts 
to hedge. When they do not converge there are fewer people 
using them, and then of course, there is less liquidity. 
Liquidity is critically important, for a variety of reasons.
    Senator Fischer. Can you tell me some?
    Mr. Tarbert. Sure. First of all, liquidity is absolutely 
necessary for the futures markets. The forwards markets can go 
without liquidity but the futures markets need liquidity. We 
have seen examples over the years where contracts have actually 
been taken off exchanges because there has not been liquidity.
    Obviously, bid ask spreads are affected by liquidity, so 
farmers and ranchers will pay more for illiquid contracts, all 
things being equal, than other ones. There is also the question 
of if you want to get out of a position or change because your 
dynamics have changed. If the contracts are illiquid it is much 
harder to do that.
    Then finally, going to an issue that we talked about--I had 
talked about with Senator Smith, is clearinghouses. Illiquid 
contracts are actually much harder to clear and present more 
risk issues for clearinghouses.
    Senator Fischer. When I am back home in Nebraska and I 
speak to community bankers they are telling me the difficulty 
of offering commodity products for fear of running afoul of the 
Volcker Rule. I believe that this rule was meant for Wall 
Street bankers, not for farmers and ranchers and community 
banks, and these farmers and bankers did not create the crisis 
and yet they are being punished, along with larger investment 
banks.
    As you know, farming is a risky business and we should 
encourage and not punish efforts that people are trying to use 
tools so that they can manage that financial risk.
    Last Wednesday it was announced that there could be further 
delays in improving this rule, so I ask for two commitments 
from you. First, can you promise to work with other agencies to 
ensure that any revised Volcker Rule ensures that end users, 
like farmers and ranchers, have access to these products?
    Mr. Tarbert. Yes.
    Senator Fischer. And second, could you please ensure that 
this is released in a timely manner, so our farmers can have 
some certainty?
    Mr. Tarbert. On that I would make every effort.
    Senator Fischer. Thank you.
    As you know, I am supporting some bipartisan legislation 
that is authored by my good friend from Idaho, Mike Crapo. The 
goal of this bill is to provide targeted relief to community 
banks. I hope that you will have the opportunity to visit 
Nebraska, if you become Chairman--we would be happy to welcome 
you--and you will see that farmers rely on agricultural lending 
from our community banks. It is a bipartisan bill that we have 
before us and it included a provision exempting small banks 
from the Volcker Rule. Can you speak about your vision for 
implementing that bill?
    Mr. Tarbert. Yes, I do not know the extent to which the 
CFTC would have implementing authority, but if confirmed I 
would certainly work with all of the relevant regulators 
because I agree. I cannot agree with you more.
    I actually spent 7 years working on the Volcker Rule, 
advising clients all over the world, mainly larger financial 
institutions, and it is one of the most complex rules that is 
out there, literally 1,000 pages of regulations and 
explanations. While I think there are important policy reasons 
for why it is in place, with respect to large institutions, in 
my view it is not really appropriate for community banks, and 
there needs to either be tailoring or just simply exempting 
them altogether, where appropriate.
    Senator Fischer. Thank you. I believe it is a bipartisan 
goal here in Congress that we try to provide tools for family 
farms. Everyone realizes the benefits we have as States, 
individual States, and also as a country, when family farmers 
are able to manage their business, because it is a business. It 
is not a hobby. We feed the world. To do that we have to have 
tools that are available, but that also do not create 
additional burdens or add additional costs to farms in order to 
make a living.
    So thank you very much.
    Mr. Tarbert. Thank you.
    Chairman Roberts. Thank you, Senator Fischer.
    That will conclude our hearing today. I want to thank the 
nominee for taking time to address this Committee, and to 
answer the Committee's questions. It is clear, at least to the 
Chairman, and I think the Ranking Member shares my view, that 
you are more than qualified to join the administration in the 
role as Chairman of the CFTC.
    We learned a great deal today. Your testimony provides us 
significant information, a solid basis upon which to report you 
favorably out of Committee. Per our rules, we cannot do so 
today--I wish we could--but we will endeavor to do so in the 
very near future.
    To that end I would request my fellow members that if they 
have any additional questions for the record they be submitted 
to the Committee Clerk by this Thursday, March 14th, by 5 p.m. 
We look forward to receiving your responses and to further 
considering your nomination.
    Senator Stabenow and I have one more question. What did you 
feed Ben and Nathaniel for breakfast this morning?
    [Laughter.]
    Chairman Roberts. My eldest daughter has three young boys. 
They were all three born 10 yards offside. I doubt if they 
could sit there quietly, clad in bowties, well dressed and well 
behaved. To what do you attribute this? I am starting to get a 
little more optimistic about the next generation.
    Mr. Tarbert. Well, their mother and grandmothers, Mr. 
Chairman, have done an excellent job. Normally Saturday 
mornings is Pancake Day, but we decided to have it today, 
because of this auspicious occasion.
    Chairman Roberts. That is the secret. All right. Does that 
work for your Democrat brother?
    [Laughter.]
    Chairman Roberts. Do you have to have additional syrup on 
the pancake?
    All right. The Committee is adjourned.
    [Whereupon, at 11:16 a.m., the Committee was adjourned.]

      
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