[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]



                           STATE OF THE CFTC

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

                                HEARING

                               BEFORE THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 31, 2022

                               __________

                           Serial No. 117-31
                           
                           
                           
                 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                           

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

			       __________
			     
	            U.S. GOVERNMENT PUBLISHING OFFICE
			     
49-768 			    WASHINGTON : 2022



                        COMMITTEE ON AGRICULTURE

                     DAVID SCOTT, Georgia, Chairman

JIM COSTA, California                GLENN THOMPSON, Pennsylvania, 
JAMES P. McGOVERN, Massachusetts     Ranking Minority Member
FILEMON VELA, Texas                  AUSTIN SCOTT, Georgia
ALMA S. ADAMS, North Carolina, Vice  ERIC A. ``RICK'' CRAWFORD, 
Chair                                Arkansas
ABIGAIL DAVIS SPANBERGER, Virginia   SCOTT DesJARLAIS, Tennessee
JAHANA HAYES, Connecticut            VICKY HARTZLER, Missouri
ANTONIO DELGADO, New York            DOUG LaMALFA, California
SHONTEL M. BROWN, Ohio               RODNEY DAVIS, Illinois
BOBBY L. RUSH, Illinois              RICK W. ALLEN, Georgia
CHELLIE PINGREE, Maine               DAVID ROUZER, North Carolina
GREGORIO KILILI CAMACHO SABLAN,      TRENT KELLY, Mississippi
Northern Mariana Islands             DON BACON, Nebraska
ANN M. KUSTER, New Hampshire         DUSTY JOHNSON, South Dakota
CHERI BUSTOS, Illinois               JAMES R. BAIRD, Indiana
SEAN PATRICK MALONEY, New York       CHRIS JACOBS, New York
STACEY E. PLASKETT, Virgin Islands   TROY BALDERSON, Ohio
TOM O'HALLERAN, Arizona              MICHAEL CLOUD, Texas
SALUD O. CARBAJAL, California        TRACEY MANN, Kansas
RO KHANNA, California                RANDY FEENSTRA, Iowa
AL LAWSON, Jr., Florida              MARY E. MILLER, Illinois
J. LUIS CORREA, California           BARRY MOORE, Alabama
ANGIE CRAIG, Minnesota               KAT CAMMACK, Florida
JOSH HARDER, California              MICHELLE FISCHBACH, Minnesota
CYNTHIA AXNE, Iowa                   JULIA LETLOW, Louisiana
KIM SCHRIER, Washington              ------
JIMMY PANETTA, California
SANFORD D. BISHOP, Jr., Georgia

                                 ______

                      Anne Simmons, Staff Director

                 Parish Braden, Minority Staff Director

                                  (ii)
                             C O N T E N T S

                              ----------                              
                                                                   Page
Scott, Hon. David, a Representative in Congress from Georgia, 
  opening statement..............................................     1
    Prepared statement...........................................     2
Thompson, Hon. Glenn, a Representative in Congress from 
  Pennsylvania, opening statement................................     3

                                Witness

Behnam, Hon. Rostin, Chairman, Commodity Futures Trading 
  Commission, Washington, D.C....................................     4
    Prepared statement...........................................     7
    Supplementary material.......................................    47
    Submitted questions..........................................    47

 
                           STATE OF THE CFTC

                              ----------                              


                        THURSDAY, MARCH 31, 2022

                          House of Representatives,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 10:03 a.m., in Room 
1300 of the Longworth House Office Building, Hon. David Scott 
of Georgia [Chairman of the Committee] presiding.
    Members present: Representatives David Scott of Georgia, 
Costa, McGovern, Adams, Hayes, Delgado, Brown, Rush, Sablan, 
Kuster, Maloney, O'Halleran, Carbajal, Lawson, Craig, Axne, 
Schrier, Panetta, Thompson, Austin Scott of Georgia, Crawford, 
LaMalfa, Davis, Allen, Rouzer, Kelly, Bacon, Johnson, 
Balderson, Cloud, Mann, Feenstra, Miller, Moore, Cammack, and 
Letlow.
    Staff present: Lyron Blum-Evitts, Emily German, Josh 
Lobert, Victoria Maloch, Ashley Smith, Paul Balzano, Caleb 
Crosswhite, Kevin Webb, and Dana Sandman.

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

    The Chairman. Welcome, and thank you all for joining us 
today at our hearing, which is entitled, The State of the CFTC. 
And after opening remarks, Members will receive testimony from 
our witness today, and then the hearing will be open for 
questions.
    So I want to say to you, Chairman Rostin Behnam, 
congratulations on your appointment to this great, important, 
and powerful position as Chairman of our CFTC. Good to have you 
here.
    And for those watching at home, I would like to kind of 
share with you the important role of the CFTC and for all that 
it is doing, as well as historically. It was first brought in a 
bill to us and then it became its own independent entity. 
First, of course, you were with the USDA, and now we have done 
that. And it is so good to have you here. After brief opening 
remarks, as I said, our witness will begin.
    And for those of you who are watching on TV, I would like 
to provide you with a little bit of background, as I said, and 
let you know what a great moment this is for us. I do want to 
say this, that I want to come into this meeting with you 
understanding me as Chairman of our Agriculture Committee. I 
want you to know that, first of all, I am a graduate of our 
prestigious Wharton School of Finance where I got my MBA. And I 
am saying this to you because since I have been in Congress, I 
have been, shall we say, the protector of our great financial 
system. I also served on the executive board of directors of 
the Wharton School of Finance for a number of years.
    And also, in coming here, in the 20 years that I have been 
here, one of my foremost protective missions was for the CFTC. 
And I hope you understand what I am saying because I have such 
a great love and affection for our great financial system. And 
nowhere was that manifested when I had to stand up against the 
European Union when they wanted to take away the CFTC's right 
to regulate our cross-border clearinghouses. It was I and 
Ranking Member--I think it was Mike Conaway and Austin Scott. 
We all got together, and we told the European Union, hell no. 
You are not going to come and regulate any of our financial 
institutions.
    And so this is why this is important to me. I served on the 
House Agriculture Committee for 20 years, 10 of those as 
Chairman of the subcommittee on commodities, and the exchanges 
and futures, as well as energy and credit. Again, that gives me 
that credential. And even at the Wharton School, I was the one 
that premiered and put together the major thesis talking points 
on the great Alexander Hamilton.
    So I am just sharing that with you because I want you to 
understand my concern that I have with this cryptocurrency 
situation. I will be getting into that during our question-and-
answer period, but I wanted you to know my background and my 
love and affection for our great financial system. We have the 
greatest financial system in the world and, as I said, brought 
to us by none other than Alexander Hamilton. And I am sure you 
know the story.
    [The prepared statement of Mr. David Scott follows:]

 Prepared Statement of Hon. David Scott, a Representative in Congress 
                              from Georgia
    Good morning and welcome to today's hearing as we get an important 
update on the state of the Commodity Futures Trading Commission from 
Chairman Rostin Behnam.
    For those of you watching at home, I'd like to provide some 
background on the important work of the CFTC. The CFTC's mission `is to 
promote the integrity, resilience, and vibrancy of the U.S. derivatives 
markets through sound regulation.'
    Prior to the 1970s, USDA helped administer the Commodity Exchange 
Act, however, the Commodity Futures Trading Commission Act of 1974 
established the CFTC as an independent agency outside of the Department 
of Agriculture with greater powers.
    Chairman Behnam, I would like to extend a warm welcome to your 
first hearing with us in your tenure as Chairman.
    As you know I take a close personal interest in this area. Before I 
became Chairman of the Agriculture Committee, I was Subcommittee 
Chairman of the Commodity Exchanges, Energy, and Credit since it's 
inception. Our Committee weighed in mightily during the exit of Britain 
from the European Union to ensure that American markets were not harmed 
or put at a disadvantage during the implementation of EMIR 2.2. I stand 
ready to do so again if the need arises.
    I would like to congratulate you on the emphasis you have been able 
to place on the risk that climate change has presented to our markets 
with recent establishment of the Climate Risk Unit.
    CFTC was at the tip of the spear with the draft report issued by 
the Climate-Related Market Risk Subcommittee of the Market Risk 
Advisory Committee, Managing Climate Risk in the U.S. Financial System. 
I share your concern about climate change and extreme weather and look 
forward to working together with you.
    In a 2019 Subcommittee hearing, I highlighted a letter you sent 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.
    I said it then and I will say it again: diversity is a strength. I 
am glad that you are now the Chairman of the CFTC and can guide this 
important agency with an eye toward making sure that your staff and the 
markets that they oversee are working for everyone.
    In recent years we have seen an explosion of new markets and an 
ongoing shift in the role that digital assets and cryptocurrencies play 
in our financial institutions.
    I look forward to hearing updates on CFTC's oversight in these 
areas, as well as areas that we on the Committee should be shedding 
more light on.

    The Chairman. With that, Ranking Member, I will turn it 
over to you for any comments you have, sir.

 OPENING STATEMENT OF HON. GLENN THOMPSON, A REPRESENTATIVE IN 
                   CONGRESS FROM PENNSYLVANIA

    Mr. Thompson. Thank you, Mr. Chairman, much appreciated.
    Chairman Behnam, welcome. It is a pleasure to see you again 
and to have you before our Committee today to discuss the 
current state of the CFTC and your plans for the coming year. I 
want to begin by congratulating you on your unanimous 
confirmation, well done, which was a significant vote of 
confidence in you and for the Commission's work.
    You have important responsibilities before you, and we look 
forward to working with you and ensuring you have the tools to 
carry out the mandates that we have vested with the Commission.
    I would also like to congratulate you on the four nominees 
to the Commission, Ms. Christy Goldsmith-Romero, Ms. Kristin 
Johnson, Ms. Summer Mersinger, and Ms. Caroline Pham, who were 
officially confirmed earlier this week and will be joining you 
soon. The Commission works best when there is a full slate of 
Commissioners, and I am pleased that that is where we are at, 
and I am looking forward to that certainly in the coming weeks.
    Finally, I want to offer a heartfelt thanks to Commissioner 
Dawn Stump as she departs the Commission. Throughout her time 
in this role, I have always appreciated her engagement and her 
thoughtful approach to the issues. Our nation is better for her 
service.
    Chairman Behnam, you could not be appearing before the 
Committee at a more consequential time. There is so much to 
discuss. Two issues stand out for me: First, the war in 
Ukraine, which has brought misery to the Ukrainian people, but 
its effects are not isolated to Central Europe. Putin's 
reckless crimes have roiled commodity markets, impacting 
agricultural, energy, metal, and credit markets throughout the 
world. The efficient and effective operation of our commodity 
derivatives markets under the watchful eye of the CFTC plays a 
pivotal role in helping end-users navigate these turbulent 
times.
    Second, I am heartened by your calls to expand the CFTC's 
oversight of the digital commodity markets. As you know, I have 
been hard at work on the Digital Commodity Exchange Act (H.R. 
7614), legislation which provides the CFTC with jurisdiction 
over the digital commodity spot markets. And as we consider 
further regulations to protect consumers engaged with crypto-
trading venues, it is essential we do so in a manner that 
promotes innovation. The CFTC is well-poised to play a leading 
role in this effort.
    I also want to touch very briefly on the Commission's 
recent request for comment on FTX's proposal to amend its 
derivatives clearing organization registration order. And thank 
you for putting this out for public comment, in a very 
transparent way. This request presents a number of novel 
questions to the Commission to consider. It holds the promise 
of lowering-cost for market participants and reducing end-user 
risk through the clearing system but also raises significant 
issues regarding market structures and risk mitigation that 
should be explored frankly and publicly, and I commend you for 
seeking input of market professionals and the public as a part 
of your consideration of the request.
    One key characteristic of the Commodity Exchange Act is the 
flexibility it provides under its core principles for 
businesses to experiment and to innovate new ways to meet 
longstanding regulatory goals. It is through the consistent 
application of these core principles that our markets and 
financial markets have become leaders in innovation across the 
globe.
    Now, this proposal, like all proposals that come before the 
Commission, should be measured against those core principles 
that the CFTC has actually become well known for. And I look 
forward to a meaningful, substantial, and, importantly, public 
debate about both safety and innovation in our markets so 
American derivatives markets will remain the most liquid, most 
efficient, and most productive markets in the world.
    Chairman Behnam, I really look forward to your comments 
today, and thank you for joining us. And thank you, Mr. 
Chairman, for this opportunity today. And with that, I yield 
back.
    The Chairman. The chair would request that other Members 
submit their opening statements for the record so Chairman 
Behnam may begin his testimony and to ensure that there is 
ample time for questions.
    Our witness today is the Chairman of the Commodity Futures 
Trading Commission, Mr. Rostin Behnam. Chairman Behnam, we 
welcome you to the House Agriculture Committee. And Chairman 
Behnam, please begin when you are ready.

          STATEMENT OF HON. ROSTIN BEHNAM, CHAIRMAN, 
             COMMODITY FUTURES TRADING COMMISSION, 
                        WASHINGTON, D.C.

    Mr. Behnam. Thank you, Chairman Scott and Ranking Member, 
for those comments. Before I begin, Mr. Chairman, I appreciate 
your comments earlier. And quite frankly, we are lucky to have 
you in the role you are in right now and given the experience 
you have, so we appreciate that wholeheartedly from the CFTC's 
perspective and look forward to working with you in your role 
as Chairman.
    Good morning, Chairman Scott, Ranking Member Thompson, and 
Members of the Committee. I appreciate the opportunity to 
discuss the state of the CFTC and provide an overview of 
current priorities. Before I begin, I would like to acknowledge 
my colleague and friend Commissioner Dawn Stump for her 
tireless service and dedication to the agency. I also want to 
thank agency staff. And finally, I do want to congratulate and 
welcome Christy Goldsmith Romero, Kristin Johnson, Summer 
Mersinger, and Caroline Pham, who, as Ranking Member Thompson 
noted, were recently confirmed earlier this week.
    As the agency continues transitioning away from and 
considering life after the pandemic, we are witnessing 
transformative change throughout our industry and in the 
markets that we oversee. During this time of transition, I am 
committed to collaboration and careful deliberation among our 
core of new Commissioners, with stakeholders, and with our 
regulatory peers as we address new and emerging risks and 
opportunities. Under my leadership, the CFTC will exercise 
utmost care, patience, and diligence as we move forward on 
critical decision points.
    However, this ongoing transformation will not distract the 
CFTC from staying true to its historic responsibilities and 
ensuring America's farmers, ranchers, manufacturers, and other 
commercial end-users continue to have cost-effective access to 
CFTC-regulated markets in order to manage risk. The derivatives 
industry's population is shifting, having increasingly emerged 
from the technology sector rather than traditional finance. We 
are also seeing an influx of retail participants empowered by 
information and technology. As a core purpose of the Commodity 
Exchange Act is the promotion of responsible innovation and 
fair competition, the agency will continue to provide a steady 
hand as we make decisions that will impact our markets and the 
larger economy in the years ahead.
    Before I move to our agency priorities, I would like to 
take a moment to provide a high-level overview of the CFTC's 
response to, and our observations regarding, the ongoing 
conflict in the Ukraine. The CFTC is on heightened alert with 
respect to market functionality and resilience, and in 
fortifying the agency against cyber attacks. Prior to the 
invasion in anticipation of the possible implementation of 
sanctions, I worked directly with the Treasury Department to 
ensure that general licenses would be available where 
appropriate and CFTC staff are in routine contact with 
exchanges as its sanctions and related volatility may alter 
affected index, currency, and physical commodity settlements.
    As the invasion became a reality, the ongoing tragedy in 
Ukraine has sparked extreme volatility with key markets 
exhibiting 20 percent higher volatility as compared to that 
observed prior to the invasion. By and large, the U.S. futures 
markets have remained orderly through periods of high prices 
and extreme volatility, consistently demonstrating strong 
correlation between futures and cash prices and good 
convergence towards contract expiration.
    To date, the CFTC has observed a relative balance in buying 
and selling, indicating that trading has not been panic-driven. 
And despite episodic spikes in trading volume by as much as two 
times normal level, markets have been able to clear the volumes 
without significant market disruption.
    CFTC surveillance staff are closely examining trading 
activity for manipulative, inappropriate, or disruptive 
conduct. Commission staff in the Divisions of Market Oversight, 
Clearing and Risk, and Market Participants are actively 
monitoring compliance by exchanges, self-regulatory 
organizations, and intermediaries for trade processing, 
execution, and clearing. CFTC staff are using every tool the 
agency has to ensure that commodity markets continue to fairly 
and transparently serve the intended price discovery and risk 
management function, and this includes monitoring for excessive 
speculation.
    With the benefit of hindsight and real-time market 
experience, a top priority of my chairmanship will be the 
active review of the agency's Dodd-Frank rulemakings, ensuring 
they remain fit for purpose as Congress intended. The market 
turmoil related to the global pandemic tested the resiliency of 
the derivatives markets and post-crisis reforms. In fact, 
volatility in the global financial markets during March and 
April of 2020 and the current volatility linked to geopolitical 
issues continue to raise challenges related to liquidity and 
margin requirements. This fuels active debate on the need for 
additional tools and resources to manage risks, including 
collateral management. Through all these events, U.S. central 
counterparties remain strong and among the strongest in the 
world.
    Nonetheless, given the role of central clearing as a 
critical tool in mitigating systemic risk and global financial 
markets, the Commission expects to grow its stress-testing 
program to help ensure resilience in absorbing both market and 
systemic shocks in the future. The Commission will continue 
working with our international counterparts. We will advance 
thoughtful policy, encourage a collaborative approach that 
supports strong and transparent regulation and preserves the 
primacy of home country jurisdiction while discouraging the 
appeal of racing to the regulatory bottom.
    The effectiveness of the CFTC's Division of Enforcement in 
holding individuals and institutions accountable promotes 
confidence in U.S. derivatives markets. DOE will prioritize the 
use of cutting-edge investigative and analytical techniques and 
assert the CFTC's fraud and manipulation jurisdiction where 
doing so preserves market integrity and protects the public. A 
part of the enforcement program's success is rooted in its 
Whistleblower Program. I am grateful to this Committee's long-
standing support of the Whistleblower Program and continue to 
stand ready to ensure its long-term success.
    The CFTC's enforcement program is only as good as the tools 
we have to identify bad actors. To further support DOE's 
efforts, I have directed our Division of Data to transform the 
agency's analytics toolkit to leverage the cloud architecture 
with advancements in artificial intelligence, machine learning, 
and data analytics.
    Recent market events highlights the increasing concerns for 
potential cyber attacks against American critical 
infrastructure, including U.S. financial markets. To that end, 
I have directed staff in the Market Participants Division to 
develop policy to address system safeguards for futures 
commission merchants, swap dealers, and major swap 
participants, further fortifying CFTC markets from an attack by 
adding to the suite of system safeguards that are currently in 
place.
    As the CFTC and the derivatives and larger financial 
industry accelerate towards migration to cloud technologies, we 
are also mindful of the potential risks as we look forward to 
exploring those benefits. President Biden's Executive Order on 
Ensuring Responsible Development of Digital Assets acknowledges 
that the growth and widespread adoption of digital assets 
presents novel issues for all regulators. The CFTC will 
continue its proactive approach in using our existing 
enforcement authority in the digital asset commodity space to 
protect customers and markets from fraud and manipulation. I 
look forward to coordinating with fellow agencies, as outlined 
in the Executive Order, and with Members of this Committee on 
these important issues.
    Turning to another area of increasing coordination, just 
over a year ago I announced the creation of the Climate Risk 
Unit to focus on the role of derivatives and understanding 
pricing and mitigating climate-related risk and supporting the 
orderly transition to a low-carbon economy through market-based 
initiatives.
    And finally, as one of my first official actions as 
Chairman, I announced the hiring of the agency's first Chief 
Diversity Officer to provide leadership and executive direction 
on the Commission's efforts to integrate DEIA into every aspect 
of our talent and business operations. Despite uncertain times 
and great market volatility, I am optimistic and confident that 
the CFTC will be able to meet the demands of the public and the 
markets that we serve.
    In closing, I wish to thank the Committee for its continued 
support. We will always be judicious with our resources, 
grateful for the privilege we have to serve, and request 
additional funds when needed to meet the growing demands of the 
agency and its markets. Thank you, Mr. Chairman, and I look 
forward to answering your questions.
    [The prepared statement of Mr. Behnam follows:]

 Prepared Statement of Hon. Rostin Behnam, Chairman, Commodity Futures 
                  Trading Commission, Washington, D.C.
Introduction
    Good morning, Chairman Scott, Ranking Member Thompson, and Members 
of the Committee. I appreciate the opportunity to discuss the state of 
the Commodity Futures Trading Commission (the ``CFTC'' or ``Agency'') 
and provide an overview of current priorities.
    Before I begin, I would like to acknowledge my colleague and 
friend, Commissioner Dawn Stump for her tireless service and dedication 
to the CFTC and the markets we oversee. I also want to thank Agency 
staff; their dedication and expertise ensures our greatest success 
towards achieving our mission.
    And finally, I wish to congratulate and welcome Christy Goldsmith 
Romero, Kristin Johnson, Summer Mersinger, and Caroline Pham whose 
nominations were confirmed by the Senate on Monday.
    As the Agency continues transitioning away from and considering 
life after the pandemic, we are witnessing transformative change 
throughout our industry and the markets we oversee. During this time of 
transition, I am committed to collaboration and careful deliberation 
among our corps of new Commissioners, with stakeholders and our 
regulatory peers as we address new and emerging risks and 
opportunities. Under my leadership, the CFTC will exercise utmost care, 
patience, and diligence as we move forward on critical decision points.
    However, this ongoing transformation will not distract the CFTC 
from staying true to its historic responsibilities, and ensuring 
America's farmers, ranchers, manufacturers, and other commercial end-
users continue to have cost-effective access to CFTC regulated markets 
to manage risk. To that end, I wish to acknowledge the key role that 
the National Futures Association, our designated registered futures 
association, and other industry self-regulatory organizations play in 
safeguarding the integrity of the derivatives markets by, among other 
things, ensuring that their members understand and meet their 
regulatory responsibilities.
    The derivatives industry's population is shifting, having 
increasingly emerged from the technology sector rather than traditional 
finance. We are also seeing an influx of retail participants empowered 
by information and technology. As a core purpose of the Commodity 
Exchange Act is the promotion of ``responsible innovation and fair 
competition among boards of trade, other markets and market 
participants,'' \1\ the Agency will continue to provide a steady hand 
as we make decisions that will impact our markets and the larger 
economy in the years and decades to come.
---------------------------------------------------------------------------
    \1\ 7 U.S.C.  5(b).
---------------------------------------------------------------------------
    Right now, a confluence of unique externalities is having 
consequential effects on markets and informing our most immediate 
decision-making. In all that we do, the CFTC will, as it always has, 
prioritize identifying, assessing, and evaluating risk. We will 
continue to establish appropriate tolerances and guardrails within our 
regulatory space to minimize disruption, maintain a level playing 
field, and adhere to the letter and spirit of our mission and purpose 
under the Commodity Exchange Act.
Recent Events
    Before I move on to our key Agency priorities, I would like to take 
a moment to provide a high-level overview of the CFTC's response to and 
observations regarding the ongoing conflict in Ukraine. The CFTC is on 
heightened alert with respect to market functionality and resilience, 
and fortifying the agency against cyberattacks.
    Prior to the invasion, and in anticipation of the possible 
implementation of sanctions, I worked with the Treasury Department to 
ensure that General Licenses would be available, where appropriate, and 
ready to be used to manage and address exposures to affected market 
participants. CFTC staff are in routine contact with exchanges as 
sanctions and related volatility may alter affected index, currency, 
and physical commodity settlements.
    As the invasion became a reality, the ongoing tragedy in Ukraine 
has sparked extreme volatility, with key markets exhibiting 20% higher 
volatility as compared to that observed prior to the invasion. By and 
large, the U.S. futures markets have remained orderly through periods 
of high prices and extreme volatility, consistently demonstrating 
strong correlation between futures and cash prices, and good 
convergence towards contract expiration. To date, CFTC staff have 
observed a relative balance in buying and selling, indicating that 
trading has not been panic driven, and despite episodic spikes in 
trading volume by as much as two times normal levels, markets have been 
able to clear the volumes without significant market disruption.
    CFTC surveillance staff are closely examining trading activity for 
manipulative, inappropriate or disruptive conduct. Commission staff in 
the divisions of Market Oversight (DMO), Clearing and Risk (DCR), and 
Market Participants (MPD) are actively monitoring compliance by 
exchanges, self-regulatory organizations, and intermediaries for trade 
processing, execution, and clearing.
    CFTC staff are using every tool the agency has to ensure that 
commodity markets continue to fairly and transparently serve the 
intended price discovery and risk management function, and this 
includes monitoring for excessive speculation.
Current Agency Priorities
    With the benefit of hindsight and real-time market experience, a 
top priority of my Chairmanship will be the active review of the 
agency's Dodd-Frank rulemakings, ensuring they remain fit for purpose 
and as Congress intended.
    The market turmoil related to the global pandemic tested the 
resilience of the derivatives markets and post-financial crisis 
reforms. In fact, volatility in the global financial markets during 
March and April 2020, and the current volatility linked to geopolitical 
issues, continue to raise challenges related to liquidity and margin 
requirements. This fuels active debate on the need for additional tools 
and resources to manage risks, including collateral management. Through 
all of these events, U.S. central counterparties (CCPs) remain among 
the strongest in the world.
    Nonetheless, given the role of central clearing as a critical tool 
in mitigating systemic risk in global financial markets, the Commission 
expects to grow its stress testing program to help ensure resilience in 
absorbing both market and systemic shocks.
    The interconnectedness of global financial markets requires 
persistent engagement towards maintaining resiliency and protecting the 
financial system and U.S. economy from future crises and addressing any 
duplicative cross-border regulation. To that end, the Commission will 
continue working with our international counterparts, and participating 
in international standard setting bodies and bilateral and multi-
lateral discussions. We will advance thoughtful policy, encourage a 
collaborative approach towards a cohesive cross-border regulatory 
framework that supports strong and transparent regulation, and 
preserves the primacy of home-country jurisdiction, while discouraging 
the appeal of racing to the regulatory bottom in individual 
jurisdictions.
    As we have demonstrated these last several years with the LIBOR 
transition, safeguarding the stability of the U.S. and global financial 
system requires ongoing international coordination and collaboration. 
And while we can build consensus and identify and effectuate solutions, 
as with LIBOR, we must resist the pull of complacency and continue to 
remain responsive and vigilant to new risks as they emerge.
    The effectiveness of the CFTC's Division of Enforcement (DOE) in 
holding individuals and institutions accountable promotes confidence in 
U.S. derivatives markets. DOE will prioritize the use of cutting edge 
investigative and analytical techniques, and assert the CFTC's fraud 
and manipulation jurisdiction where doing so preserves market integrity 
and protects the public.
    A part of the enforcement program's success is rooted in its 
Whistleblower Program. I am grateful to this Committee's longstanding 
support of the Whistleblower Program, and continue to stand ready to 
ensure its long-term success.
    The CFTC's enforcement program is only as good as the tools we have 
to identify bad actors. To further support DOE's efforts, I have 
directed our Division of Data to transform the agency's analytics 
toolkit to leverage the cloud architecture with advancements in AI, 
machine learning, and data analytics. This will provide our robust 
surveillance and monitoring capabilities with automated systems, 
helping to ensure our markets have the utmost integrity and 
transparency.
    Recent market events highlight the increasing concerns for 
potential cyberattacks against American critical infrastructure, 
including U.S. financial markets. To that end, I have directed staff in 
the MPD to develop policy to address system safeguards for futures 
commission merchants (FCMs), swap dealers, and major swap participants, 
further fortifying CFTC markets from an attack. These policies, if 
enacted, would complement the suite of system safeguards currently in 
place for CFTC registered central counterparties (derivatives clearing 
organizations or ``DCOs''), designated contract markets (DCMs), swap 
execution facilities (SEFs), and swap data repositories (SDRs).
    The CFTC, along with the derivatives and larger financial industry, 
is accelerating our migration to cloud technologies to store, analyze, 
and ingest this data more cost-effectively and efficiently. We are also 
mindful of the potential risks as we look forward to exploring the 
benefits. We will continue to be vigilant in our own progress and 
ensure that our registrants instill and employ a high level of 
oversight and due diligence with respect to related resilience planning 
and operational risk management.
New & Emerging Risks
    President Biden's recent Executive Order on Ensuring Responsible 
Development of Digital Assets acknowledges that the growth and 
widespread adoption of digital assets presents novel issues for all 
regulators. Against this backdrop, the CFTC has actively used our 
existing statutory authority to deter fraud and manipulation in these 
emerging markets. The CFTC will continue its proactive approach in 
using our existing enforcement authority in the digital asset commodity 
space to protect customers and markets from fraud and manipulation. I 
look forward to coordinating with fellow agencies as outlined in the 
Executive Order. Concurrently, I look forward to working with Members 
of this Committee on these important issues.
    Turning to another area of increasing coordination, just over a 
year ago, I announced the creation of the Climate Risk Unit (CRU) to 
focus on the role of derivatives in understanding, pricing, and 
mitigating climate-related risk, and supporting the orderly transition 
to a low-carbon economy through market-based initiatives. The CRU is 
primarily responsible for accelerating early CFTC engagement in support 
of market-driven processes in the climate space, and building 
resiliency from the effects of climate change.
    Finally, I spent the last several years at the CFTC raising 
concerns regarding the lack of diversity, equity, inclusion and 
accessibility (DEIA). Earlier this year, as one of my first official 
actions as Chairman, I announced the hiring of the agency's first Chief 
Diversity Officer (CDO), to provide leadership and executive direction 
on the Commission's efforts to integrate DEIA into every aspect of our 
talent and business operations.
Conclusion
    Despite uncertain times and great market volatility, I am 
optimistic and confident that the CFTC will be able to meet the demands 
of the public and markets we serve, as we build our resources and 
staffing in critical areas to address new and emerging risks, 
cautiously shepherd innovation, and remain true to our core purpose in 
providing a means of managing and assuming price risks, discovering 
prices, and disseminating pricing information through trading in 
liquid, fair and transparent markets.
    In closing, I wish to thank the Committee for its continued support 
of the CFTC. This year, as the Agency stands on the precipice of 
transformative change alongside our markets, we will inevitably face 
new challenges requiring new and perhaps novel solutions. We will 
always be judicious with resources, grateful for the privilege we have 
to serve, and request additional funds when needed to meet the growing 
demands of the Agency.
    Thank you and I look forward to answering your questions.

    The Chairman. Chairman Behnam, thank you. Thank you very 
much for your important and very significant and timely 
testimony.
    At this time, Members will be recognized for questions in 
order of seniority, alternating between Majority and Minority 
Members. You will be recognized for 5 minutes each in order to 
allow us to get to as many questions as possible. And, as 
always, please, keep your microphones muted until you are 
recognized in order to minimize any background noise.
    Chairman Behnam, I recognize myself for the first 5 
minutes. And as I mentioned to you, my deep love and affection 
for our financial system, I believe I am in this place at the 
right time to do good work. And I call to your attention 
immediately just to give you an example, I referred to what the 
leadership on this Committee, both Democrats and Republicans, 
have done. But let me just give you an example going back to 
our derivatives, our cross-border, our clearinghouses. It was--
that's not that. But when Great Britain finally got their 
Brexit, you know what they wanted to do to us because we were 
Great Britain's equivalency partner, they said, ``Well, hey, 
let's put the United States in third country.'' I hated that 
right there. We are if nothing more than a first country. And I 
found out what third country was.
    But here is the point I am making. The reason that they 
went around in Europe and to others and said we need to do that 
is because this Congress has failed to reauthorize the CFTC for 
almost 12 years now. That is a weakness. We need to change 
that. And we are going to move to change it, to reauthorize it 
because people will say, ``Well, hey, if they have not been 
reauthorized by the Congress to be the regulatory agencies for 
our clearinghouses and for this, well, the European Union will 
stick in.'' So there are little things like that that we have 
to be careful of and watch.
    But let's get to this specific issue that concerns me 
greatly, and that is with our cryptocurrency business. Now, I 
understand that there is a proposal pending at the CFTC by a 
cryptocurrency exchange that is seeking approval to operate a 
new and untested exchange, that is seeking approval to operate 
in a new and untested system of clearing derivative trades. And 
I am very concerned about this, very much concerned about this 
proposal and the broad implications it poses, just like the 
other things that we have had to protect our financial system 
from and the implications across our markets and our 
intermediaries within this market.
    And it is not just impacting cryptocurrency. We are dealing 
with it all over. I am also on the Financial Services Committee 
in the House. We are dealing with it there. There is so much 
unknown about this.
    And so, as I said to you before, ever since the financial 
crisis, we have been moving to make sure that the CFTC's 
regulatory safeguards governing derivatives markets are the 
strongest that the world will have, and that the world will 
have full confidence in these critical markets. So I am very 
concerned that approval of this proposal, without due and 
proper consideration, will put all of that hard work at risk by 
allowing an untested, an unproven system that could very well 
make our derivatives regulatory system riskier and our customer 
protections much weaker. Your thoughts, Mr. Chairman?
    Mr. Behnam. Thank you, Chairman Scott. It is a very 
important question and a very important issue, and I would just 
assure you and this Committee that, as we are considering and 
contemplating the FTX proposal, we are doing it cautiously, we 
are doing it very deliberately, and we will be very patient as 
we consider the proposals and how they intersect and interact 
with the Commodity Exchange Act and, more importantly, the core 
principles.
    At this point, we have done a number of months of review 
within the Division of Clearing and Risk with FTX. At a point 
about a month or 2 ago I decided that, given the novelty of the 
issue and exactly what you pointed out, the unknown risks and 
the novelty of the market structure, that it was important for 
us to put out the proposal for public comment. I initially put 
out for 30 days. I extended that to 60 days, and we are in the 
middle of the public comment period to get ideas from all 
market participants, from academics and public interests, to 
see what their thoughts are on the market structure itself and 
the risk.
    I would say more generally two important things. Despite 
the novelty, as Chairman, I feel I have the responsibility to 
give every stakeholder, every market participant an opportunity 
to share their views and to present ideas that they have for 
the market. I think that is the responsibility of the agency 
and the U.S. Government.
    The second part is within the Commodity Exchange Act, 
specifically Section 3 [7 U.S.C. Section 5], we are mandated to 
support responsible innovation. And in many respects this 
proposal could be a turning point or an inflection point for 
market structure. I don't know that. I don't believe that right 
now, necessarily, but I do think I have to consider the 
proposal in case there is a possibility for a new market 
structure that could provide innovation, provide more efficient 
markets, better pricing, and better hedging tools.
    I would just use a quick example going back 30 years when 
electronic trading--underscoring electronic trading was 
starting to manifest itself. You probably had a lot of 
individuals on the iconic trading floors in Chicago and New 
York who were hesitant to think about electronic trading taking 
over our markets. But now here we are in 2022, electronic 
trading is fully embraced, and it is a technology that supports 
the innovation concept.
    The Chairman. My time is rapidly approaching, in a little 
bit it has gone over, but this needs far more review. It needs 
more oversight. This is a situation that I think that, based 
upon the concerns that I have heard, that this proposal 
thoroughly considers all of the potential impacts that it could 
have on this and particularly many of our clearinghouses and 
those people that we have always had to come in to help. So 
what I am asking is that we really put some good oversight to 
this, make sure questions are answered, and I also want to hear 
from the other side of this.
    And so I want everybody to know that I am going to put 
together a hearing on Tuesday, May 17th, and I am inviting to 
get their thoughts on this so we make sure that all sides are 
answered and have their concerns, so I am going to extend 
invitations to the CEOs of CME and ICE, the Intercontinental 
Exchange and Chicago Mercantile Exchange folks. We need to hear 
from everybody on this. You need to hear from them. We all do, 
just like we have had to do in previous occasions.
    As I said before, I take great pride in being the number 
one protector of our great nation's financial system here, 
serving both on our Financial Services Committee and here as 
Chairman. And so I appreciate this, and I appreciate your deep 
consideration. I am very concerned about this. Ranking Member, 
I will turn it over to you.
    Mr. Thompson. All right, Mr. Chairman, thank you. Chairman 
Behnam, I want to continue in the digital commodity space. I 
published a draft discussion of my Digital Commodity Exchange 
Act in November, and I am in the process of putting the 
finishing touches on that bill after receiving input on the 
draft from stakeholders. The discussion draft was grounded in 
five principles: number one, foster innovation, number two is 
to protect the market participants, number three is reduce 
complexity, four is to promote principle-based regulation, and 
five is to complement existing authorities where appropriate.
    Chairman Behnam, do you think that those are the 
appropriate principles that we should be considering as we 
explore regulating cash digital commodity markets?
    Mr. Behnam. Thanks, Ranking Member Thompson. I do. I think 
at its core many of the responsibilities that a potential 
digital asset marketplace or market structure would need are 
the same that we utilize and enforce and implement within the 
derivatives space. Obviously, the underlying asset is very 
different, but in terms of market structure and the principles 
that you just outlined, those are certainly a great starting 
point and something to build off of.
    Mr. Thompson. Excellent. If the CFTC were granted authority 
over the cash digital commodities market, would you adopt these 
same foundational principles in your associated rulemakings?
    Mr. Behnam. Yes.
    Mr. Thompson. Very good. Well, I certainly encourage all my 
colleagues, on both sides of the aisle to join me in this 
effort. We haven't introduced a bill yet. We would love to have 
a unified original cosponsor. We tend to do best when we speak 
with one voice in the Agriculture Committee.
    I want to revisit what the Chairman was talking about. You 
recently requested comment on a proposal by FTX that would 
allow it to provide direct clearing of margin trades by 
customers without the use of a futures commission merchant 
intermediary as it is traditionally done by clearinghouses. 
Chairman Behnam, I want to thank you for requesting public 
comment on this unique approach once again, and thank you for 
extending the comment period to ensure stakeholders have 
sufficient time to comment on this novel request or proposal. I 
appreciate your efforts to ensure that the Commission gives the 
proposal and the comments their full consideration, that the 
review process is transparent.
    But I would like to understand a little better the review 
process for an application like this and what steps beyond 
public comment periods will the Commission take to understand 
the impacts of the proposed changes requested in this 
application or any application? We are really looking at what 
are the structures within the Commission for these types of 
proposals.
    Mr. Behnam. Thanks, Ranking Member Thompson. There actually 
isn't a formal legal requirement about a process, per se. As I 
pointed out to the Chairman, we have been working with FTX for 
a number of months now in advance of releasing the public 
comment, and there is no prohibition or requirement that the 
current market structure be in place for existing market 
participants. So as of now, the FTX proposal, albeit novel, is 
neither prohibited nor in violation of the CEA. So we have gone 
through those first steps.
    We are going through this comment period right now, which 
will last to about the beginning of or mid-May. And then my 
intention, and my intention all along, was to conduct a staff 
roundtable towards the end of May and have a larger 
conversation about non-intermediation, not about FTX 
specifically, but just generally about non-intermediation. And 
the reason I think that is important is because this proposal 
from FTX is not the first proposal the CFTC has received on 
non-intermediation, and I assure you, regardless of what 
happens with FTX, approval or rejection, there will be more in 
the future. This is just a product of technology and the 
ability to create efficiencies potentially in market 
structures, so I think it is important as an agency, 
collectively with your input, that we start to dig into these 
questions, identify risks, identify opportunities, and hear all 
viewpoints so that we move in a more informed way and move 
towards a decision that is comprehensive, that is patient, and, 
as I said, deliberate so that we know all the facts about the 
proposal.
    Mr. Thompson. And thank you for that. And once the 
Commission has completed its review and is satisfied with its 
understanding of the application initially, what does the rest 
of the process look like? For example of some questions if you 
are able to answer them, is the Commission able to modify the 
proposal?
    Mr. Behnam. So the Commission could modify the proposal, 
but it would be really up to the registrant, in this case, FTX, 
if they were comfortable with the required modifications. This 
certainly happens a lot as we intersect or have conversations 
with market participants. There are some things they may want 
originally in a proposal, and we say, ``Look, this doesn't work 
because of our core principles or regulations. You need to 
tweak it here, tweak it there.'' And often registrants are 
comfortable with that. But depending on the modifications, it 
would really be up to FTX.
    Mr. Thompson. Yes, and just real quick and I know I am 
over, I apologize, Mr. Chairman, but I think it is helpful for 
us to understand the process.
    The Chairman. Yes.
    Mr. Thompson. Does the approval of this type of application 
require a majority Commission vote?
    Mr. Behnam. It does.
    Mr. Thompson. Okay. And this one may be asking for a 
crystal ball for you, and I understand that, but do you have 
any idea when will the Commission be in a position to vote on 
the application?
    Mr. Behnam. Ranking Member Thompson, only when we, and 
specifically myself as Chairman, feel that we are very 
comfortable with the proposal, we have checked all our boxes, 
we have looked at the structure and I feel like the Commission 
could make a vote that is well-informed after debate and 
consideration and hearing from all constituents.
    Mr. Thompson. Well, I don't think I am overreaching when I 
say I think both the Chairman and I appreciate that response 
when you are ready to make that decision. Thank you, Mr. 
Chairman. Thank you, both Chairmen.
    The Chairman. Thank you. And now I recognize the 
gentlewoman from North Carolina, Ms. Adams, who is also the 
Vice Chair of the Committee on Agriculture. You are recognized 
for 5 minutes.
    Ms. Adams. Thank you, Mr. Chairman. Thank you, Ranking 
Member Thompson, for hosting today's hearing. And to Chairman 
Behnam for testifying, thank you for being here today.
    Moreover, even though they are not here today, I do want to 
take a moment to congratulate our new Commissioners on their 
confirmations. Congratulations to Commissioners Christy Romero, 
Kristin Johnson, Summer Mersinger, and Caroline Pham.
    So Commissioner Behnam, as you may know, I sit on both the 
Agriculture and Financial Services Committee, where I oversee 
our financial system and agricultural markets. I understand 
that the CFTC has a request for comment out on FTX's 
registration order. I am not looking for you to comment on an 
ongoing process. Having said that, would you please speak to 
the implications of eliminating the current regime for 
intermediaries in the decentralized finance space?
    Mr. Behnam. Congresswoman, thanks for the question. As I 
said earlier, it really is an ongoing deliberation of what 
benefits and risks this proposal may present. As you point out, 
rightfully so, this is a novel concept about non-intermediation 
between end-user or retail investor and the exchange in the 
clearinghouse, but as we have been digging into the proposal, 
much of my thought has been focused on what our responsibility 
is as the CFTC is to engage with stakeholders, to hear and 
listen to their presentations and to view them in light of 
possibilities as much as risk. So I would certainly never be 
comfortable with allowing a proposal to be put into a market if 
we didn't think certainly it met our core principles and our 
regulations but that if customer protections were at high risk.
    However, as I pointed out earlier, it is very clear in the 
statute that we as the CFTC have a responsibility to support 
responsible innovation. And there is a possibility that within 
this market structure, given technology, given the ability to 
break down some of the segments between retail participation 
and trade execution, that this proposal could end up leading to 
more efficient trade execution and less risk in the system.
    Ms. Adams. So let me move on. Okay. Thank you so much, and 
I want to get to a couple of other questions. So let me move to 
another topic. I commend your stated efforts on improving 
diversity and inclusion at the CFTC, along with your work to 
create the agency's first Chief Diversity Officer. The need for 
a CDO is important. And according to the CFTC, the employee 
breakdown of management is woefully homogenous with only 14 
African Americans, ten Asian Americans, five Hispanic Americans 
at the grade level 15, and only 33 percent of your senior level 
employees are women. Number one, first of all, I do find that 
troubling. So what is your strategy to increase racial, ethnic, 
and gender diversity at the CFTC? And will the Commission plan 
to include recruitment from historically Black colleges and 
universities and minority-serving institutions?
    Mr. Behnam. Thank you, Congresswoman. To answer your second 
question first, yes, absolutely, and that is a part of the 
strategy with the Chief Diversity Officer, which I appreciate 
your recognition. I think this is a huge step for the agency. 
We are going to break down a lot of the silos and barriers that 
I think have restricted the agency in the past so that we can 
essentially be casting a wider net for recruitment and to 
support retention at the entry level all the way up to the 
senior level. I am optimistic about the future. It is going to 
take time, but I think with the inclusion of the Chief 
Diversity Officer and a real momentum towards expanding our 
scope and our invitation to potential employees, we have a real 
opportunity to diversify the agency.
    Ms. Adams. Well, certainly, and we look forward to that. 
And whatever help my office can give, I do chair the bipartisan 
HBCU Caucus, and we have the connections with our Partnership 
Challenge, and we will be happy to offer assistance to you. 
Thank you, sir. Mr. Chairman, I am going to yield back.
    The Chairman. The gentleman from Georgia, Mr. Austin Scott, 
is now recognized for 5 minutes.
    Mr. Austin Scott of Georgia. Thank you, Chairman Scott.
    And Chairman Behnam, in your testimony you highlight the 
fact that these are uncertain times and there is currently a 
lot of volatility in the markets. I think you used the term 
systemic shock. If you read any of the financial news, you see 
the terms weaker fundamentals, yield inversion, the word 
recession is being used increasingly, housing bubble. All of 
those things are very concerning to me, and especially at the 
point that the world is facing what it is with the Russian 
invasion of Ukraine and the potential food shortages in Africa 
and Asia and the lower-income parts of the world.
    That being said, how important would you say it is for us 
in Congress to figure out a way to allow our derivative 
clearing organizations and other clearing agencies to access 
the Federal Reserve to secure their cash?
    Mr. Behnam. Thanks, Congressman. I want to be clear as I 
respond to this question, that notion and the idea that you are 
proposing is not within the CFTC's jurisdiction. This would be 
a decision by the Federal Reserve.
    Mr. Austin Scott of Georgia. That is right.
    Mr. Behnam. But speaking on behalf of the CFTC and the 
regulated clearinghouses that we oversee and the conversations 
I have been having with them, I do think, given the volatility 
we have seen in the market, given what feels like a more 
frequent period of shocks to the system, right, whether it was 
COVID 2 years ago and now the Ukraine crisis, that the 
collateral movement and the size of the CCPs and the volatility 
that we are seeing, it is extremely important to consider this 
proposal and this idea of having Fed accounts for CCPs.
    Mr. Austin Scott of Georgia. Well, I look forward to 
working with you to help make that happen. And this should not 
be that hard to do. And it would benefit everybody I think to 
have the cash secured at the Federal Reserve. There is no safer 
place for the system than to have that cash at the Federal 
Reserve.
    One other thing I want to mention, I currently have a bill, 
the Commodity Futures Trading Commission Research and 
Development Modernization Act (H.R. 4337). It would grant you, 
the CFTC, the authority to interact with fintech innovators for 
research, development, and innovation purposes. Now, research 
and innovation that helps with risk management is good. If it 
leads to excessive speculation, then I think it is bad. And I 
want to share my concerns about FTX that were expressed 
earlier. But with the world changing as rapidly as it is, can 
you speak to the importance in how we bridge the gap to the 
CFTC and the fintech industry so that you as a regulator better 
understand the emerging technologies and how to regulate the 
markets?
    Mr. Behnam. Thanks, Congressman. And I do appreciate your 
leadership on that bill. We did recognize that the CFTC had a 
number of barriers that we had to engage with entrepreneurs and 
innovators. And I think it is important. We have always been a 
leading agency in innovation and technology. Markets, 
especially in the derivatives space, tend to begin with trading 
in our markets, and this is best exemplified with the listing 
of the Bitcoin futures contracts back in 2017, which seems like 
years ago. But it is important that we have that authority and 
the ability to engage with fintech and entrepreneurs because it 
gives us a better sense of risks in the market, how our markets 
can support innovation, price discovery, and risk management 
because, as we know in all sectors of industry, whether it is 
ag or manufacturing, having financial markets to be able to lay 
off risk and mitigate risk supports innovation and growth, that 
supports research and development and every other thing that 
large companies need to support their growth over time. So, we 
continue to support your efforts here in whatever we can do to 
break those barriers down so that we can have more 
communications with entrepreneurs.
    Mr. Austin Scott of Georgia. Mr. Chairman, briefly, I will 
tell you I do think that with the volatility in commodity 
prices and the input prices in agriculture, I do think that we 
are going to need to make sure that our farmers and others are 
able to hedge their risk in the most efficient manner as 
possible, and I appreciate your work to help make that happen.
    And with that, Mr. Chairman, I will yield back the 
remaining 20 seconds.
    The Chairman. Thank you, Mr. Scott.
    And now the gentlewoman from Connecticut, Mrs. Hayes, who 
is also the Chairwoman of the Subcommittee on Nutrition, 
Oversight, and Department Operations is recognized for 5 
minutes.
    Mrs. Hayes. Thank you, Mr. Chairman, and thank you, 
Chairman Behnam, for being here today. My questions for you 
today are going to focus on the Commodity Futures Trading 
Commission's Whistleblower Programs. Since the program was 
established in the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (Pub. L. 111-203), the Commodity Futures 
Trading Commission has relied on whistleblower disclosures to 
identify cases of fraud and other illegal activities and to 
collect fines on behalf of the American people. The CFTC's 
Customer Protection Fund established by Congress in 2010 is 
funded through those fines and used to reward whistleblowers 
for their disclosures.
    Since issuing its first award in 2014, the CFTC has granted 
whistleblower awards amounting to approximately $300 million. 
The information provided by these whistleblowers is crucial and 
ensures that we are able to properly enforce the Commodity 
Exchange Act.
    First, Chairman Behnam, in 2020 the CFTC reached out to 
Congress with concerns that, as a result of several large 
whistleblower awards they expected to pay, there would be a 
shortfall in the fund used to pay whistleblower awards and fund 
administration of the Office of Consumer Education and the 
Whistleblower Office. As a result, Congress passed a short-term 
legislative fix which will expire at the end of this fiscal 
year. My question is have those large awards since been issued? 
And looking ahead to the expiration later this year, do you 
expect that there will again be a shortfall at the CFTC?
    Mr. Behnam. Congresswoman, thank you for the question. It 
is extremely important. The short answer to your question about 
those awards being rewarded is, yes, they have been rewarded. 
And to your second question, I cannot say with certainty 
whether or not we will have a shortfall. So much of this is 
unknown, and I think if you go back to Dodd-Frank, you couldn't 
have contemplated some of the rewards that we distributed in 
the recent past. They are very, very significant, and they are 
products of the LIBOR fraud cases from a few years ago.
    But to your point and to support what you just said, this 
is more evidence of the importance of the Whistleblower Program 
and how we are able to root out fraud and manipulation with the 
support of whistleblowers. So I can't say for certain whether 
or not we are going to run out, but it sounds like you would 
support what I am about to say is that I think we should err on 
the side of it is possible and we need to have the program 
fixed as soon as possible so that we can have the staff in 
place, that the Consumer Education Fund can be funded 
appropriately, and that we could have the funds to provide 
whistleblowers when those cases are filed.
    Mrs. Hayes. You are absolutely right. I think that the 
Whistleblower Program is extremely important. And we saw that 
it reached record highs in 2020. What do you believe this was a 
result of? Was it increased violations, better enforcement, or 
just an atmosphere where people feel that there is a process 
for expressing their concerns about fraud?
    Mr. Behnam. I think it is a combination of all of those 
things. I certainly think over time since 2010 when Dodd-Frank 
was passed and this provision was put into law that more 
individuals within the financial system are aware of the 
benefits of the Whistleblower Program and that they could come 
to the agency, feel protected, that what they are about to do 
is not going to come back to them and that they will be 
rewarded for their service to the government and to the 
American people and the American financial system.
    But more notably I did mention this and you probably recall 
that we had some very, very significant cases filed and settled 
in the past 5 to 10 years regarding the LIBOR fraud and 
manipulation. And those were hundreds if not billions of dollar 
cases that ended up resulting in some of these significant 
fines. Will we see them again in the future? Again, I can't 
predict, but I would prefer to err on the side of caution and 
say we need a very resilient and strong Whistleblower Program 
with a very strong and resilient fund so that we can continue 
this program in support of American financial markets.
    Mrs. Hayes. Well, thank you so much for your time and for 
your testimony today. And I am mindful of the time, but I 
cannot end my testimony without just saying how proud I am to 
be from Connecticut where Senator Chris Dodd, this was so 
incredibly important to him, and he worked so hard for this 
legislation to be passed. And I encourage you, Chairman Behnam, 
that if problems that are uncovered that require Congressional 
action, that they are brought to our attention immediately 
because this is something that I think is critical to ensuring 
that our financial markets and all of our actors are playing by 
the same set of rules.
    With that, Mr. Chairman, I yield back.
    The Chairman. Thank you very much. And now the gentleman 
from Arkansas, Mr. Crawford, is now recognized for 5 minutes.
    Mr. Crawford. Thank you, Mr. Chairman. And thank you, 
Chairman Behnam, for being here today.
    And I guess there has been a lot of talk about crypto, so I 
am going to go crypto just real quick. I guess it is safe to 
say that crypto is here to stay. Would you agree?
    Mr. Behnam. Yes, sir.
    Mr. Crawford. Yes. So having said that, I think most people 
would agree with that statement. I know you supported 
legislation that would expand CFTC's jurisdiction over digital 
commodities markets. Can you talk about that a little bit, why 
you think that is a good choice?
    Mr. Behnam. Well, I think in order to--on two sides of the 
equation is, one, there are risks inherent in the market right 
now. It is a largely unregulated market. We have some state 
transmitter licenses that are really directing the regulatory 
space. And there are benefits to that, but it is not enough, 
quite frankly. And what we are seeing in terms of the growth 
and the scale of the market, it is a very retail-oriented 
market. It is highly speculative, and we have seen that with 
price movements in some of the larger digital assets. I think 
it is incumbent on Congress and regulators to work together to 
have a structured regulatory regime around markets. It will 
both protect customers, reduce market stability issues, create 
market resiliency, which is extremely important, ultimately 
protect customers, and then possibly have the benefit of 
supporting innovation if there are outcomes that we are going 
to see beneficial in the future.
    Mr. Crawford. Do you think we need statutory language that 
defines digital commodities and digital securities?
    Mr. Behnam. Yes, it would be extremely important to do 
that.
    Mr. Crawford. Thank you. I appreciate that. I want to shift 
gears a little bit with you. My colleague Mr. Scott mentioned 
this, and you and I had a conversation earlier this week 
alluding to this, and that is the growing need I think for 
farmers to be adequately hedged using these tools that are 
regulated by the CFTC. And so what we discussed the potential 
for CFTC being a lead agency in extension outreach to educate 
end-users, primarily agriculture producers on how they can 
benefit. Can you talk a little bit about how that might look?
    Mr. Behnam. Sure. Thank you for the question, and I really 
enjoyed speaking with you about this. We have a very well-
built-out Customer Education Office within the agency. I 
pointed out to you and this Committee knows well we are rooted 
in agriculture. We were once part of USDA. And, as I said in my 
statement, I think it is a priority of mine to ensure that 
American producers understand our markets and feel that they 
have a cost-effective risk management tool in American futures 
and options markets.
    And there are many challenges, there are many risks, there 
are obviously other programs that USDA provides which are 
critically important, but CFTC markets should just be another 
tool in the toolbox for American farmers and ranchers to hedge 
extreme volatility, extreme price risk, which we continue to 
see over the years. So I would certainly welcome to work with 
you, with folks back in Arkansas, use the extension program 
across the country, and utilize our education office to inform 
folks about markets to answer questions if necessary and to do 
whatever we can to support at the producer level, at the 
elevator level, and everyone in between so that they know CFTC 
markets are available and an effective risk management tool.
    Mr. Crawford. Well, I appreciate that, and we will 
definitely look forward to working with you on that front.
    One thing I have to mention and I would be remiss if I 
didn't, and that is the impact that China has on our 
commodities markets. And I am just curious what tools are 
available to you--and I am not even sure if this is the best 
venue to address this question, but what tools are available to 
identify or to identify red flags as it applies to China and 
the potential for them to manipulate markets? Do you have any 
of those tools available? And what actions can be taken to 
prevent that?
    Mr. Behnam. Well, certainly for domestic markets we have 
the tools we need from a surveillance perspective and a market 
oversight perspective. We definitely have international 
participants in our markets and we observed that with the 
crisis in Ukraine identifying folks who are on the sanctions 
list. So we are able to see participants, identify where they 
are from, and if there were a case of fraud or manipulation 
from individuals in China, we would be able to root that out.
    We are seeing that market grow pretty extensively over the 
past couple years. There are a number of futures markets in 
China. I think on the one hand we are going to need to work 
with those individuals and those institutions. China obviously, 
as this Committee knows, is a huge purchaser of American 
agricultural products. But I feel very strongly that we need to 
ensure our commodity markets remain the strongest in the world. 
They benchmark major commodities across the ag complex, energy 
complex, and the metals complex, and those are the types of 
things I will be thinking about and looking forward to working 
with you to ensure that resiliency and primacy of American 
agriculture in our markets over the decades to come.
    Mr. Crawford. Thanks so much. I yield back. Thank you.
    The Chairman. Thank you. And now the gentlewoman from Ohio, 
Ms. Brown, is recognized for 5 minutes.
    Ms. Brown. Thank you, Mr. Chairman, Chairman Scott and 
Ranking Member Thompson, for holding this hearing today, and 
thank you to Chairman Behnam for being here.
    The CFTC has long been under-funded. Since your 
confirmation as chair in January, have you been able to 
evaluate whether the CFTC has adequate staffing and resources 
to effectively carry out its responsibilities?
    Mr. Behnam. Thank you, Congresswoman. That is certainly 
something I do on a regular basis working with our CFO and our 
folks in the budget office, working with appropriators as well. 
I would say that what I have observed even in the past few 
years, let alone nearly 5 that I have been at the Commission as 
both a Commissioner and chair is that our markets continue to 
grow, we continue to see a larger pool of participants and 
registrants, and with that comes a larger responsibility for us 
to interact with the agency constituency and also new 
participants. So I do think we will need an increased budget to 
deal with all of these issues in the digital asset space, 
obviously in our core markets, but it is increasingly becoming 
a challenge to deal with these issues and protect markets.
    Ms. Brown. Okay. So you touched on a few things. What more 
can Congress do to support the agency?
    Mr. Behnam. Well, I think from an authorities' perspective 
we do have the authority we need over our traditional markets. 
I have publicly stated and I know Ranking Member Thompson has 
talked about digital asset authority, and I fully support that. 
But in terms of my direct engagement with Congress and ask is 
to continue to think about our funding levels. We fell a little 
bit short this past fiscal year, but looking forward, we will 
be asking for a little bit more. And that is a direct result of 
the interaction we are having with an increasingly large pool 
of market participants and increasingly large responsibility we 
have over growing markets.
    Ms. Brown. Thank you for that. In your testimony, you 
highlighted the agency's commitment to responsible innovation 
and fair competition among market participants. With the rapid 
growth of digital assets over the last several years, many of 
the barriers to entry to the finance industry have been 
reduced. How is CFTC responding to a more diverse market 
participation?
    Mr. Behnam. Thanks, Congresswoman. It is a great question, 
we are in fact seeing that in our markets. Barriers are being 
eliminated because of technology, and there is more retail 
participation in our markets, which I think is overall a 
positive thing, but it does come with a great responsibility. 
And that responsibility as a regulator is to ensure customer 
protections are in place, to ensure disclosures and information 
flow is fair and equitable across all income levels and 
investor education levels. And we are currently working within 
our groups, most notably, the Market Participants Division and 
the Office of Customer Education to do extensive outreach, 
inclusive outreach, and really, as I was saying earlier, to 
touch parts of our country and our market that we historically 
have not touched. And I think it is really important because, 
as we all use our phone and download apps and have access to 
any number of things much easier than we did even a few years 
ago, the same is the case for financial markets. And we need to 
assume that will only increase over time. But with that comes a 
great responsibility, so that will be a priority of ours to 
work with communities that we historically have not touched or 
engaged with and make sure they know about the risks and 
opportunities of new technology so that they can make the most 
informed decisions for their wallet and their household.
    Ms. Brown. All right, thank you. And thank you, Mr. 
Chairman. With that, I yield back.
    The Chairman. Thank you. And now the gentleman from 
California, Mr. LaMalfa, is recognized for 5 minutes.
    Mr. LaMalfa. Well, thank you, Mr. Chairman. I just wanted 
to weigh in a little bit more on the issue with how the futures 
would be affected with what we are really looking at with the 
Ukrainian market for as much crops as they grow and how much 
they are a part of the world markets in exports and tying that 
back into derivatives. So how can derivative markets help to 
address the imbalances that we are going to see with so much in 
certainty in that portion of the market, as well as my home 
state where water is being cut off to farms? I think a number 
we don't know quite yet, but we could see 70 percent of 
irrigated acres in California cut off from water partly because 
of drought but a lot of it is because of manmade drought with 
mismanagement of water and it being devoted towards 
environmental purposes and fish habitat, things like that. So 
what kind of disruptions do we expect for these commodities, 
and how do derivatives help to balance that out?
    Mr. Behnam. Thanks, Congressman. And I know you know this, 
but just to be clear, we are price-agnostic. We do not set 
prices on markets. They serve two main purposes, risk 
management and price discovery. So in response to your 
question, the two purposes and the two benefits of our markets 
as we are dealing with these crises both internationally and, 
as you say, domestically as a result of any number of issues is 
to help producers, to help users, utilities, anyone who has to 
have commodities as a part of their business or their 
operations is to see both price discovery and anticipate risks, 
challenges, and costs that may come in the future but then 
ultimately risk management. And that is to be able to hedge 
risks going out if not months, years so that they can have 
steady, stable prices and know what they are going to have to 
be able to pay for costs--inputs on the input side but also 
charge customers.
    So this has been the purpose and the use of derivatives for 
decades. It will continue to be that. I think from a CFTC 
perspective our main goal is to ensure that markets are fair, 
transparent, orderly, and free from fraud and manipulation and 
are properly reflecting the dynamics of supply and demand. 
Obviously, those dynamics change significantly with weather, 
with geopolitical issues, with socioeconomic issues, but we 
just need to make sure that all of those factors are at their 
core being treated fairly and that we don't have fraud and 
manipulation influencing prices at all.
    Mr. LaMalfa. So bottom line, do derivatives markets help to 
balance and cushion some of that uncertainty?
    Mr. Behnam. Absolutely.
    Mr. LaMalfa. Yes, okay, thank you. Also, Chairman Behnam, 
is there--on the CFTC, this question may have been asked. I 
couldn't hear it earlier. How is CFTC being staffed out at this 
point in return to work? Are we going to be able to expect 
normal service and operations are underway or soon underway so 
good work can be done, an expectation basically for the 
customers after the last 2 years?
    Mr. Behnam. Thank you, Congressman. We are in the process 
of transitioning back to the office. I myself and my staff 
around me have been back in the office since last fall. And I 
think my goal is to just make the process orderly and be 
cautious, understanding that folks have both gotten accustomed 
but returning to work will take time, but my goal is to get 
folks back into the office as soon as possible. There are a 
number of issues that we are going to need to deal with in 
terms of negotiations and getting folks comfortable, but 
hopefully as soon as possible we will be back at the office 
with an understanding that things have changed and that by and 
large we were able to accomplish our short-term goals and 
mission while we were remote, but there are also important 
longer-term issues that we have to deal with as an agency, the 
culture of the agency, and the health of the agency in the 
years ahead, and those are things that I think about as we 
think about a post-pandemic work environment to ensure that the 
agency is healthy, we are recruiting, we are retaining, and 
that there is a long-term, successful story for the CFTC to 
tell and ultimately, as you pointed out, we are doing our job 
serving the customers we have and also the American taxpayers 
who are hard at work and we owe it to them to make sure markets 
are fair, resilient, transparent, and not causing risks that 
should not be happening.
    Mr. LaMalfa. And open, yes, it is high time we get back 
rolling again, as we are suffering economically. And so I 
appreciate it. Well, my time is up. I will yield back.
    The Chairman. The gentleman from Illinois, Mr. Rush, is 
recognized for 5 minutes.
    Mr. Rush. Well, I want to thank you, Mr. Chairman, for this 
outstanding hearing. My question is directed to Chairman 
Behnam. Chairman Behnam, in your testimony you briefly 
mentioned new and existing policies to fortify the CFTC's 
markets against cyber attacks. Can you provide a brief 
orientation on the existing policies, as well as the new 
proposals that you would recommend to fully protect our markets 
from cyber attacks?
    Mr. Behnam. Thank you, Congressman. It is an extremely 
important question. Right now, we have a policy within our core 
principles that relates to systems safeguards. And within 
systems safeguards, our examiners, most notably with 
clearinghouses, do annual examinations for the systemically 
important clearinghouses and ad hoc examinations for the non-
systemically important clearinghouses. But within those systems 
safeguards, we analyze cybersecurity issues, information 
security issues, and business resiliency issues, among others. 
Those are the core responsibilities we have with an 
examinations process.
    As we have seen an increase in cyber attacks as a result of 
the Ukraine crisis but just generally across the globe, I think 
it is extremely important, as you point out, that we increase 
our resiliency, that we increase the questions we are asking, 
the intersection and the engagement that we have with our 
market participants, going beyond the clearinghouses, talking 
to the FCMs, the futures commissions merchants, the swap 
dealers. Any market participant that could be a point of access 
for a cyber attack and have a cascading effect across our 
markets and potentially all financial markets. So we are 
currently in the process of thinking how we can examine that 
existing suite of examinations that we have right now that are 
in statute and certainly look forward to working with you if 
you have any ideas that we can consider. But it is an extremely 
important issue, that puts our markets at risk, and something 
that we all have to collectively think about very hard.
    Mr. Rush. Is there any role that you would ask the Congress 
to play in terms of helping you to fully engage and fully 
develop protections for our markets?
    Mr. Behnam. Congressman, I think in terms of authority, we 
have the authority we need. I would say there is one point I 
will mention, and it has to do with vendor risk or third-party 
service providers. This is something that market regulators 
typically do not have. So you can imagine we have direct 
intersection and a relationship with our registrants, but 
often, the registrants are outsourcing or dealing with vendors 
on the backside of their relationship with us. We certainly 
trust our registrants and know that they are doing what is in 
the best interest of their own business, but I think there may 
be something to consider there in terms of our relationship 
with vendors and third-party service providers.
    The other thing I will mention very quickly is funding. 
This is becoming more complex, more costly in terms of both 
personnel and the expertise they have for cyber issues, for 
digital asset issues. The cost of these techniques, the 
technology of both the hardware and the software is growing. It 
is becoming more complex. And as I look at some of our private-
sector registrants, the amount of resources that they are 
piling into technology relative to their other business 
segments is just growing. And that I think has to be the same 
case for us.
    We are, in my view, a value-add to the American taxpayer. 
We brought in over $1 billion in Fiscal Year 2021, nearly $1 
billion in 2022. We are a value-add, and I think we should be 
viewed as that and hopefully properly funded so that we can 
build these infrastructure points on technology and protect 
American markets.
    Mr. Rush. Well, thank you. I have an additional question in 
my remaining seconds. I am very much interested as the Chairman 
of the Energy Subcommittee on the Energy and Commerce 
Committee. I am interested in your Climate Risk Unit and your 
recommendations related in the Climate-Related Market Risk 
Subcommittee's report that was promised in September of 2020. 
Can you please give me some indication of an update on these 
efforts, and can you provide us with an update from the Climate 
Risk Unit activities since they were created a year ago?
    Mr. Behnam. Yes, thank you, Congressman. I created the 
Climate Risk Unit in March of 2021. Currently, it is staffed by 
about 15 to 20 staff across different divisions, and they are 
in the process of coming up with a strategy. In my mind it is a 
bit of a binary approach that we are going to think about what 
we can do from a regulatory standpoint to create more 
resilience in our markets, what we can do to support innovation 
and resiliency and combat physical risk related to climate 
change.
    The other element is transition risk, which we all know is 
a huge risk as we transition hopefully in an orderly manner to 
a net-zero economy. What we can do at the CFTC engaging with 
private market participants to come up with innovative ideas to 
support financial markets, especially derivatives, to help 
mitigate physical risk and to manage price risk. There are so 
many opportunities, and we are seeing this grow exponentially 
within our markets from market participants, and, from my view, 
the Climate Risk Unit will do what it can to engage to 
understand the price risk, but to set out an initiative and a 
plan for supporting these strategies within the market. The 
time standpoint we are going to look forward to the end of the 
year in terms of coming out with some proposals.
    The Chairman. The gentleman from Georgia, Mr. Allen, is 
recognized for 5 minutes.
    Mr. Allen. Thank you, Mr. Chairman. And, Mr. Chairman, 
thank you for your comments regarding FTX and also Ranking 
Member and also Mr. Scott and all that we have heard here 
today. I would like to, rather than continue to comment on 
that, associate my comments with their comments and my concern 
for this.
    I do have one question on that. And of course we have the 
Chicago Mercantile Exchange and the Intercontinental Exchange, 
which is the method we are currently using for clearinghouse, 
okay, which are heavily regulated, I might add. Now, you have 
FTX, which is not regulated. So I just want to make sure that 
when all this comes to be, that it is a fair playing field for 
everybody. In other words, I am sure that CME and ICE are both 
innovating and doing what they can to do more with less people 
and to provide the greatest return but under the current 
regulatory environment. But can you comment on the fact that, 
hey, we are going to have a fair playing field here for 
everybody at the end of the day?
    Mr. Behnam. Congressman, 100 percent. I am legally 
obligated and I think it is fair that everyone get a fair shake 
and that everyone play from the same field. It is extremely 
important. It is something I have stood by as long as I have 
been at the Commission, and especially within this particular 
instance that you raise, FTX, we will make sure that the rules 
apply fairly and equitably to every stakeholder.
    Mr. Allen. Good. And I appreciate that. Thank you very 
much. Now going back to your role in--we have already talked 
about it extensively--your role as far as the economy. And, 
frankly, the dashboard is a little scary right now. Inflation, 
government debt, the Fed basically has no tools in the box. I 
mean, it is either shut the economy down into a recession like 
we saw in the 1970s and interest rates like we saw in the 1970s 
or continue putting money into this money supply, which is 
causing--I mean, you got the perfect recipe for inflation out 
here right now.
    And it is all driven by this war on fossil fuel. Fossil 
fuel is in everything. I mean, right now there is a huge 
shortage. The big problem in Ukraine and Europe is the shortage 
of diesel fuel. Farmers aren't going to be able to plant. We 
are going to have famine in this world. And we can't help them 
because we are at 50 percent of production that we were just 3 
years ago. We can't sustain this.
    So what role is your organization playing in this whole 
economic situation to get this dashboard back in the way it 
should look as far as reasonable inflation, reducing government 
debt, reducing government spending, everything that is 
contributing to this economic downfall?
    Mr. Behnam. Thanks, Congressman. Obviously, an extremely 
important question given all that we are dealing with in the 
markets today both domestically and internationally. As you 
know, we are at the agency price-agnostic. We don't set prices 
whether it is on treasuries or corn and soybeans or oil and 
natural gas. But from my perspective our number one 
responsibility is to ensure that our markets are operating 
fairly, in an orderly fashion, and free from fraud and 
manipulation. If they are in fact doing that--and I am 
confident they are--then our market participants, whether it is 
within the government official sector or private market 
participants, are able to use our markets for price discovery 
and hedging. And those become extremely important tools for our 
farmers----
    Mr. Allen. But you have an obligation to investors, okay, 
or to those agencies, the clearinghouses. And it is subject to 
economic dashboard indicators. Certainly, what would be your 
advice to this Administration right now to deal with the risk 
of what we are running here? I mean, we don't want to go back 
to 2008 where we had the mortgage-backed securities issue. We 
know we have bubbles out there, but you are part of the team. 
You have an area, territory to protect. I mean, what are you 
doing to look at the big picture and say, hey, we can't sustain 
this?
    Mr. Behnam. Congressman, I participate within the Financial 
Stability Oversight Council. I frequently talk with my 
colleagues across the government and other regulators. I would 
say this, that what we have faced in the past 2 years is 
unprecedented, right, with the once-in-a-century pandemic and 
the economic response to that where we had a supply shock, a 
demand shock, and then the recovery over several months, 
followed by now the crisis in Ukraine and given the importance 
from a commodity perspective of both Russia and Ukraine in ag 
and energy.
    So I do think collectively we are doing everything we can 
the best we can, understanding the dynamics of the American 
consumer, under the dynamics of supply restraints, and 
understanding the very quick pivot towards a return to normal 
in terms of demand but a much slower supply because of labor 
issues and supply issues.
    Mr. Allen. Okay.
    Mr. Behnam. So it is a challenging issue. We are looking 
into it. We look at the data, and we try to be data-driven, but 
it is a process and it is going to take time. And I am hopeful 
of the path that we are on----
    Mr. Allen. We don't have a lot of time. This thing is 
getting serious. Thank you, and I yield back.
    The Chairman. The gentlewoman from New Hampshire, Ms. 
Kuster, is now recognized for 5 minutes.
    Ms. Kuster. Thank you, Chairman Scott, and welcome to the 
Agriculture Committee, Chairman Behnam. We appreciate you being 
here, and I would agree with you these are unprecedented times, 
so I appreciate your leadership.
    In the nearly half-century since Congress established the 
Commodity Futures Trading Commission, it has evolved to tackle 
a wide swath of financial commodities beyond just its roots in 
agriculture. As CFTC's mission continues to grow alongside new 
markets, including digital and crypto assets, it is imperative 
for this Committee to understand what you will need from 
Congress to be successful.
    So speaking of digital assets, Mr. Chairman, I know you 
have noted previously the digital asset market is unique in 
that it is largely a retail market. What are some of the core 
customer protections that would be needed in a regulatory 
framework for the digital asset market, and are there core 
principles in the Commodity Exchange Act that can be applied 
here to protect consumers?
    Mr. Behnam. Thank you, Congresswoman. It is a very 
important question and in many respects--and I have said this 
in the past--market structure can be very similar despite 
assets that are traded on those markets being different. So 
what I mean whether it is an equity security or fixed income 
product or a derivative. And our core principles obviously are 
driven from the derivatives standpoint, mostly commodities, 
obviously anything from financials and agriculture and energy 
commodities. But as we think about digital assets and the 
potential regulatory structure being built around digital 
assets, I think it is important to use many of the market 
structure principles and the core principles as you know as the 
building blocks for what might become a regulatory market 
structure.
    From a customer protections standpoint, it is all about 
segregation of assets, which becomes very, very difficult 
within digital assets. It is something we are working on very 
hard because it is so unique from traditional assets. Execution 
and settlement, these are core elements of a trade from order 
to settlement that we have to be thinking about collectively 
with your help and support so that we can ensure customers know 
what they are doing as they are trying to execute trades or get 
exposure to digital assets but also feel comfortable both from 
an intermediary standpoint potentially or an exchanges 
standpoint and the regulator's standpoint that we are doing 
everything we can and fulfilling our responsibility to know 
that their assets are being protected and that if something 
happens, that there will be individuals that are held 
accountable.
    Ms. Kuster. Great. That is reassuring. So I know there have 
also been significant discussion about FTX's recent proposal to 
amend the registration as a derivatives clearing organization 
and that the Commission presently put that proposal out for 
public comment. Mr. Chairman, the Treasury Department has been 
tasked with the leadership role in the development of a digital 
asset regulatory regime. I wonder if you have consulted with 
Secretary Yellen on this proposal?
    Mr. Behnam. Thank you, Congresswoman. I have not directly 
spoken with Secretary Yellen about it. I know my staff has 
spoken with a number of the other agencies about the proposal. 
There is a distinction between some of the efforts started by 
President Biden in the Executive Order and what the FTX order 
is currently proposing. The FTX order, there are listed 
derivatives, contracts on Bitcoin and Ether on an FTX exchange 
currently that are trading and have been trading for a number 
of years. What the proposal is doing is it is requesting to 
amend the existing order that contemplates those derivatives, 
those futures contracts, and changing the market structure. So 
as much as there is some relationship between what is going on 
within the U.S. Government and President Biden's Executive 
Order, there is a separation that I think is certainly unique 
to the CFTC because it is explicitly focused on derivatives and 
futures and not anything else.
    Ms. Kuster. Okay. Great. I have limited time, but just 
briefly, switching gears, I am also interested, as my colleague 
Mr. Rush addressed, climate change and trying to minimize 
climate-related risk to our financial system. And you have 
talked about the Climate Risk Unit and the Climate-Related 
Market Risk Subcommittee. Is there anything that you would want 
to add to elaborate on your vision for the Climate Risk Unit 
during your tenure and how they can identify sensible reforms 
within the Commission's regulatory framework? And I have 10 
seconds left.
    Mr. Behnam. Thank you, Congresswoman.
    Yes, they are in the process of working on exactly what you 
said, and I am hopeful by the year's end we are going to come 
out with some thoughtful proposals that the Commission can 
consider to build more resilient markets against climate 
change.
    Ms. Kuster. Great. Well, we would love to hear about it on 
our Committee. And with that, I will yield back, Mr. Chairman. 
Thank you.
    The Chairman. Thank you. And now the gentleman from 
Illinois, Mr. Davis, you are recognized for 5 minutes.
    Mr. Davis. Thank you, Chairman Scott, Ranking Member 
Thompson, for holding this hearing to discuss the state of the 
CFTC and how we as Members of Congress can support its core 
principles.
    Along with many of my colleagues here today, I am concerned 
about the state of our economy due to the Biden pro-spending, 
pro-inflation agenda that only looks to be gearing up to get 
worse for our constituents under the President's new ``build 
back broke'' budget. The impact that the new CFTC rules and 
regulations may have on market participants and ultimately our 
farmers, our ranchers, and our constituents who rely on the 
commodities and contracts that are being traded is something I 
am very concerned about and I hope the Commission is carefully 
reviewing.
    The CFTC's risk management requirements embedded in its 
core principles provide market participants with several layers 
of safeguards to ensure that risk is properly managed, 
customers are protected, and the markets that are so critical 
to our food and our energy supply, they remain stable. I am 
very concerned about this as we look at the challenges these 
markets have faced over the last few years and are likely to 
continue to face as global events drive commodity price 
volatility, which I am sure that many of my colleagues in front 
of me have addressed with you.
    But my question for you, Chairman Behnam, regarding the 
idea of a direct-to-customer non-intermediated derivatives 
clearing model, how would this work with the CFTC's risk 
management standards that are built around an intermediated 
clearing model?
    Mr. Behnam. Thanks, Congressman. You are right that the 
standards in some respect are built around an intermediated 
model, but they don't require an intermediated model. And I 
think given technological advancements in our ability to access 
markets--and I mentioned this earlier thinking back decades 
when farmers and producers had to call up an associated person, 
an introducing broker, and then get an order out to the Chicago 
Board of Trade, those lines can all be reduced now because of 
technology. And I think what the proposal is trying to do in a 
non-intermediated model is to take advantage of technology so 
that we can break down some of these silos and have more direct 
access.
    I am not supporting it at all. I think what my 
responsibility is, is to look at the proposal. I said this 
earlier. Section 5 [7 U.S.C.] requires me to support 
responsible innovation. And there is a possibility that this 
idea, if responsible and if it meets our core principles, can 
be a next step in market structure.
    Mr. Davis. Do these standards need to be formally updated 
to account for the differences in these models, and do you guys 
at the CFTC intend to do this?
    Mr. Behnam. I don't think standards need to change. We are 
a principles-based regulator, as you point out, so when you 
think about principles-based, we largely look at outcomes and 
not necessarily a check-the-box routine of how we get to the 
outcome. And that in fact gives us the flexibility we need to 
support innovation in the market. So as long as we are looking 
at risk assessments, margin methodologies, and how market 
structure functions, if the math is done--I often use that 
phrase--and we feel comfortable within the sort of sphere of 
what the proposal is, I don't think we necessarily need to 
change any rules.
    Mr. Davis. Okay. But should this model be allowed to go 
forward before the Commission decides what rules or standards 
should be in place? Shouldn't there be clear rules of the road?
    Mr. Behnam. So we have not allowed the model to be rolled 
out. We are in the process of having a public comment period. I 
said earlier my intention is to have a staff roundtable on non-
intermediated market structure. We are going to be deliberate, 
we are going to be cautious, we are going to engage with you 
and others to make sure that we are thinking about the risks 
and opportunities before we approve or disapprove anything. I 
think it is my responsibility to engage fair and equitably with 
all stakeholders and ensure that we are doing what our job is 
as the CFTC.
    Mr. Davis. Well, Chairman, I do want to ask if, in your 
exchange with Mr. Crawford, you noted the value of having a 
statutory definition of digital commodity. One additional 
challenge with that is who gets to interpret that definition. 
Today, the SEC has the first crack at determining what assets 
are securities. If we define digital commodities and provide 
the CFTC jurisdiction over these assets, should the CFTC be in 
a similar position of having first crack at what defining a 
digital commodity is?
    Mr. Behnam. Yes.
    Mr. Davis. Thank you. I yield back.
    The Chairman. Thank you. And now the gentleman from 
Arizona, Mr. O'Halleran, you are recognized for 5 minutes.
    Mr. O'Halleran. Thank you, Chairman Scott and Ranking 
Member Thompson, for organizing this important hearing today. I 
also want to thank Chairman Behnam for working with us to 
advance the CFTC's mission of promoting integrity and 
resilience in the derivatives markets.
    Mr. Chairman, I listened to your opening remarks today, and 
it brought me back to a little bit of my memory of history. 
While you were working on those issues, I was, too. I was on 
the Board of Trade's board of directors for a number of years 
back when those European issues were being brought up first. 
And I am thankful that you were on that process also.
    But right now, climate change poses a systemic thread to 
our financial system. The challenges we face right now are 
undeniably real and urgent and right now we do not exactly have 
the tools to work on those in the way we need to.
    Climate change-related risks can be sudden and physical 
like wildfires and flooding, which cause acute shocks to the 
system and sharp increases in economic damages, more and more 
so it seems with each year. Those of us in northern and eastern 
Arizona are certainly aware of these challenges, as we have 
seen increasingly deadly wildfires coupled with post-fire 
flooding. The risk can also be chaotic and subtle like rising 
temperatures and persistent drought.
    Economically, these gradual changes can affect insurance 
and mortgage markets, loans, crop yields, and home values. We 
are seeing these impacts right now in Pinal County, Arizona, 
where farmers are forced to let farmland lay fallow due to 
water use restrictions.
    I guess the main piece here for me is that this is a 
connected environment on the business side of the environment, 
it is on the family side of the environment, the economic side 
of the entire country and the world, and we need to be able to 
have the tools necessary to address those both in the 
marketplace and in the field.
    Additionally, there is economic risk in transitioning too 
quickly to net-zero, which could harm smaller companies that 
don't have the resources to adapt as easily as their larger 
competitors or counterparts.
    Now, Chairman, I was pleased to see you established the 
Climate Risk Unit last year to strategically address the 
climate risk in the derivatives markets. Now, can you please 
provide an update on how the Climate Risk Unit has spent the 
past year and what you see as the unit's next step in 
addressing the climate threat? How will the Climate Risk Unit 
help farmers, ranchers, and constituents in Arizona manage the 
increasing risk climate change poses to their livelihoods?
    Mr. Behnam. Thanks, Congressman, I appreciate the question. 
And, as you noted, I formed the Climate Risk Unit in March of 
2021 with the intent of essentially collecting certain experts 
within the agency across divisions so that we could 
collectively think about what the agency could do from a 
regulatory standpoint to both engage with stakeholders, 
including agricultural stakeholders, and essentially supporting 
innovation in our markets to tackle both physical risk 
associated with climate change and, as you point out, the 
transition risk associated with climate change.
    Derivatives markets are inherently risk management 
agencies, so I think this is natural to us. But as you point 
out, the increasing risks of climate change that we are seeing 
across the country and the globe are going to affect farmers, 
ranchers, manufacturers, and we need to address those issues as 
soon as possible. So my hope is by the end of this calendar 
year we are going to have as a first step a proposal of ideas, 
regulatory, to bring before the Commission, and certainly 
welcome sharing them with you so that you can give us your 
input if you would like.
    Mr. O'Halleran. I remember a time when we were trading 
grains in Chicago and when it rained on South Street, there was 
no drought in America because all of a sudden people would 
trade a little bit differently because all the sudden rain is 
coming down. That is not true anymore. That wasn't true then. 
But now, the reality is we have to be much more aware of what 
is going on throughout the world in climate. It is having a 
profound impact.
    And while I have a couple of seconds left here, I just want 
to say my concerns for the CFTC are the same today as they were 
before. I do not feel that you have enough personnel or budget 
to be able to address the many issues that you are facing and 
will be facing, and that includes the Bitcoin and all the other 
factors that go into that. And I will look forward to talking 
with you on those issues. Thank you.
    The Chairman. And thank you, Mr. O'Halleran. And now the 
gentleman from South Dakota, Mr. Johnson, is now recognized for 
5 minutes.
    Mr. Johnson. Thank you very much, sir. And, Mr. Chairman, I 
would be remiss if I didn't start by talking about my friend 
Summer Mersinger. She and I grew up just 30 miles away from one 
another, and I have known her for a long time. And I am sure 
you would agree with me, sir, that she is exceptionally well-
qualified to serve with you on the CFTC, incredible integrity, 
incredible prudence. She is going to be very much a value add 
as you altogether pursue your risk management and price 
discovery missions. So please greet her warmly for me when you 
see her next, sir, if you would.
    Mr. Behnam. Absolutely. And I agree with you 
wholeheartedly.
    Mr. Johnson. Yes. And when I want to be famous in D.C., I 
tell people I know Summer. That is what a big deal she is in 
this town.
    So, anyway, I want to talk with you a little bit about 
equivalency, sir. In the immediate aftermath of Brexit we spoke 
a lot with your predecessor about clearinghouse equivalency, 
European Union, cross-border access. I mean, talk to me a 
little about where we are at today on those issues.
    Mr. Behnam. Thanks, Congressman, it is an extremely 
important question. And I would say from an EU perspective we 
are in good position. We had obviously a number of challenges, 
but thanks to you and this Committee, as the Chairman pointed 
out, and a number of the Members, given your incredibly strong 
input over the past few years, we are in a good place with the 
European Union. We have a well-established relationship under 
an MOU, and we have preserved the primacy as the CFTC as the 
home country regulator for our registrants, including CCPs.
    That said, there are always more issues out there. Brexit 
was not a one-incident event. We continue to see repercussions 
because of Brexit, and they will exist for a number of years, 
going forward. So we are currently in communication with a 
number of regulators, including those of the UK, as they 
contemplate their life post-Brexit and ensuring that we build 
off of that strong, long-lasting relationship between the 
United States and the UK and ultimately, as I point out and I 
know you believe, preserving the primacy of the U.S. regulator, 
specifically here the CFTC, over our domestic CCPs.
    And, as Chairman, I will continue to make those arguments 
strongly to ensure folks understand the well-established rules 
and regulations we have and the great financial markets that we 
steward and certainly welcome your support but also we will 
keep you up-to-date as those developments and discussions go 
along.
    Mr. Johnson. So it sounds to me, Mr. Chairman, that things 
have gone about as well as they could have. And obviously, your 
team at CFTC deserves a lot of credit for that. There was 
tremendous uncertainty a couple of years ago about whether or 
not we would end up in this spot. And of course, you are right, 
it is an ongoing challenge. There is still work to be done, but 
we are sitting about as well as could be expected. Is that 
right?
    Mr. Behnam. I think that is fair to say, but I would never 
rest on my laurels because I do think there are a number of 
issues out there that I am trying to catch them early so they 
don't become an issue, that they don't raise to the level of 
this Committee and we continue to have staff-level 
conversations, I continue to have conversations with my 
counterparts over in the UK and other jurisdictions to ensure 
that what happened in the EU a few years ago does not happen 
again and that no one gets ideas about what they can or think 
they should do because of some regulatory shift or some market 
shift. So we are going to keep sending that message very 
clearly across the globe, and I will do my part as best I can, 
and I am hopeful that I will be successful. But if things 
change, I will certainly report back to you.
    Mr. Johnson. So how about from the perspective of the 
United Kingdom? Of course, that is not your job nor mine, but 
have they also been able to secure a good landing spot in the 
wake of Brexit?
    Mr. Behnam. It is a good question, and you are right 
because it wasn't just the EU who suffered or who had an 
outcome as a result of Brexit. It was the UK of course as well. 
And as the EU was starting to think about what they were going 
to do from a regulatory perspective, perhaps the UK was just a 
little bit behind. But we are having those conversations right 
now. I am confident that we are having conversations that are 
heading in the right direction. And what I mean by that is 
preserving U.S. primacy, preserving primacy of the CFTC as the 
home country regulator, leaning on the existing relationship 
between the CFTC and my counterpart agency, and, above all 
else, using the foundational relationship between the United 
States of America and the United Kingdom, allowing them to 
trust us and the regulations we have and the institutions that 
we have and supervise as much as we need to trust them and the 
supervision that they conduct over their institutions. So I am 
going to lean on those principles and ensure they are 
successful.
    Mr. Johnson. Let me [inaudible]--probably more valuable 
than the question I was asking. And I am out of time, so if 
your team can follow up afterward.
    Mr. Behnam. Thank you.
    Mr. Johnson. I guess I was asking more about whether or not 
the European Union and their regulatory agreements with the 
United Kingdom is going to allow the United Kingdom the 
flexibility they need to also maintain how they operate because 
I just think there could be a broader impact on global markets 
if there are disruptions in that relationship. But thank you 
very much. And sir, I yield back.
    The Chairman. And Chairman Behnam, feel free to respond in 
writing to Mr. Johnson's questions.
    [The information referred to is located on p. 47.]
    Mr. Behnam. Sure. I apologize, Congressman, for not 
directly answering the question. But----
    The Chairman. He is one of our very strong, bright Members, 
and you can respond in writing. We want to get to as many 
Members.
    The gentleman from California, Mr. Carbajal, is now 
recognized for 5 minutes.
    Mr. Carbajal. Thank you, Mr. Chairman. Chairman Behnam, 
thank you for testifying before us today.
    California knows the effects of climate change well. We 
consistently experience severe drought and intense wildfires 
that threaten the future of all crops, not just commodity 
crops. I think you are right that the CFTC has a role to play 
in addressing climate change. I applaud you for the creation of 
the Climate Risk Unit to focus on mitigating climate-related 
risks. Climate change is not a new and emerging risk. Climate 
change has been here, but we have been late to act on it.
    Chairman Behnam, can you walk me through what role the CFTC 
can play in helping foster investments to promote a smooth 
transition to renewable energy sources? And what are some 
challenges you see with renewable energies competing against 
oil and gas futures?
    Mr. Behnam. Thanks, Congressman. It is extremely important 
to have risk-management markets and price discovery markets, 
and I think we have seen that. Our markets date back over 150 
years and in many respects have been a building block and a 
foundation for the success of the American economy for decades. 
And I don't think that is any different now as we think about 
transition to a net-zero economy.
    So as Chairman, and as you pointed out, forming the Climate 
Risk Unit, my goals are going to be to engage with market 
participants, with stakeholders, with innovators so that our 
markets can continue to serve that purpose, that we can see 
innovation in a product development space so that folks, as 
they are transitioning to renewables or transitioning their 
companies to a net-zero environment, they can lean on our 
markets to manage the risks that are going to come along that 
way because, as you point out, there will be many risks, it 
will be difficult, but we need to continue to push forward in 
that transition in an orderly way to ensure resilience against 
climate change.
    There are certainly many issues, and we are dealing with 
them now in terms of the Ukraine crisis, but I do think it is 
incumbent to be balanced, to be fair, and to move the 
transition forward but understanding that transition risk is 
real and that we are going to have to in many respects think 
about issues and challenges on a daily basis and understand 
that we are going to need to lean on fossil fuels for a number 
of years, hopefully in a downward trajectory. But in order to 
power America as we transition to renewables, we are going to 
need to lean on those existing energy sources to get to where 
we need to get in 2030, 2040, and 2050. So I am hopeful that 
our markets will continue to manage and support a transition in 
an orderly way and allow producers, manufacturers to use our 
market to eliminate that price risk and eliminate those 
externalities which we will all face as we deal with climate 
change and those risks in the years ahead.
    Mr. Carbajal. Thank you. In the CFTC report, Managing 
Climate Risks in the U.S. Financial Systems, one of the 
recommendations made is requiring credit-rating agencies to 
disclose the extent to which their ratings take into account 
climate risk. Can you elaborate on what you think this system 
might look like and do you think this approach will encourage 
climate-friendly business practices?
    Mr. Behnam. Thank you, Congressman. I do want to just 
clarify that report, which I am very proud of, but it was an 
advisory committee so it was not a product of the Commission, 
per se. I did convene a number of market participants to put 
together the report and make recommendations, which were 
exhaustive in scope and very helpful and I think a 
steppingstone for what we are seeing in the Biden 
Administration.
    With respect to that particular recommendation, when I 
think about that recommendation, it makes me think about the 
financial crisis and the important role of credit-rating 
agencies and ensuring that they are transparent, that they are 
fair, and that they are transmitting information as clearly as 
possible to end-users. And in this case this is often 
investors, whether it is local governments, pension funds, or 
individual investors.
    So as we start to see the growing risks related to climate 
change, whether it is flood or fire or any number of other 
issues, these are going to impact local communities, these are 
going to impact states and ultimately the United States. And I 
think as the investing community needs to know, we need to know 
what these risks are so that we can allocate capital 
efficiently, appropriately, and as best informed as possible.
    Mr. Carbajal. Thank you. Mr. Chairman, I yield back.
    The Chairman. Now the gentleman from Ohio, Mr. Balderson, 
is now recognized for 5 minutes.
    Mr. Balderson. Thank you, Mr. Chairman, both Chairmen. 
Thank you, Mr. Chairman, for testifying today. And you 
discussed in your testimony the importance of cybersecurity at 
the CFTC. As I am sure you know, a 2020 audit by the Office of 
the Inspector General spelled out recommendations for the CFTC 
to follow in order to mitigate cybersecurity risk for 
registrants. What progress have the Divisions of Market 
Oversight and Clearing and Risk made on implementing the 
Inspector General's recommendations?
    Mr. Behnam. Congressman, thanks for the question. It was a 
very serious and important recommendation. We obviously take 
those very seriously across the board but particularly within 
the context of cybersecurity, as I pointed out. And you 
certainly recognized we are on heightened alert across the 
board given what we are dealing with, with the Ukraine crisis. 
But cybersecurity becomes an even more critical issue to 
address.
    So with those recommendations, we are currently in the 
process of making possible changes so that we can improve our 
systems, become more resilient across the agency, and 
ultimately send a message to our constituents and our market 
participants that we are as fortified as possible in protecting 
the markets that we are asked to serve and do.
    Mr. Balderson. All right, thank you. But following up on 
that, Mr. Chairman, what resources do the CFTC require from 
Congress to fully implement the Inspector General's 
recommendations and to further alleviate any additional 
cybersecurity risk?
    Mr. Behnam. From an authorization standpoint, I don't think 
we need additional authority. I have said this before and I 
will repeat it. Given the risks associated with cybersecurity, 
given the resource challenges both on the personnel side, on 
the technology hardware side and the technology software side, 
I am just seeing an increased need for resources to hire the 
right individuals, retain the right individuals, and further 
improve our resiliency from a cybersecurity standpoint.
    We can never keep pace with the private-sector, I 
understand that. We have a duty to be careful with the 
privilege we have to serve and the resources we get from the 
American taxpayer, but I do think net-net we are a value-add 
given the penalties we impose and the protections that we bring 
to market. And because of that, I think it is important that we 
continue to invest in the CFTC, especially on the technology 
side so we can build this resilience and not leave American 
financial markets vulnerable to cyber attacks.
    Mr. Balderson. All right. Thank you. And we will stick with 
cybersecurity. As we move forward--and I may run out of time, 
but I will ask this question and you can report back to our 
office. Obviously, your staff can follow up. But are you aware 
when an individual buys a digital asset, an asset secured by 
whichever platform they used to make the purchase, this means 
that different platforms can be more secure than others and 
could be vulnerable to cyber attacks. Would it be beneficial to 
create some sort of framework to ensure that digital assets are 
secure across whichever platform consumers choose to use? And 
the follow-up on that, is this something that is being 
discussed at the CFTC or within interagency working groups?
    Mr. Behnam. Cybersecurity is a significant portion and 
discussion point among the larger effort of the relevant 
financial regulators in the Treasury Department. We understand 
and I understand very clearly that within the context of 
digital assets as we are approaching and understanding and 
learning about the technology that is the foundation of a 
digital asset ecosystem, that cyber becomes a significant risk. 
And we are seeing that even I think a few days ago there was 
another cyber attack, which led to about $600 million of stolen 
digital assets.
    This will continue, and this in my mind is just another 
argument for a strong, thoughtful, very proactive regulatory 
structure around the digital asset space and for me personally, 
as Chairman of the CFTC, ensuring we have the right tools, that 
we are thinking about cyber risks specific to the digital asset 
space as it may be distinguishable from traditional finance, 
learning and understanding those new elements of it, and 
addressing them as best that we can.
    Mr. Balderson. Mr. Chairman, well done. Thank you very much 
for those answers. And Mr. Chairman of the Committee, I yield 
back my remaining time.
    The Chairman. Thank you. And now the gentlewoman from 
Washington, Ms. Schrier, is recognized for 5 minutes.
    Ms. Schrier. Thank you, Mr. Chairman. And welcome, Chairman 
Behnam. I would like to focus on the many uncertainties that 
our farmers are facing and how the CFTC can help.
    Supply chain dysfunction made worse by the pandemic was 
first brought to my attention by hay and wheat growers in my 
district back in early 2020. And since then, I have been in 
frequent communication with growers and exporters around 
Washington's Eighth District about the issues that they are 
facing.
    Costs and the availability of transportation for both 
domestic and export markets continue to be a big challenge for 
wheat, cherry, apple, pear, and hay growers in my district. For 
example, some growers have said that the cost for a truck to 
the East Coast has more than doubled in the last year. Others 
say that the cost to move fruit to the port to be loaded for 
export costs as much as the entire trip to the destination 
country did in previous years.
    And, as you know, Chairman Behnam, we are experiencing 
unprecedented market volatility with severe weather events, 
trade disagreements, a pandemic, and supply chain issues 
disrupting normal operations. I have been hearing from growers 
in my district about the challenges of getting their crops to 
overseas markets due to supply chain disruption and also due to 
really exploitative practices of foreign-owned shipping 
companies. And now in recent months I am hearing about supply 
chain on the other side with the rising cost of inputs like 
fertilizer as a result of similar struggles.
    And so I am concerned about what that means for our farms 
who have utilized the derivatives market to control price risk. 
So if I could take wheat, for example, Washington State 
produces close to \1/2\ of the nation's soft white wheat, and I 
would like to know what mechanisms are in place to protect 
these wheat growers participating in these markets to help them 
hedge and manage their risk.
    Mr. Behnam. Thank you, Congresswoman. I often say about the 
CFTC, and I think I may have said earlier, we were once part of 
USDA. We were once a part of the farm bill, our 
reauthorization. And, as the Chairman noted, we were spun off 
in 1975, but that should not dismiss the fact that our core 
responsibility and job I think in many respects should be 
continually focused on America's farmers and ranchers.
    And with that, I think about all of the tools in the 
toolbox that USDA provides whether it is crop insurance or the 
commodity title programs and then the futures market. And this 
is what historically it has been and it needs to continue to 
be, especially under my chairmanship.
    So I think in terms of what we can do to address some of 
the wheat growers in Washington is ensure that we are utilizing 
the tools we have within the agency, whether it is consumer 
education and outreach, and I would be happy to come to 
Washington and speak to some of your constituents to ensure 
that they know that the U.S. futures markets remain a viable, 
cost-effective risk management tool, a credible and fraud-free 
price discovery mechanism so that, as we see these volatile 
times and whether the externality is a pandemic, a financial 
crisis, and now what we are dealing with in terms of a 
geopolitical crisis, that they can confidently rely on 
America's futures markets and the CFTC as its primary regulator 
so that they can hedge and manage that price risk in these 
difficult times.
    Ms. Schrier. I really appreciate your attention to that, 
and I know that the wheat farmers in my district would love to 
have you come and hear their stories, in particular as we look 
at fires, climate, and now more volatility in the wheat market 
due to the ongoing conflict in Ukraine. So I look forward to 
staying in touch. I would love to host you in my district. My 
wheat growers would love to meet you. And I want to thank you 
and thank you, Mr. Chairman, for putting this hearing together. 
I yield back.
    The Chairman. Thank you. And now the gentleman from Texas, 
Mr. Cloud, is now recognized for 5 minutes. Is Mr. Cloud on? 
You may need to un-mute. There you go.
    Mr. Cloud. Can you hear me, Mr. Chairman?
    The Chairman. Yes, I hear you now. Go right ahead.
    Mr. Cloud. Okay. I can hear you as well. The CFTC has five 
advisory committees that were created to foster discussion and 
provide recommendations to the agency. The leadership and 
membership of these are drawn from industry. In 2020 the 
subcommittee of the CFTC Market Risk Advisory Committee 
released a draft report with proposed recommendations to 
financial regulators on steps they can take to address climate-
related market risks. Because advisory committees and their 
subcommittees are industry-led entities, reports that they 
adopt are not agency or official government work product. Only 
if they are adopted by the full committee can they become 
formal recommendations for public stakeholders of the 
Commission.
    In the case of the MRAC, its charter requires that full 
MRAC membership vote to adopt any report drafted in its name, 
yet despite having two meetings after publication of the 
committee report, the MRAC leadership never called for a vote 
to adopt the committee report, and now the subcommittee is 
inactive, according to the CFTC website. Do you know why the 
MRAC membership never adopted the draft report prepared by the 
subcommittee?
    Mr. Behnam. Thanks, Congressman. I was the sponsor of the 
MRAC. I continue to be the sponsor of the MRAC. And my 
suspicion is now that we have new Commissioners, I will 
probably give way to one of the new Commissioners that 
sponsorship.
    That report, as you pointed out, was published in September 
of 2020. I mentioned earlier to one of your colleagues on the 
Committee very clearly that that was not a CFTC report. That 
was a product of the advisory committee only.
    In terms of the vote for the final report, it was just a 
sequence of events that happened that was coincidental, quite 
frankly. But the report was finalized in September of 2020. The 
next meeting that we had on the calendar was, I believe, 
February of 2021. And by that time I had become acting Chairman 
of the CFTC and decided not to raise that report up for a full 
committee vote.
    Mr. Cloud. Okay. Thank you. I yield back.
    The Chairman. Thank you. And now we will have the gentleman 
from New York, Mr. Maloney is recognized for 5 minutes. Mr. 
Maloney, you may want to check your microphone.
    Mr. Maloney. Thank you, Mr. Chairman.
    The Chairman. Yes.
    Mr. Maloney. I apologize for the difficulty.
    The Chairman. No problem.
    Mr. Maloney. And I thank our witness today.
    I just have a couple quick questions about digital assets. 
I am particularly interested in the Chairman's view of how the 
principle-based regulations that CFTC imposed would work in 
this context. And what similarities exist between, say, the way 
CFTC is regulating in general, and the current set up of 
digital asset exchanges that are not regulated currently? If 
you could just talk to us about that for a minute, I would be 
interested.
    Mr. Behnam. Thanks, Congressman. I have said this before I 
think a number of times in the past, but market structure 
within the context of digital assets and the unregulated 
platforms, they are regulated at the state level, which you 
know certainly from a New York perspective, pre-trade 
transparency and having equal, fair information flow between 
exchanges and users. The exchange itself, ideally you have a 
CLOB, which is a central limit order book, essentially an 
orderly platform where we receive bids and asks and then post-
trade reporting, ensuring settlement, and then ultimately 
custody. These are core elements and principles of any market, 
whether it is an equity market or futures market. And I 
personally and strongly believe that there shouldn't be 
anything necessarily different in the context of digital 
assets. Obviously, the custody and settlement becomes a bit 
more complicated and new and novel because of the assets 
themselves, but we are looking towards some of those issues and 
thinking about it.
    To address your first point quickly on the principles-based 
regulations has been at the CFTC for about 22 years. By and 
large market participants have been very supportive of it 
because it allows for innovation and development that is not 
too restricted by a more check-the-box exercise. I would 
emphasize to you that it doesn't mean that we don't have areas 
of more prescriptive rulemaking and prescriptive oversight 
whether it is around data or cyber or some core requirements. 
But there is a nice balance that principles-based regulation 
allows markets and market participants to be flexible within 
how they conduct their businesses knowing that they have to 
achieve similar outcomes but also allowing for that flexibility 
to support innovation, growth, and moving and evolving with 
markets, as we know, evolve very quickly because of any number 
of externalities.
    Mr. Maloney. Yes, thank you for that. And if you could say 
a word also about one of the things that I am interested in is 
the equitable component in these markets. There is a Harris 
Poll that suggests that 23 percent of African Americans and 17 
percent of Hispanic Americans compared to only 11 percent of 
White Americans own cryptocurrency. And so as we approach the 
kind of consumer regulations and protections, how do we balance 
the concern about those protections without suffocating the 
emerging technologies and the opportunities they provide for 
communities of color that have in some ways been more 
interested in this market segment than the majority community?
    Mr. Behnam. A great question, Congressman, and something 
that I think it is important that we peel back the onion so to 
speak, right, because I think the data suggests some very 
positive things, potentially low-income communities and 
individuals who are either historically under-banked or don't 
have access to banking services, and I think we can all agree 
or at least some of us can agree that this particular 
technology may allow for easier access to banking services and 
the transfer of assets, and that is a very positive and good 
thing, especially for low-income and historically 
underprivileged communities.
    But I would also say that we have to be very cautious. And 
you note this out, rightfully so, that as we see these markets 
evolve, I can generally say that they are highly speculative 
and highly retail-oriented, so we need to make sure that folks 
are using at this point where the market is largely 
unregulated, these services for the right reasons. And if they 
are not and if they are more focused on the speculation side 
and just, potentially, making money on a short-term basis, I 
have a responsibility, other regulators have a responsibility 
to do exhaustive and extensive outreach to individuals and 
communities that we don't historically reach out to.
    And I have said this earlier, but it is important that we 
utilize the leverage and the tools that we have at the CFTC to 
make sure people are aware of the risks, aware of the 
opportunities, but protecting themselves and their livelihoods 
from fraud, manipulation, and what has historically been the 
same type of fraudulent schemes we have seen throughout 
history, Ponzi schemes, pump-and-dumps. The asset might be 
different, but the fraud is largely the same. And we need to 
use that experience and that expertise to make sure we are 
rooting out those bad actors and protecting these communities.
    The Chairman. Thank you very much.
    Mr. Maloney. Well, my time has expired. I thank the 
gentleman and thank you for all your good work and for your 
testimony today. I yield back, Mr. Chairman.
    The Chairman. Thank you. And now the gentleman from Iowa, 
Mr. Feenstra, is now recognized for his 5 minutes.
    Mr. Feenstra. Thank you, Chairman Scott and Ranking Member 
Thompson.
    The cattle industry is very important to my district and my 
state and even to my family. Iowa ranks among the highest 
producers of cattle in the country, which has given me plenty 
of opportunity to sit down and talk about the issues that 
cattle producers feel are important. Every time I meet with 
them, they always ask for true price discovery that will allow 
cattle producers sufficient leverage in cash negotiations.
    You mentioned in your testimony that the core purpose of 
the Commodity Exchange Act is the promotion of fair competition 
among Board of Trade and other markets and market 
participation. What steps is the CFTC taking to monitor 
transparency in the cattle cash markets to ensure fair and 
correct pricing?
    Mr. Behnam. Thanks, Congressman, an extremely important 
question and I can say one that I have been focused on even as 
a Commissioner, but I also do want to give credit to my 
predecessors. There have been many challenges I think in the 
evolution of technology in our markets and other components 
that have contributed to some of the issues and concerns that 
are being raised by livestock producers. We are very engaged 
with constituencies both at the national level and the local 
level. We continue to obviously utilize our authorities from an 
enforcement perspective to ensure that markets are fair, free, 
and transparent and free from fraud and manipulation.
    Obviously, the underlying market plays a key, key role in 
any futures market, so ensuring that the cash market on the 
livestock side is also transparent, open, and those data feeds 
that are coming into the Boards of Trade are readily available 
and that those prices are reflecting what is happening in the 
cash market.
    So I am happy to work with you and your constituents to 
ensure this. We understand how important the issue is. We did 
form a livestock task force a few years ago, and I would be 
certainly welcome to doing something similar in the future if 
you have continuous concerns.
    Mr. Feenstra. Yes. And I really appreciate that. And that 
is my next question, if you have any recommendations. And you 
sort of noted one. Do you have any other recommendations? I 
mean, this in the Midwest is a very critical issue.
    Mr. Behnam. I think a few things is, one, I can get back to 
the folks who are on that task force and see if there is 
anything we can do to either resurrect it or start thinking 
about those issues and see if we are seeing any patterns. Two, 
the Agriculture Advisory Committee is one of the advisory 
committees, so perhaps we can use that advisory committee as a 
venue or vehicle to convene folks and start to talk about these 
issues.
    Mr. Feenstra. Yes. Well, I greatly appreciate that, and I 
look forward to working with you on this.
    Mr. Behnam. Thank you.
    Mr. Feenstra. Also in your testimony you mentioned how 
COVID-19 pandemic tested the resilience of the derivatives 
markets and the post-financial crisis reforms. Obviously, we 
saw the Russia invasion has created a crisis surrounding wheat 
production. There are other events that are shocking the 
agricultural market, especially the cost of inputs, inflation 
that are really hitting my producers in my district. Can you 
please elaborate on how derivatives markets will help address 
the market disruptions in the turbulent environment that we 
have?
    Mr. Behnam. Thanks, Congressman. I think as long as I feel 
like I am doing my job and the agency is doing its job, markets 
will remain free from fraud and manipulation, which means they 
are properly reflecting supply-demand dynamics. But what that 
allows producers in Iowa to hedge risk out of curve, which can 
go years out and stabilize those prices and eliminate those 
fluctuations that we are seeing in the short-term. So this was 
the intentional purpose of the markets. This is what they have 
served. I have a responsibility to make sure that they are 
serving those core requirements and purposes.
    And as I mentioned to some of your colleagues, I certainly 
welcome the opportunity to do some outreach to your 
constituents to help them feel more confident and comfortable 
with our markets as another tool in the risk management 
toolbox.
    Mr. Feenstra. Good. Thank you. Just one final question. We 
talked so much about digital currency. It looks like it is 
going to cost about $100 million in your budget. That is about 
\1/3\ of your budget. How do you square that up? I mean, that 
is a big deal.
    Mr. Behnam. Yes, look, it is not insignificant, and I take 
my responsibility as a steward of taxpayer resources very 
seriously. And that number that I came up with, I used an 
example from the financial crisis and where our budget was 
before the financial crisis and where it was after, most 
notably in light of the fact that we had a huge increase in 
authority over derivatives. That said, I can tell you just in 
the past year we have brought in over $100 million I believe in 
penalties from fraud and manipulation, so I do look at our 
agency's purpose and mission in that context. If we are doing 
our job, we are making sure markets are free and fair and 
rooting out bad actors and making them accountable. And we are 
earning our paycheck in some respects and will continue to do 
that. But that is why I think there is a value potentially for 
us to have this authority and protect markets and market 
participants.
    Mr. Feenstra. Thank you so much. Thank you, Mr. Chairman, 
and I yield back.
    The Chairman. Thank you. And now the gentleman from 
Florida, Mr. Lawson, is recognized for 5 minutes.
    Mr. Lawson. Thank you, Mr. Chairman, and thanks for having 
this hearing.
    Commissioner, I believe you are aware of the concerns 
aluminum end-users have with aluminum prices, particularly the 
application of the Midwest premium, which has increased 415 
percent since implementation of the 232 cap in 2018. Can you 
confirm whether your agency or any other regulatory agency has 
jurisdiction authorizing statutes over spot markets? And if 
not, can you share any thoughts on what the solution is to this 
regulatory gap, whether my bill H.R. 2698, the APEX Act, might 
be--is the right approach?
    Mr. Behnam. Thanks, Congressman. We have jurisdiction over 
cash markets across commodities when there is fraud and 
manipulation involved. That is a statutory-authorized authority 
we have. But outside of fraud and manipulation, we do not have 
authority to police cash markets. We utilize that authority. We 
have utilized it in digital assets and other commodities over 
the years, and you can imagine the relationship between cash 
and futures and the importance of having cash markets that are 
free from fraud and manipulation.
    In regard to the APEX Act, thank you for your support. 
Thank you for your interest in this issue. Obviously, aluminum 
prices have gone up very significantly in the past few years, 
and a lot of inputs and externalities related to that, given 
the crisis in Ukraine, some supply-chain constraints, a shoot-
up in demand and less supply, so obviously there are a number 
of things driving that price.
    But in terms of the APEX Act, I would say that that would 
be a pretty unique authority for us to have. We don't 
traditionally--and the way I view it is potentially register or 
have oversight over a price-setting benchmarking agency or 
entity. As we think about it, and I am happy to take a steer or 
input from you--those services are voluntary, so I think we 
would need to ensure that whatever authority Congress decides 
to provide to the CFTC in context of benchmark providers is 
that we retain that service because if it is a voluntary 
service and then a regulator comes into the scheme, that 
voluntary service could easily go away and then where are we 
left? Potentially without a benchmark provider.
    So I look forward to certainly talking to you about it 
more. I think it is a very positive step. But, it would be a 
unique authority for us to have, and we would have to think 
really hard from a CFTC perspective what would the regulatory 
outcomes be? What rulemakings would be needed to implement your 
law?
    Mr. Lawson. Okay, thank you. And I look forward to working 
with you on that. And I want to know that in Fiscal Year 2021, 
Consolidated Appropriations Act (Pub. L. 116-260) passed in 
December 2020 included language directing your agency to 
release a public record on aluminum pricing. Commissioner, are 
you able to provide an update on how the report is progressing 
and when you expect to release it?
    Mr. Behnam. Thank you. We are in the process of working on 
a document that we could share that obviously reserves and 
preserves any confidentiality issues but understand that 
request in the Appropriations Act and we will get that up to 
you as soon as possible. I will have my staff reach out to 
yours shortly after the hearing so that you can get a tighter 
timeline and date on when that report will be provided to 
Congress.
    Mr. Lawson. Thank you very much, Commissioner, for being 
here. And with that, Mr. Chairman, I yield back.
    The Chairman. Thank you. And now the gentlelady from 
Florida, Mrs. Cammack, is now recognized for 5 minutes.
    Mrs. Cammack. Well, thank you, Mr. Chairman, and thank you 
to Chairman Behnam for being here in front of the Committee 
today. So many important topics that we want to make sure we 
cover, so I am just going to jump right in.
    Chairman Behnam, in your testimony to the Senate 
Agriculture, Nutrition, and Forestry Committee you stated that 
there is, ``a thin line that the CFTC and the SEC must navigate 
when determining which agency has jurisdictional authority over 
the digital asset space.'' Additionally, you clarified that 60 
percent of the digital asset space marketplace falls under the 
jurisdictional authority of the CFTC and that the CFTC is 
prepared to assume the role of the primary regulator for 
cryptocurrency and blockchain technology.
    So this is a very important issue to me as the millennial 
representing in Congress. This is something very important to 
my peer group and a very complicated issue. I am curious as to 
what your thoughts are on Congress doing legislatively to 
ensure that the CFTC has spot market jurisdiction of the 
digital asset marketplace and doesn't fall into the purview of 
an overreaching SEC?
    Mr. Behnam. Thanks, Congresswoman. You point out all the 
things that I have said in the past and echo what you said 
about the importance of a regulatory structure. Right now, 
there is a lot of uncertainty in the market. From a CFTC 
perspective, our authority is very limited to police those 
markets. And as I said earlier, it is limited to fraud and 
manipulation in the commodity space. And as you point out, I 
think I mentioned 60 percent, and that number has stayed 
relatively the same. I think the market capitalization of 
digital assets tends to swing day by day. But in terms of the 
value of two core digital assets, Bitcoin and Ether, that is 
roughly in the 55 to 60 percent range of the total digital 
asset market capitalization. And at least Bitcoin has been 
determined to be a commodity by a Federal court. I think Ether 
has not, but when you look at the asset itself, it looks like 
and tends to be more of a commodity than a security.
    I use that phrase thin line because this is really a 
balancing act and something that we need, I think, to 
collectively support and guidance from Congress on as to how we 
are going to regulate the space, how are we going to protect 
customers, how are we going to ensure market resiliency, how 
are we going to prevent financial stability risks if the market 
continues to grow and scale at the clip that it is.
    But ultimately, and to speak to your support of the 
technology, whatever outcome may exist in 10 or 20 or 30 years 
with this technology, I am a firm believer that American 
financial markets, both equity markets, security markets, and 
derivatives market, are the best, deepest, and strongest in the 
world because of our regulatory structure, because there are 
clear rules of the road and bad actors are held accountable. 
And I think that same logic can be applied to the digital asset 
space.
    I can't predict what is going to happen. I think as a 
regulator we want to assume it is going to continue to grow, 
and I have to protect customers in those core items about 
resiliency and stability. But in terms of innovation and 
development and growth in the marketplace, I do think a 
regulatory structure would be helpful in supporting the growth 
of the market in the years to come regardless of what may come 
from it from a technology perspective.
    Mrs. Cammack. Well, I appreciate your feedback, and at some 
point because I certainly cannot in a minute and 40 seconds 
dive into the decentralized nature of what could be, so I am 
going to just pivot here and hopefully we can have a time to 
sit down and discuss further on this and I will have my office 
reach out to yours.
    But I do want to jump to a market stability question. Given 
recent events in Ukraine, I come from a heavily ag district. 
Farmers, ranchers, other commercial entities obviously rely on 
futures markets to hedge risk. And the Russian invasion of 
Ukraine has resulted, as you know, in extreme market volatility 
and record trading volume on global markets. Obviously, we are 
seeing fertilizer reach somewhere in the ballpark of 700 
percent on some certain ones, particularly potash. Now, I want 
to know, how is CFTC approaching this from a surveillance 
standpoint?
    Mr. Behnam. Congresswoman, we are on heightened alert. We 
are making sure that we are understanding and identifying risks 
in the marketplace. We are looking at the cash market and 
seeing what we are seeing from a transportation standpoint, 
from a supply chain standpoint, and ensuring those supply-
demand dynamics in the cash space are being properly reflected 
in the futures space.
    As I pointed out, our core responsibility is obviously on 
derivatives markets. We have fraud and manipulation in the cash 
markets, but if we can assure that markets are fair, operating 
orderly, they are transparent, and that they are free from 
fraud and manipulation, that means they are reflecting cash 
supply-demand dynamics, and that means your constituents and 
other producers can hedge those risks and eliminate some of 
those extreme up and downs and continue to do their business as 
intended.
    Mrs. Cammack. Well, and I know my time is about to expire. 
One last question, Mr. Chairman, if you would allow me to 
submit for the record so I may get a written response, I would 
be very much appreciative.
    The Chairman. Thank you. And now we will hear from the 
gentlelady from Illinois, Mrs. Miller, and she is recognized 
for 5 minutes. This will be our final Member for today. Mrs. 
Miller, you are now recognized.
    Mrs. Miller. Thank you. Chairman Behnam, I know that 
addressing climate-related market risk has been a priority for 
you during your tenure at the Commission. But what role does 
CFTC or derivatives products have in directly addressing 
climate change?
    Mr. Behnam. Congresswoman, inherently I think our markets 
are risk-management markets. Our markets have been thinking 
about data points related to climate for decades. That is 
really at the core of what our markets do, whether it is a 
tornado, a rainstorm, or a fire. And I think right now my goal 
is to utilize the economists and the experts in the CFTC to 
engage with the private market to support innovation so that we 
can see new products and new development in this space that 
would help mitigate some of the impacts of physical climate 
change and also help support an orderly transition to a net-
zero economy.
    Mrs. Miller. Thank you, and I yield back.
    The Chairman. Thank you very much.
    And now, before we adjourn, I want to invite our Ranking 
Member to share his closing remarks, and then I will come and 
give my closing remarks.
    Mr. Thompson. All right, Mr. Chairman, thank you very much. 
This was a great hearing. It was great to have Chairman Behnam 
before us. And, I appreciate his comments, his overview, his 
leadership of the Commodity Futures Trading Commission, which, 
quite frankly, we have jurisdiction over and functions based on 
principles.
    I will take a moment to kind of shameless plug to encourage 
my colleagues to join me with the Digital Commodities Exchange 
Act. I think, as you heard from the exchange today, that 
proposal, soon-to-be-introduced piece of legislation, I think 
it provides the tools the CFTC needs, the clarity, the 
definitions, the principles to be able to deal with this ever-
increasing digital commodity market. The United States has 
always been a leader with the first generation of internet, 
which is the internet of knowledge. The second generation, 
which is the internet of things that we are kind of living 
through right now. And, quite frankly, the third generation of 
technology is the internet of value, which allows these digital 
commodities to flourish. America has been a true leader, not a 
follower, for the first and second version, and we need to 
continue that for the internet 3.0, and this piece of 
legislation will provide us the tools to do that.
    So, Chairman Behnam, thank you to you, to your leadership. 
We are excited to have you in this role. We are excited to have 
your new colleagues that will be joining you. We need to make 
sure that you have the resources that you need to be able to do 
the job you have, and I think that includes obviously with this 
expanding digital commodity market, additional resources for 
the staff with expertise to make sure that America remains a 
leader. So thank you. And, Mr. Chairman, I yield back.
    The Chairman. Well, thank you, Ranking Member.
    And Chairman Behnam, all I can say is thank you for your 
articulate presentation, your knowledgeable presentation. We 
are very fortunate to have you as our new CFTC Chairman. And I 
think I speak for our entire Committee that we are very 
fortunate to have you here, and we look forward to helping you 
in any way that we can be helpful to your forward progress.
    I do want to leave you with this caveat, however. As you 
recall, I mentioned at the very beginning how I enlightened 
myself during my early days in the knowledge of one Alexander 
Hamilton. And the reason I want to mention that, our great 
first Treasury Secretary, was where would we be without the 
national banking system that he put together? The New York 
Stock Exchange foundation, even our Federal Reserve. And George 
Washington thought so much of him that he not only made him his 
aide-de-camp but his first, his youngest Cabinet member as 
Treasury Secretary. Where would we be if we did not take care 
and flourish those frameworks of our great financial system in 
this country?
    That is why I am registering with you the importance of 
doing the same care and tenderness that we have given to those 
other institutions that have helped us through the 
Revolutionary War, the national banking system did, all the way 
up through the New York Stock Exchange, even paying our bills 
out of the Revolutionary War, the Civil War, the depressions, 
all the way through.
    So now we are here with this other movement, 
cryptocurrency. It is new. So were derivatives and swaps. But 
these are the anchors. CME and ICE, they got us through that 
and manifested that in the same pattern as Alexander Hamilton's 
vision.
    So what I am saying to you is--and you heard it from both 
Democrats and Republicans, we want to not risk losing the 
wealth of contribution and continuation of our great financial 
system, of the intermediaries in this. We have to keep ICE and 
CME strong the way we have kept all of the other institutions 
historically that have kept our financial system as the 
greatest in the world. That is all we say. Take care of the 
bridge that has brought us through. And certainly ICE and CME 
have done that so much.
    So with that, I am now going to adjourn with these final 
comments. 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 by any Member.
    And now, before I adjourn, I want to thank our wonderful 
staff headed up by Anne Simmons and Ashley Smith and Catherine. 
I call her Catherine the Great, my chief of staff. We all work 
together. Thank you all for this wonderful and very informative 
hearing. This hearing is now adjourned.
    [Whereupon, at 12:30 p.m., the Committee was adjourned.]
    [Material submitted for inclusion in the record follows:]
   Supplementary Material Submitted by Hon. Rostin Behnam, Chairman, 
                  Commodity Futures Trading Commission
Insert
          Mr. Johnson. So how about from the perspective of the United 
        Kingdom? Of course, that is not your job nor mine, but have 
        they also been able to secure a good landing spot in the wake 
        of Brexit?
          Mr. Behnam. It is a good question, and you are right because 
        it wasn't just the EU who suffered or who had an outcome as a 
        result of Brexit. It was the UK of course as well. And as the 
        EU was starting to think about what they were going to do from 
        a regulatory perspective, perhaps the UK was just a little bit 
        behind. But we are having those conversations right now. I am 
        confident that we are having conversations that are heading in 
        the right direction. And what I mean by that is preserving U.S. 
        primacy, preserving primacy of the CFTC as the home country 
        regulator, leaning on the existing relationship between the 
        CFTC and my counterpart agency, and, above all else, using the 
        foundational relationship between the United States of America 
        and the United Kingdom, allowing them to trust us and the 
        regulations we have and the institutions that we have and 
        supervise as much as we need to trust them and the supervision 
        that they conduct over their institutions. So I am going to 
        lean on those principles and ensure they are successful.
          Mr. Johnson. Let me [inaudible]--probably more valuable than 
        the question I was asking. And I am out of time, so if your 
        team can follow up afterward.
          Mr. Behnam. Thank you.
          Mr. Johnson. I guess I was asking more about whether or not 
        the European Union and their regulatory agreements with the 
        United Kingdom is going to allow the United Kingdom the 
        flexibility they need to also maintain how they operate because 
        I just think there could be a broader impact on global markets 
        if there are disruptions in that relationship. But thank you 
        very much. And sir, I yield back.
          The Chairman. And Chairman Behnam, feel free to respond in 
        writing to Mr. Johnson's questions.

    As the United Kingdom and European Union proceed with their ongoing 
negotiations, we continue to monitor the developments and potential 
effects on other markets, including that of the U.S. With a shared 
interest in global financial stability, minimizing market 
fragmentation, supporting vibrant, liquid derivatives markets, and 
appropriate application of rules and supervisory oversight, we continue 
to collaborate with our European and British counterparts.
                                 ______
                                 
                          Submitted Questions
Response from Hon. Rostin Behnam, Chairman, Commodity Futures Trading 
        Commission
Questions Submitted by Hon. Glenn Thompson, a Representative in 
        Congress from Pennsylvania
    Question 1. Dodd-Frank divided jurisdiction of the swaps markets 
between the CFTC and the SEC. However, the actual hedging products 
themselves are often inter-linked and part of the same market 
ecosystem. Therefore, SEC regulations that impact liquidity in the 
SEC's subset of the swaps markets can impact liquidity and the costs of 
transactions in the CFTC's regulated swap markets.
    Are you aware of proposals the SEC is currently considering that 
many market participants are concerned could reduce liquidity in 
security based swaps? And have you given consideration to whether there 
may be unintended consequences for liquidity in the CFTC swaps markets 
that are closely linked to the SEC markets?
    Answer. The SEC proposed rules for Security-Based Swaps largely 
track those previously promulgated by CFTC. The CFTC will continue to 
evaluate, and consult as appropriate, with the SEC concerning their 
rule making proposals as they proceed through public comment and final 
determination.

    Question 2. Asset managers, pension funds and other investors and 
end-users use a diverse array of products to manage risk that span both 
SEC and CFTC jurisdiction. Do you agree the CFTC should prioritize 
coordinating with the SEC to allow market participants to allow for 
cross-margining in a single portfolio along with securities, 
facilitating the efficiencies and risk mitigation this would create?
    Answer. The CFTC supports portfolio margining and recognizes the 
capital efficiencies that market participants may obtain in the form of 
lower initial margin requirements by appropriately recognizing diverse 
positions with offsetting risk characteristics in a single portfolio 
margin account. In this regard, the CFTC has issued orders to 
facilitate the portfolio margining of customer cleared credit default 
swaps and cleared credit default security-based swaps held in a cleared 
swaps account by a dually-registered futures commission merchant and 
securities broker-dealer.\1\ The CFTC and SEC have also issued a joint 
Request for Comment soliciting public input on potential ways to 
implement portfolio margining of uncleared swaps and non-cleared 
security-based swaps.\2\ The CFTC looks forward continuing its work 
with the SEC to further explore potential portfolio margining benefits 
for market participants.
---------------------------------------------------------------------------
    \1\ Order, Treatment of Funds Held in Connection with Clearing by 
ICE Clear Credit of Credit Default Swaps (Jan. 13, 2013), available at: 
www.cftc.gov/sites/default/files/idc/groups/public/@newsroom/documents/
file/icecreditclearorder011413.pdf;Order, Treatment of Funds Held in 
Connection with Clearing by ICE Clear Europe of Credit Default Swaps 
(Apr. 9, 2013), available at: www.cftc.gov/sites/default/files/
stellent/groups/public/@requestsandactions/documents/ifdocs/
icecleareurope4dfcds040913.pdf.
    \2\ Request for Comment, Portfolio Margining of Uncleared Swaps and 
Non-Cleared Security-Based Swaps (Nov. 5, 2020), available at: 
www.cftc.gov/sites/default/files/2020/11/2020-23928a.pdf.

    Question 3. It is critical for companies in the U.S. to be able to 
hedge their risks in the most liquid markets available. For some risks, 
especially foreign currency risks, those markets are overseas, in the 
home country of the currency. For the past decade, the Committee has 
been committed to a robust substituted compliance regime for cross-
border transactions, in which the CFTC defers to home country 
regulators when their rules are on par with, but not identical to, U.S. 
requirements.
    In making substituted compliance determinations, the Commission 
should look to replicate the regulatory outcomes of U.S. rules, not the 
specific rules themselves. This outcomes-based-comparison ensures that 
U.S. market participants are able to access the foreign markets which 
are best suited to their hedging needs, when those markets are 
appropriately supervised by their home country regulators, under rules 
which make sense for that foreign market.
    In some cases, it appears that the Commission's substituted 
compliance determinations for the trading and clearing of OTC swaps 
denominated in non-USD currencies do not adhere to this standard. Would 
you commit to examining these determinations to ensure that like 
outcomes are granted comparable substituted compliance treatment, so 
that U.S. customers can continue to hedge and manage their business 
risks around the world?
    Answer. The CFTC works to approach comparability determinations 
using a holistic evaluation of the foreign jurisdiction's statutory and 
regulatory regime, rather than a line by line comparison. 
Determinations have been issued where the outcomes are determined to be 
comparable. In the cross-border guidance from 2013, the Commission 
articulated a holistic, outcomes-based evaluation and we have been 
operating consistent with that guidance. Staff is not aware of any 
specific cases of concern but is happy to review if there are any 
additional details that can be provided.
                              attachment 1

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-------------------------------------------------------------------------
                        United States of America
                               Before the
                  Commodity Futures Trading Commission
------------------------------------------------------------------------
Treatment of Funds Held in Connection with
Clearing by ICE Clear Credit of Credit Default Swaps
------------------------------------------------------------------------
                                  Order
------------------------------------------------------------------------

    ICE Clear Credit LLC (``ICE Clear Credit''), a derivatives clearing 
organization (``DCO'') registered under Section 5b of the Commodity 
Exchange Act (``Act'') and a securities clearing agency registered 
under Section 17A of the Securities Exchange Act of 1934 (``Exchange 
Act''), has submitted a request that the Commodity Futures Trading 
Commission (``Commission'') issue an Order permitting ICE Clear Credit 
and its clearing members that are broker-dealers registered under 
Section 15(b) of the Exchange Act and are also futures commission 
merchants registered under Section 4f(a)(1) of the Act 
(``Participants'') (i) to hold in a cleared swaps account, subject to 
Section 4d(f) of the Act, customer money, securities, and property 
(collectively, ``customer property'') used to margin, guarantee, or 
secure both cleared swaps and cleared security-based swaps; and (ii) to 
provide for portfolio margining of such cleared swaps and cleared 
security-based swaps.
    The request was posted on the Commission's website for a 30 day 
public comment period which ended on December 22, 2011. Seven 
substantive comment letters were received during the comment period, 
all of which supplied the Commission's issuance of an Order pursuant to 
Section 4d(f) of the Act.
    The Commission has reviewed the request and supplemental 
information provided by ICE Clear Credit (``Submission''), and finds 
that ICE Clear Credit has demonstrated that it can continue to comply 
with the requirements under the Act and the Commission's regulations 
thereunder applicable to it, including in connection with the 
Submission. Therefore,
    It Is Ordered, pursuant to Section 4d(f) of the Act, 7 U.S.C.  
6d(f), that, subject to the terms and conditions below, ICE Clear 
Credit and its Participants that are acting pursuant to this Order may 
hold customer property used to margin, guarantee, or secure positions 
in cleared security-based swaps with other customer property used to 
margin, guarantee, or secure positions in cleared swaps, in a cleared 
swaps account or accounts maintained in accordance with Section 4d(f) 
of the Act (including any applicable orders issued pursuant to Section 
4d(f) of the Act) and the regulations thereunder, and provide for 
portfolio margining of such cleared swaps and cleared security-based 
swaps, subject to the requirements of Commission Regulation 
39.13(g)(4). All such customer property shall be accounted for and 
treated and dealt with as belonging to the cleared swaps customers of 
the Participant consistent with Section 4d(f) of the Act and the 
regulations thereunder.
    It Is Further Ordered, that:

  (1)  Customer property used to margin, guarantee, or secure positions 
            in credit default swaps (``CDS'') that are narrow-based 
            index CDS or single-name CDS (together, ``Security-Based 
            CDS'') that are currently, or will in the future be, 
            cleared through ICE Clear Credit, may be commingled and 
            portfolio margined with broad-based index CDS that are 
            currently, or will in the future be, cleared through ICE 
            Clear Credit, in accounts subject to Section 4d(f) of the 
            Act.

  (2)  Each Participant acting pursuant to this Order shall take 
            appropriate measures to identify, measure, and monitor 
            financial risk associated with carrying the Security-Based 
            CDS in a cleared swaps account and implement risk 
            management procedures to address those financial risks.

  (3)  Each Participant acting pursuant to this Order shall provide 
            notice to its customers that customer property used to 
            margin, guarantee, or secure Security-Based CDS will not 
            receive customer protection treatment under the Exchange 
            Act or Securities Investor Protection Act of 1970, and will 
            instead receive customer protection treatment under 
            Subchapter IV of Chapter 7 of Title 11 of the United States 
            Code and the rules and regulations thereunder.

  (4)  ICE Clear Credit shall apply appropriate risk management 
            oversight procedures with respect to positions in the 
            Security-Based CDS. ICE Clear Credit shall conduct 
            oversight sufficient to assure that each Participant acting 
            pursuant to this Order has the operational capabilities 
            necessary to manage defaults in such positions.

  (5)  ICE Clear Credit shall require Participants to collect customer 
            initial margin, as defined in Commission Regulation 
            1.3(bbb), from their customers at a minimum level 
            determined by ICE Clear Credit.

  (6)  ICE Clear Credit shall conduct financial surveillance and 
            oversight with respect to the Security-Based CDS carried by 
            each Participant acting pursuant to this Order.

  (7)  ICE Clear Credit and each Participant acting pursuant to this 
            Order shall take all other steps appropriate to manage risk 
            related to clearing the Security-Based CDS.

  (8)  ICE Clear Credit and each Participant acting pursuant to this 
            Order shall hold all customer property deposited with ICE 
            Clear Credit and such Participant, respectively, to margin, 
            guarantee, or secure Security-Based CDS in accordance with 
            the requirements of section 4d(f) of the Act and the 
            Commission's regulations thereunder.

  (9)  ICE Clear Credit shall at all times fulfill all representations 
            made in the Submission.

    This Order is issued pursuant to Section 4d(f) of the Act based 
upon the representations made and supporting material provided to the 
Commission by ICE Clear Credit in its Submission. Any changes or 
omissions in the material facts and circumstances pursuant to which 
this Order is granted might require the Commission to reconsider its 
finding that the relief set forth herein is appropriate. Further, in 
its discretion, the Commission may condition, modify, suspend, 
terminate, or otherwise restrict the exemptive relief granted in this 
Order, as appropriate, on its own motion.
    Issued in Washington, D.C., this 14[t]h day of January, 2013.
                                                      By the Commission
		
		[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                                       Melissa Jurgens,
                                           Secretary of the Commission.
                              attachment 2

------------------------------------------------------------------------
 
-------------------------------------------------------------------------
                        United States of America
                               Before the
                  Commodity Futures Trading Commission
------------------------------------------------------------------------
Treatment of Funds Held in Connection with
Clearing by ICE Clear Europe of Credit Default Swaps
------------------------------------------------------------------------
                                  Order
------------------------------------------------------------------------

    ICE Clear Europe Limited (``ICE Clear Europe''), a derivatives 
clearing organization (``DCO'') registered under Section 5b of the 
Commodity Exchange Act (``Act'') and a securities clearing agency 
registered under Section 17A of the Securities Exchange Act of 1934 
(``Exchange Act''), has submitted a request that the Commodity Futures 
Trading Commission (``Commission'') issue an Order permitting ICE Clear 
Europe and its clearing members that are broker-dealers registered 
under Section 15(b) of the Exchange Act and are also futures commission 
merchants registered under Section 4f(a)(1) of the Act 
(``Participants'') (i) to hold in a cleared swaps account, subject to 
Section 4d(f) of the Act, customer money, securities, and property 
(collectively, ``customer property'') used to margin, guarantee, or 
secure both cleared swaps and cleared security-based swaps; and (ii) to 
provide for portfolio margining of such cleared swaps and cleared 
security-based swaps.
    The request was posted on the Commission's website for a 30 day 
public comment period which ended on December 14, 2012. One comment 
letter was received during the comment period, which supported the 
Commission's issuance of an Order pursuant to Section 4d(f) of the Act.
    The Commission has reviewed the request and supplemental 
information provided by ICE Clear Europe (``Submission''), and finds 
that ICE Clear Europe has demonstrated that it can continue to comply 
with the requirements under the Act and the Commission's regulations 
thereunder applicable to it, including in connection with the 
Submission. Therefore,
    It Is Ordered, pursuant to Section 4d(f) of the Act, 7 U.S.C.  
6d(f), that, subject to the terms and conditions below, ICE Clear 
Europe and its Participants that are acting pursuant to this Order may 
hold customer property used to margin, guarantee, or secure positions 
in cleared security-based swaps with other customer property used to 
margin, guarantee, or secure positions in cleared swaps, in a cleared 
swaps account or accounts maintained in accordance with Section 4d(f) 
of the Act (including any applicable orders issued pursuant to Section 
4d(f) of the Act) and the regulations thereunder, and provide for 
portfolio margining of such cleared swaps and cleared security-based 
swaps, subject to the requirements of Commission Regulation 
39.13(g)(4). All such customer property shall be accounted for and 
treated and dealt with as belonging to the cleared swaps customers of 
the Participant consistent with Section 4d(f) of the Act and the 
regulations thereunder.
    It Is Further Ordered, that:

  (1)  Customer property used to margin, guarantee, or secure positions 
            in credit default swaps (``CDS'') that are narrow-based 
            index CDS or single-name CDS (together, ``Security-Based 
            CDS'') that are currently, or will in the future be, 
            cleared through ICE Clear Europe, may be commingled and 
            portfolio margined with broad-based index CDS that are 
            currently, or will in the future be, cleared through ICE 
            Clear Europe, in accounts subject to Section 4d(f) of the 
            Act.

  (2)  Each Participant acting pursuant to this Order shall take 
            appropriate measures to identify, measure, and monitor 
            financial risk associated with carrying the Security-Based 
            CDS in a cleared swaps account and implement risk 
            management procedures to address those financial risks.

  (3)  Each Participant acting pursuant to this Order shall provide 
            notice to its customers that customer property used to 
            margin, guarantee, or secure Security-Based CDS will not 
            receive customer protection treatment under the Exchange 
            Act or Securities Investor Protection Act of 1970, and will 
            instead receive customer protection treatment under 
            Subchapter IV of Chapter 7 of Title 11 of the United States 
            Code and the rules and regulations thereunder.

  (4)  ICE Clear Europe shall apply appropriate risk management 
            oversight procedures with respect to positions in the 
            Security-Based CDS. ICE Clear Europe shall conduct 
            oversight sufficient to assure that each Participant acting 
            pursuant to this Order has the operational capabilities 
            necessary to manage defaults in such positions.

  (5)  ICE Clear Europe shall require Participants to collect customer 
            initial margin, as defined in Commission Regulation 
            1.3(bbb), from their customers at a minimum level 
            determined by ICE Clear Europe.

  (6)  ICE Clear Europe shall conduct financial surveillance and 
            oversight with respect to the Security-Based CDS carried by 
            each Participant acting pursuant to this Order.

  (7)  ICE Clear Europe and each Participant acting pursuant to this 
            Order shall take all other steps appropriate to manage risk 
            related to clearing the Security-Based CDS.

  (8)  ICE Clear Europe and each Participant acting pursuant to this 
            Order shall hold all customer property deposited with ICE 
            Clear Europe and such Participant, respectively, to margin, 
            guarantee, or secure Security-Based CDS in accordance with 
            the requirements of section 4d(f) of the Act and the 
            Commission's regulations thereunder.

  (9)  ICE Clear Europe shall at all times fulfill all representations 
            made in the Submission.

    This Order is issued pursuant to Section 4d(f) of the Act based 
upon the representations made and supporting material provided to the 
Commission by ICE Clear Europe in its Submission. Any changes or 
omissions in the material facts and circumstances pursuant to which 
this Order is granted might require the Commission to reconsider its 
finding that the relief set forth herein is appropriate. Further, in 
its discretion, the Commission may condition, modify, suspend, 
terminate, or otherwise restrict the exemptive relief granted in this 
Order, as appropriate, on its own motion.
    Issued in Washington, D.C., this 9th day of April, 2013.
                                                      By the Commission


		[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                                       Melissa Jurgens,
                                           Secretary of the Commission.
                              attachment 3
Federal Register / Vol. 85, No. 215 / Thursday, November 5, 2020 / 
Proposed Rules
Commodity Futures Trading Commission
17 CFR Part 23
RIN 3038-AF07
Securities and Exchange Commission
17 CFR Part 240
[Release No. 34-90246; File No. S7-15-20]

RIN 3235-AM64

Portfolio Margining of Uncleared Swaps and Non-Cleared Security-Based 
Swaps

    AGENCY: Commodity Futures Trading Commission and Securities and 
Exchange Commission.
    ACTION: Request for comment.
    SUMMARY: The Commodity Futures Trading Commission (``CFTC'') and 
the Securities and Exchange Commission (``SEC'') (collectively, the 
``Commissions'') seek public comment on potential ways to implement 
portfolio margining of uncleared swaps and non-cleared security-based 
swaps.
    DATES: Comments should be received on or before December 7, 2020.
    ADDRESSES: Comments should be sent to both agencies at the 
addresses listed below.
    CFTC: You may submit comments, identified by RIN 3038-AF07, by any 
of the following methods: CFTC website: https://comments.cftc.gov. 
Follow the instructions for submitting comments through the website.

   Mail: Christopher Kirkpatrick, Secretary of the Commission, 
        Commodity Futures Trading Commission, Three Lafayette Centre, 
        1155 21st Street NW, Washington, DC 20581.

   Hand Delivery/Courier: Same as Mail above.

    Please submit your comments using only one method.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
https://www.cftc.gov. You should submit only information that you wish 
to make available publicly. If you wish for the CFTC to consider 
information that you believe is exempt from disclosure under the 
Freedom of Information Act, a petition for confidential treatment of 
the exempt information may be submitted according to the procedures 
established in CFTC Rule 145.9, 17 CFR 145.9.
    The CFTC reserves the right, but shall have no obligation, to 
review, prescreen, filter, redact, refuse, or remove any or all of your 
submission from https://www.cftc.gov that it may deem to be 
inappropriate for publication, such as obscene language. All 
submissions that have been redacted or removed that contain comments on 
the merits of the rulemaking will be retained in the public comment 
file and will be considered as required under the Administrative 
Procedure Act and other applicable laws, and may be accessible under 
the Freedom of Information Act.
    SEC: Comments may be submitted by any of the following methods:
Electronic Comments
   Use the SEC's internet comment form (http://www.sec.gov/
        rules/other.shtml); or

   Send an email to [email protected]. Please include File 
        No. S7-15-20 on the subject line.
Paper Comments
   Send paper comments to Secretary, Securities and Exchange 
        Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-15-20. This file number 
should be included on the subject line if email is used. To help the 
SEC process and review your comments more efficiently, please use only 
one method of submission. The SEC will post all comments on the SEC's 
website (http://www.sec.gov). Comments are also available for website 
viewing and printing in the SEC's Public Reference Room, 100 F Street 
NE, Washington, DC 20549, on official business days between the hours 
of 10:00 a.m. and 3:00 p.m. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
publicly available.
    FOR FURTHER INFORMATION CONTACT:
    CFTC: Thomas J. Smith, Deputy Director, at (202) 418-5495, 
[email protected] or Joshua Beale, Associate Director, at (202) 418-5446, 
[email protected], Division of Swap Dealer and Intermediary Oversight; 
Robert B. Wasserman, Chief Counsel and Senior Advisor, at (202) 418-
5092, [email protected], Division of Clearing and Risk, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street 
NW, Washington, DC 20581.
    SEC: Michael A. Macchiaroli, Associate Director, at (202) 551-5525; 
Thomas K. McGowan, Associate Director, at (202) 551-5521; Randall W. 
Roy, Deputy Associate Director, at (202) 551-5522; Raymond Lombardo, 
Assistant Director, at 202-551-5755; or Sheila Dombal Swartz, Senior 
Special Counsel, at (202) 551-5545, Division of Trading and Markets, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-7010.
    Supplementary Information:
I. Introduction
    Title VII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (``Title VII'') established a new regulatory framework 
for the U.S. over-the-counter (``OTC'') derivatives markets.\1\ The 
Dodd-Frank Act assigns responsibility for certain aspects of the U.S. 
OTC derivatives markets to the CFTC and the SEC. In particular, the 
CFTC has oversight authority with respect to swaps, and the SEC has 
oversight authority with respect to security-based swaps.\2\ The CFTC 
has adopted final margin rules for uncleared swaps applicable to 
nonbank swap dealers and nonbank major swap participants.\3\ The SEC 
has adopted final margin requirements for non-cleared security-based 
swaps applicable to nonbank security-based swap dealers (``SBSDs'') and 
nonbank major security-based swap participants (``MSBSPs'').\4\ Bank 
regulators have adopted capital and margin requirements for bank swap 
dealers and bank major swap participants and for bank SBSDs and bank 
MSBSPs pursuant to Title VII.\5\ The SEC and CFTC also have issued 
exemptive orders to facilitate the portfolio margining of cleared swaps 
and security-based swaps that are credit default swaps (``CDS'') held 
in a swap account.\6\
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    \1\ See Public Law 111-203, 771 through 774 (``Dodd-Frank Act'').
    \2\ The CFTC has oversight authority with respect to a ``swap'' as 
defined in Section 1(a)(47) of the Commodity Exchange Act (``CEA'') (7 
U.S.C. 1(a)(47)), including to implement a registration and oversight 
program for a ``swap dealer'' as defined in Section 1(a)(49) of the CEA 
(7 U.S.C. 1(a)(49)) and a ``major swap participant'' as defined in 
Section 1(a)(33) of the CEA (7 U.S.C. 1(a)(33)). The SEC has oversight 
authority with respect to a ``security-based swap'' as defined in 
Section 3(a)(68) of the Exchange Act (15 U.S.C. 78c(a)(68)), including 
to implement a registration and oversight program for a ``security-
based swap dealer'' as defined in Section 3(a)(71) of the Exchange Act 
(15 U.S.C. 78c(a)(71)) and a ``major security-based swap participant'' 
as defined in Section 3(a)(67) of the Exchange Act (15 U.S.C. 
78c(a)(67)). The SEC and the CFTC jointly have adopted rules to further 
define those terms. See Further Definition of ``Swap,'' ``Security-
Based Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps; 
Security-Based Swap Agreement Recordkeeping, Exchange Act Release No. 
67453 (July 18, 2012), 77 FR 48208 (Aug. 13, 2012); Further Definition 
of ``Swap Dealer,'' ``Security-Based Swap Dealer,'' ``Major Swap 
Participant,'' ``Major Security-Based Swap Participant'' and ``Eligible 
Contract Participant,'' Exchange Act Release No. 66868 (Apr. 27, 2012), 
77 FR 30596 (May 23, 2012).
    \3\ CFTC, Margin Requirements for Uncleared Swaps for Swap Dealers 
and Major Swap Participants, 81 FR 636 (Jan. 6, 2016) (``CFTC Final 
Margin Release''). The Commissions use the terms ``uncleared swaps'' 
and ``non-cleared security-based swaps'' throughout this request for 
comment because those are the defined terms adopted in their respective 
final margin rules.
    \4\ SEC, Capital, Margin, and Segregation Requirements for 
Security-Based Swap Dealers and Major Security-Based Swap Participants 
and Capital and Segregation Requirements for Broker-Dealers (``SEC 
Final Capital, Margin and Segregation Release''), Exchange Act Release 
No. 86175 (June 21, 2019), 84 FR 43872, 43956-43957 (Aug. 22, 2019). 
The compliance date for the SEC's margin rules is October 6, 2021. 
Covered counterparties under the CFTC's uncleared swap margin rules 
already post and collect variation margin. CFTC initial margin 
requirements are being implemented under a phase-in schedule through 
September 1, 2022. See Margin Requirements for Uncleared Swaps for Swap 
Dealers and Major Swap Participants, 85 FR 41463 (Jul. 10, 2020); see 
also CFTC, Press Release Number 8287-20, CFTC Finalizes Position Limits 
Rule at October 15 Open Meeting, Commission Also Approves Final Rules 
on Margin Requirements for Uncleared Swaps and Registration Exemptions 
for Foreign Commodity Pools (Oct. 15, 2020).
    \5\ See Margin and Capital Requirements for Covered Swap Entities, 
80 FR 74840 (Nov. 30, 2015). These margin requirements for bank 
entities were adopted by the Board of Governors of the Federal Reserve 
System, the Office of the Comptroller of the Currency, the Federal 
Deposit Insurance Corporation, the Farm Credit Administration, or the 
Federal Housing Finance Agency (collectively, these organizations are 
known as the ``prudential regulators'').
    \6\ Order Granting Conditional Exemptions under the Securities 
Exchange Act of 1934 in Connection with Portfolio Margining of Swaps 
and Security-based Swaps, Exchange Act Release No. 68433 (Dec. 12, 
2012) 77 FR 75211 (Dec. 19, 2012); CFTC, Order, Treatment of Funds Held 
in Connection with Clearing by ICE Clear Credit of Credit Default Swaps 
(Jan. 13, 2013), available at: https://www.cftc.gov/sites/default/
files/idc/groups/public/@newsroom/documents/file/
icecreditclearorder011413.pdf; CFTC, Order, Treatment of Funds Held in 
Connection with Clearing by ICE Clear Europe of Credit Default Swaps 
(Apr. 9, 2013), available at: https://www.cftc.gov/sites/default/files/
stellent/groups/public/@requestsandactions/documents/ifdocs/
icecleareurope4dfcds040913.pdf.
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    In implementing Title VII, the Commissions are committed to working 
together to ensure that each agency's respective regulations are 
effective, consistent, mutually reinforcing, and efficient. In certain 
cases, the Commissions believe that these objectives may be served 
better by harmonizing requirements. Portfolio margining is one area 
where the Commissions believe it is appropriate to explore whether 
increased harmonization would better serve the purposes of Title VII.
    Portfolio margining generally refers to the cross margining of 
related positions in a single account, allowing netting of appropriate 
offsetting exposures. Portfolio margining of uncleared swaps, non-
cleared security-based swaps, and related positions can offer benefits 
to customers and the markets, including promoting greater efficiencies 
in margin calculations with respect to offsetting positions. This can 
align margining and other costs more closely with overall risks 
presented by a customer's portfolio. This alignment can reduce the 
aggregate amount of collateral required to meet margin requirements, 
facilitating the availability of excess collateral that can be deployed 
for other purposes. The netting of exposures allowed by portfolio 
margining may also help to improve efficiencies in collateral 
management, alleviate excessive margin calls, improve cash flows and 
liquidity, and reduce volatility.
    At the same time, facilitating portfolio margining for uncleared 
swaps, noncleared security-based swaps, and related positions requires 
careful consideration to ensure that any customer protection, financial 
stability and other applicable regulatory objectives and potential 
impacts are appropriately considered and addressed. These 
considerations include, among other things, potential impacts on margin 
requirements, the segregation and bankruptcy treatment of uncleared 
swaps and non-cleared security-based swaps in different account types 
and entities, and the potential impact on regulatory capital 
requirements.
    The implementation of portfolio margining of uncleared swaps and 
noncleared security-based swaps also requires careful consideration of 
the differences in the capital, margin, and segregation requirements of 
the CFTC and SEC applicable to uncleared swaps and non-cleared 
security-based swaps, respectively. These differences reflect the 
policy objectives of, and choices made by, each agency and reflect each 
agency's assessment of potential costs and benefits of alternative 
approaches and the impact on the markets for swaps and security-based 
swaps. The differences between the CFTC and SEC requirements is a 
result of these differing policy objectives and related assessments.
    For example, the CFTC's margin rule for uncleared swaps requires 
swap dealers to collect and post initial margin to certain 
counterparties, subject to exceptions.\7\ When adopting this 
requirement, the CFTC stated that ``the posting requirement under the 
final rule is one way in which the Commission seeks to reduce overall 
risk to the financial system, by providing initial margin to non-dealer 
swap market counterparties that are interconnected participants in the 
financial markets (i.e., financial end-users that have material swap 
exposure).'' \8\ The CFTC further noted that commenters stated that 
requiring swap dealers to post initial margin ``not only would better 
protect financial end-users from concerns about the failure of [the 
swap dealer], but would also act as a discipline on [swap dealers] by 
requiring them to post margin reflecting the risk of their swaps 
business.'' \9\
---------------------------------------------------------------------------
    \7\ See 17 CFR 23.152.
    \8\ See CFTC Final Margin Release, 81 FR at 649.
    \9\ Id.
---------------------------------------------------------------------------
    The SEC's margin rule for non-cleared swaps does not require 
nonbank SBSDs to post initial margin.\10\ The SEC stated when adopting 
the margin rule that ``[r]equiring nonbank SBSDs to deliver initial 
margin could impact the liquidity of these firms'' and that 
``[d]elivering initial margin would prevent this capital of the nonbank 
SBSD from being immediately available to the firm to meet liquidity 
needs.'' \11\ The SEC further stated that, ``[i]f the delivering SBSD 
is undergoing financial stress or the markets more generally are in a 
period of financial turmoil, a nonbank SBSD may need to liquidate 
assets to raise funds and reduce its leverage'' and that ``[a]ssets in 
the control of a counterparty would not be available for this 
purpose.'' \12\
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    \10\ See 17 CFR 240.18a-3.
    \11\ See SEC Final Capital, Margin and Segregation Release, 84 FR 
at 43918.
    \12\ Id.
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    In addition, the CFTC's margin rule requires that initial margin 
posted to or by the swap dealer must be held by a third-party custodian 
and does not permit the initial margin to be re-hypothecated.\13\ When 
adopting the margin rule, the CFTC stated ``that the ultimate purpose 
of the custody agreement is twofold: (1) That the initial margin be 
available to a counterparty when its counterparty defaults and a loss 
is realized that exceeds the amount of variation margin that has been 
collected as of the time of default; and (2) initial margin be returned 
to the posting party after its swap obligations have been fully 
discharged.'' \14\
---------------------------------------------------------------------------
    \13\ See 17 CFR 23.157.
    \14\ See CFTC Final Margin Release, 81 FR at 670.
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    The SEC margin rule for non-cleared swaps does not require that 
initial margin posted to the nonbank SBSD be held at a third-party 
custodian.\15\ The SEC stated that this difference from the CFTC's 
margin rule reflects its ``judgment of how to `help ensure the safety 
and soundness' of nonbank SBSDs . . . as required by Section 
15F(e)(3)(i) of the Exchange Act.'' \16\
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    \15\ See 17 CFR 240.18a-3.
    \16\ See SEC Final Capital, Margin and Segregation Release, 84 FR 
at 43909.
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    Moreover, there are differences in the segregation schemes for 
swaps and security-based swaps. As discussed above, the CFTC's margin 
rule requires initial margin received from customers with respect to 
uncleared swaps to be held by an independent third-party custodian.
    With respect to the SEC's rules for non-cleared security-based 
swaps, Section 3E(f) of the Exchange Act establishes a program by which 
a counterparty to an SBSD can elect to have an independent third-party 
custodian hold the initial margin it posts to the SBSD.\17\ Section 
3E(f)(4) provides that if the counterparty does not choose to require 
segregation of funds or other property (i.e., waives segregation), the 
SBSD shall send a report to the counterparty on a quarterly basis 
stating that the firm's back office procedures relating to margin and 
collateral requirements are in compliance with the agreement of the 
counterparties.\18\ Security-based swap customers of a broker-dealer 
(other than an OTC derivatives dealer), including a broker-dealer 
registered as an SBSD, that are not affiliates of the firm cannot waive 
segregation. The SEC explained that this prohibition against waiving 
the segregation requirement in the case of a non-affiliated customer of 
the broker-dealer is a consequence of the broker-dealer segregation 
rule--Rule 15c3-3--being promulgated under Section 15(c)(3) of the 
Exchange Act, which does not have an analogous provision to Section 
3E(f) of the Exchange Act.\19\ More specifically, Section 15(c)(3) of 
the Exchange Act and Rule 15c3-3 thereunder do not contain provisions 
pursuant to which a customer can waive segregation.\20\ The SEC further 
explained that the prohibition will protect customers and the safety 
and soundness of broker-dealers.\21\
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    \17\ See 15 U.S.C. 78c-5(f).
    \18\ See 15 U.S.C. 78c-5(f)(4)[.]
    \19\ See SEC Final Capital, Margin and Segregation Release, 84 FR 
at 43931. See also 17 CFR 240.15c3-3; 15 U.S.C. 78o(c)(3); 15 U.S.C. 
78c-5(f)(4).
    \20\ See SEC Final Capital, Margin and Segregation Release, 84 FR 
at 43931.
    \21\ Id. at 43931.
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    In addition to these two statutory options, the SEC adopted 
segregation rules permitting broker-dealers and SBSDs to hold and 
commingle initial margin received from security-based swap customers. 
These rules restrict how initial margin can be used by a broker-dealer 
or SBSD and require that it be held in a manner that is designed to 
facilitate its prompt return to the customers (``omnibus segregation 
rules'').\22\ The omnibus segregation rules are mandatory requirements 
with respect to cleared security-based swaps and the default 
requirements with respect to non-cleared security-based swaps if a 
customer of an SBSD does not choose one of the two statutory options: 
(1) Having initial margin held by an independent third-party custodian 
or (2) waiving segregation, if permitted.
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    \22\ See 17 CFR 240.15c3-3(p); 17 CFR 240.18a-4. See also SEC Final 
Capital, Margin and Segregation Release, 84 FR at 43930-43.
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    The omnibus segregation rules permit broker-dealers and SBSDs to 
re-hypothecate initial margin received with respect to non-cleared 
swaps under limited circumstances. In the case of a broker-dealer 
(other than an OTC derivatives dealer), including a broker-dealer 
registered as an SBSD, the ability to re-hypothecate initial margin is 
limited. For example, if the broker-dealer enters into a non-cleared 
security-based swap with a customer and hedges that transaction with a 
second broker-dealer, the first broker-dealer can use the initial 
margin collected from its customer to meet a regulatory margin 
requirement arising from a transaction with a second SBSD to hedge the 
transaction with the customer.\23\ The SEC stated that it ``designed 
the hedging exception for non-cleared security-based swap collateral to 
accommodate dealers in OTC derivatives maintaining `matched books' of 
transactions.'' \24\
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    \23\ See 17 CFR 240.15c3-3(p)(1)(ii)(B) and (p)(2).
    \24\ See SEC Final Capital, Margin and Segregation Release, 84 FR 
at 43937 (footnote omitted).
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    Similarly, an SBSD that is registered as an OTC derivatives dealer 
or not registered as a broker-dealer (both types of SBSDs hereinafter a 
``Stand-Alone SBSD'') that enters into a non-cleared, security-based 
swap with a customer and hedges that transaction with another SBSD also 
may use the initial margin collected from its customer to meet a 
regulatory margin requirement arising from the hedging transaction with 
the other SBSD.\25\ This provision applies if the Stand-Alone SBSD is 
required to comply with the omnibus segregation requirements of Rule 
18a-4 or offers omnibus segregation to its customers.\26\ However, 
pursuant to Section 3E(f) of the Exchange Act, customers of a Stand-
Alone SBSD also may waive their right to have initial margin for non-
cleared security-based swaps segregated, and a Stand-Alone SBSD can 
operate under an exemption from the omnibus segregation requirements of 
Rule 18a-4, subject to certain conditions.\27\ If the customer waives 
segregation or the Stand-Alone SBSD operates under the exemption from 
Rule 18a-4, the Stand-Alone SBSD may re-hypothecate the initial margin 
without restriction. Pursuant to Section 3E(f) of the Exchange Act, 
customers of this Stand-Alone SBSD can elect to have the initial margin 
they post to the SBSD held by a third-party custodian rather than 
waiving the right to segregation.\28\ The SEC explained that permitting 
customers to elect to either have their initial margin held by a third-
party custodian or waive their right to segregation reflected the 
provisions of Section 3E(f) of the Exchange Act, providing customers 
with these two options.\29\
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    \25\ See 17 CFR 240.18a-4(a)(2)(ii) and (b).
    \26\ See 17 CFR 240.18a-4.
    \27\ See 15 U.S.C. 78c-5(f)(4); 17 CFR 18a-4(f).
    \28\ See 15 U.S.C. 78c-5(f)(4).
    \29\ See SEC Final Capital, Margin and Segregation Release, 84 FR 
at 43877-78, 43930, 43937.
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    Finally, the implementation of portfolio margining of uncleared 
swaps and non-cleared security-based swaps also requires careful 
consideration of the potential impact on competition, including how it 
might influence customer behavior in selecting to do business with 
certain types of registrants (e.g., firms with multiple registrations 
that permit them to engage in a broader range of activities).
    Given the scope, importance and interrelationships among the 
matters to consider, the Commissions believe it would be helpful to 
gather further information and comment from interested persons 
regarding portfolio margining of uncleared swaps and noncleared 
security-based swaps. In section III below, the Commissions request 
comment generally on portfolio margining these instruments and on 
portfolio margining these positions in different account types.
II. Regulatory Background
    The specific requests for comment below take into account: (1) The 
types of registrations (broker-dealer, OTC derivatives dealer, SBSD, 
futures commission merchant (``FCM''), and swap dealer) an entity may 
need in order to engage in portfolio margining of uncleared swaps, non-
cleared security-based swaps, and related positions; (2) the account 
types (securities account, security-based swap account, and swap 
account) these registrants can maintain; and (3) the margin and 
segregation requirements that apply to products carried in these 
account types. In particular, a broker or dealer in securities must be 
registered with the SEC. A broker-dealer that limits securities dealing 
to OTC equity options and other OTC derivatives can operate as a 
special purpose broker-dealer known as an OTC derivatives dealer. An 
entity that deals in security-based swaps above a de minimis notional 
threshold will need to register with the SEC as an SBSD. An entity that 
solicits and accepts funds from customers to margin, secure, or 
guarantee futures, options on futures, or cleared swap transactions 
must register with the CFTC as an FCM. And, an entity that deals in 
swaps above a de minimis notional threshold must register with the CFTC 
as a swap dealer.
A. Broker-Dealers
    A broker-dealer is subject to initial margin requirements 
promulgated by the Board of Governors of the Federal Reserve System 
(``Federal Reserve Board'') in Regulation T.\30\ A broker-dealer also 
is subject to maintenance margin requirements promulgated by self-
regulatory organizations (``SROs'').\31\ The initial margin 
requirements of Regulation T generally govern the amount of credit that 
can be extended by a broker-dealer to finance a position in a margin 
account. The maintenance margin requirements of the SROs govern the 
amount of equity that must be maintained in the margin account on an 
ongoing basis. Regulation T has an exception from its initial margin 
requirements for accounts that are margined pursuant to an SRO 
portfolio margin rule.\32\ SROs have adopted portfolio margin rules 
subject to this exception and, therefore, a broker-dealer must collect 
initial and maintenance margin in a portfolio margin account in 
accordance with the SRO portfolio margin rules. Margin calculations 
under the SRO portfolio margin rules are based on the method in 
Appendix A to Rule 15c3-1 (``Appendix A Methodology'').\33\ With 
respect to options, initial and maintenance margin requirements are 
generally set by the SROs.\34\
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    \30\ 12 CFR 220.1, et seq.
    \31\ See, e.g., FINRA Rules 4210-4240. Customers of broker-dealers 
are also subject to specific margin rules for security futures, jointly 
regulated by the CFTC and the SEC.
    \32\ 12 CFR 220.1(b)(3)(i).
    \33\ See, e.g., FINRA Rule 4210(g).
    \34\ 12 CFR 220.12(f).
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    A broker-dealer also is subject to margin rules for security 
futures promulgated jointly by the Commissions.\35\ Security futures 
margined in an SRO portfolio margin account are not subject to the 
Commissions' rules and, therefore, are margined according to the SRO 
portfolio margin rules.\36\
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    \35\ See 17 CFR 41.42-41.49 (CFTC regulations); 17 CFR 242.400-
242.406 (SEC regulations).
    \36\ See 17 CFR 242.400(c)(2).
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    A broker-dealer that operates as an OTC derivatives dealer is 
exempt from the requirements of Regulation T, provided that the firm 
complies with Regulation U of the Federal Reserve Board.\37\ While an 
OTC derivative dealer is subject to Regulation U, this rule generally 
does not prescribe margin requirements for OTC derivatives such as OTC 
equity options. The firm also is exempt from membership in an SRO and, 
therefore, not subject to SRO margin rules.\38\
---------------------------------------------------------------------------
    \37\ 17 CFR 240.36a1-1.
    \38\ 17 CFR 240.15b9-2.
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    A broker-dealer that is also registered as an SBSD will be subject 
to the margin requirements of Rule 18a-3 for noncleared security-based 
swaps on the compliance date for that rule.\39\ A broker-dealer SBSD 
may apply to the SEC for authorization to use a model (including an 
industry standard model) to calculate initial margin for noncleared 
security-based swaps. However, broker-dealer SBSDs (other than OTC 
derivatives dealers registered as SBSDs (``OTCDD/SBSDs'')) must use 
standardized haircuts prescribed in Rule 15c3-1 (which includes the 
option to use the Appendix A Methodology) to compute initial margin for 
non-cleared equity security-based swaps (even if the firm is approved 
to use a model to calculate initial margin for other types of 
positions).\40\ Moreover, as discussed above, Rule 18a-3 does not 
require a nonbank SBSD to post initial margin to any counterparties.
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    \39\ See 17 CFR 240.18a-3.
    \40\ 17 CFR 240.15c3-1.
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    A broker-dealer that holds customer securities and cash (including 
securities and cash being used as initial margin) is subject to Rule 
15c3-3.\41\ The SEC amended Rule 15c3-3 to adopt the omnibus 
segregation requirements for security-based swaps applicable to a 
broker-dealer and a broker-dealer (other than an OTC derivatives 
dealer) also registered as a SBSD.\42\ A customer of a broker-dealer 
that is also registered as an SBSD can elect to have initial margin 
held by a third-party custodian pursuant to Section 3E(f) of the 
Exchange Act or held by the SBSD subject to the omnibus segregation 
requirements of Rule 15c3-3. Customers that are not affiliates of the 
broker-dealer cannot waive segregation, whereas affiliates can waive 
segregation.
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    \41\ 17 CFR 240.15c3-3. For a discussion of Rule 15c3-3, see SEC, 
Capital, Margin, and Segregation Proposing Release, 77 FR at 70276-
70277. Regulation T and portfolio margin accounts are combined when 
calculating segregation requirements under Exchange Act Rule 15c3-3.
    \42\ See 17 CFR 240.15c3-3(p).
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    As discussed above, the broker-dealer can re-hypothecate initial 
margin received from a customer for the limited purpose of entering 
into a transaction with another SBSD that hedges the transaction with 
the customer.\43\ Cash and securities held in a securities account at a 
broker-dealer (other than an OTC derivatives dealer) \44\ is protected 
under the Securities Investor Protection Act (``SIPA''), subject to 
certain exceptions. An OTC derivatives dealer is not subject to Rule 
15c3-3 and is not a member of the Security Investor Protection 
Corporation.\45\ Consequently, cash and securities held in a securities 
account at an OTC derivatives dealer are not protected by SIPA.
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    \43\ See 17 CFR 240.15c3-3(p)(1)(ii)(B) and (p)(2).
    \44\ See section II.A (describing regulatory requirements for OTC 
derivatives dealers).
    \45\ 17 CFR 240.15c3-3(a)(1) (defining the term customer to exclude 
a counterparty to an OTC derivatives transaction with an OTC 
derivatives dealer if certain conditions are met) and 17 CFR 240.36a1-2 
(Exemption from SIPA for OTC derivatives dealers).
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B. Nonbank Stand-Alone SBSDs
    A Stand-Alone SBSD that is not a bank (``Nonbank Stand-Alone 
SBSD'') will be subject to the margin requirements of Rule 18a-3 for 
noncleared security-based swaps on the compliance date for that 
rule.\46\ A Nonbank Stand-Alone SBSD may apply to the SEC for 
authorization to use a model (including an industry standard model) to 
calculate initial margin for non-cleared security-based swaps. 
Moreover, unlike a broker-dealer (other than an OTCDD/SBSD) registered 
as an SBSD, a Nonbank Stand-Alone SBSD may use a model to calculate 
initial margin for non-cleared equity security-based swaps, provided 
the account of the counterparty does not hold equity security positions 
other than equity security-based swaps and equity swaps. Initial margin 
requirements also may be calculated by applying the standardized 
haircuts prescribed in Rule 18a-1, the net capital rule for Stand-Alone 
SBSDs.\47\ As discussed above, Rule 18a-3 does not require a Nonbank 
Stand-Alone SBSD to post initial margin to its counterparties.
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    \46\ 17 CFR 240.18a-3.
    \47\ 17 CFR 240.18a-1.
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    Pursuant to Section 3E(f) of the Exchange Act, a customer of a 
Nonbank Stand-Alone SBSD can elect to have initial margin posted to the 
firm held by a third-party custodian or waive segregation with respect 
to the initial margin.\48\ In addition, a Nonbank Stand-Alone SBSD will 
be subject to the omnibus segregation requirements of Rule 18a-4 with 
respect to non-cleared security-based swaps.\49\ The omnibus 
segregation requirements are the default requirement if the 
counterparty does not elect to have initial margin held by a third-
party custodian or waive segregation.
---------------------------------------------------------------------------
    \48\ See 15 U.S.C. 78c-5(f).
    \49\ 17 CFR 240.18a-4.
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    A Nonbank Stand-Alone SBSD, however, will be exempt from the 
requirements of Rule 18a-4 if the firm meets certain conditions, 
including that the firm: (1) Does not clear security-based swap 
transactions for other persons; (2) provides notice to the counterparty 
regarding the right to segregate initial margin at an independent 
third-party custodian; (3) discloses to the counterparty in writing 
that any collateral received by the Nonbank Stand-Alone SBSD will not 
be subject to a segregation requirement; and (4) discloses to the 
counterparty how a claim of the counterparty for the collateral would 
be treated in a bankruptcy or other formal liquidation proceeding of 
the Nonbank Stand-Alone SBSD.\50\
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    \50\ 17 CFR 240.18a-4(f). Rule 18a-4 also has exceptions pursuant 
to which a foreign stand-alone SBSD need not comply with the 
segregation requirements (including the omnibus segregation 
requirements) for certain transactions. 17 CFR 240.18a-4(e).
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C. Swap Dealers
    The CFTC's margin rules impose initial and variation margin 
requirements on covered swap dealers and covered major swap 
participants for swap transactions (``covered swap entities'') that are 
not cleared by a registered derivatives clearing organization.\51\ The 
CFTC's initial margin rules require a covered swap dealer to both 
collect and post initial margin on uncleared swap transactions entered 
into with other swap dealers and with financial end-users with material 
swaps exposure.\52\ CFTC margin rules require that initial margin be 
calculated using a standardized table-based method or a model 
(including an industry standard model).\53\ The initial margin model 
must be approved by the CFTC or a registered futures association (i.e., 
National Futures Association).
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    \51\ The CFTC's uncleared swap margin rules are codified in part 23 
of the CFTC's regulations (17 CFR 23.150-23.161).
    \52\ 17 CFR 23.152. The term ``material swaps exposure'' for an 
entity means that the entity and its margin affiliates have an average 
daily aggregate notional amount of uncleared swaps, uncleared security-
based swaps, foreign exchange forwards, and foreign exchange swaps with 
all counterparties for June, July and August of the previous calendar 
year that exceeds $8 billion, where such amount is calculated only for 
business days.
    \53\ 17 CFR 23.154.
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    The CFTC's uncleared swap margin rules also establish minimum 
standards for the safekeeping of collateral. The rules generally 
require that initial margin collateral received or posted by the 
covered swap entity must be held by one or more unaffiliated third-
party custodians.\54\ The rules also require the custodian to act 
pursuant to a custodial agreement that is legal, valid, binding, and 
enforceable under the laws of all relevant jurisdictions, including in 
the event of bankruptcy, insolvency, or similar proceedings.\55\ The 
custodial agreement must prohibit the custodian from re-hypothecating, 
re-pledging, reusing, or otherwise transferring (through securities 
lending, repurchase agreement, reverse repurchase agreement, or other 
means) the funds or other property held by the custodian.\56\
---------------------------------------------------------------------------
    \54\ 17 CFR 23.157(a)-(b).
    \55\ 17 CFR 23.157(c).
    \56\ Id.
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III. Request for Comment
A. General Request for Comment
    The Commissions request comment on all aspects of the portfolio 
margining of uncleared swaps and non-cleared security-based swaps, 
including on the merits, benefits, and risks of portfolio margining 
these types of positions, and on any regulatory and operational issues 
associated with portfolio margining them. The Commissions seek comment 
on these matters generally and commenters are encouraged to address 
matters related to portfolio margining not specifically identified in 
the requests for comment below.
    In responding to this general request for comment and on the 
specific requests for comment below, the Commissions encourage 
commenters to provide empirical support for their arguments and 
analyses. Comments are of the greatest assistance to the Commissions 
when accompanied by supporting data and analysis.
B. Specific Requests for Comment
1. Securities Account
    The Commissions request comment on whether uncleared swaps, 
noncleared security-based swaps, cash market securities positions, 
listed securities options, OTC securities options, futures, options on 
futures, and security futures should be permitted to be portfolio 
margined in the following account types: (1) A securities account that 
is subject to SRO portfolio margin rules; and (2) a securities account 
that is subject to the initial margin requirements of Regulation T and 
maintenance margin requirements of the SRO margin rules (i.e., a 
securities account that is not subject to the SRO portfolio margin 
rules). Commenters are asked to address the following matters.

   Identify and describe the relative benefits of portfolio 
        margining in each of these securities account types, and 
        describe how the benefits compare to the benefits of other 
        account types discussed in this request for comment.

   Identify and describe the risks of portfolio margining in 
        each of these securities account types, and describe how those 
        risks compare to the risks of other account types discussed in 
        this request for comment, as well as how the risks compare to 
        margining under the existing framework.

   Identify and describe what models might be appropriate for 
        portfolio margining positions in each of these securities 
        account types, as well as the process for approving and 
        reviewing such models.

   Identify and describe any regulatory issues associated with 
        portfolio margining in each of these securities account types, 
        including issues relating to (1) differences in the statutes 
        governing futures, options on futures, uncleared swaps, non-
        cleared security-based swaps, and securities other than 
        security-based swaps, (2) differences in the regulatory 
        requirements of the CFTC, SEC, and SROs applicable to futures, 
        options on futures, uncleared swaps, non-cleared security-based 
        swaps, and securities other than security-based swaps 
        (including differences in margin and segregation requirements), 
        and (3) differences in the bankruptcy treatment of futures, 
        options on futures, uncleared swaps, noncleared security-based 
        swaps, and securities other than security-based swaps.

   As discussed above, the CFTC's rules prohibit the re-
        hypothecation of initial margin collateral. The SEC's rules 
        permit limited re-hypothecation of initial margin collateral 
        received from customers or counterparties. Discuss the 
        potential implications of the differences in the Commissions' 
        approaches to the re-hypothecation of initial margin collateral 
        relevant to a portfolio margin scheme.

   Section 16 of SIPA defines the terms ``customer,'' 
        ``customer property,'' and ``net equity'' to include 
        securities, futures, and options on futures, but not swaps or 
        security-based swaps.\57\ The Commissions request comment on 
        steps broker-dealers (including broker-dealers that are SBSDs) 
        can take to ensure the protections afforded by SIPA will apply 
        to all positions held in a securities account. Comment also is 
        sought on the types of disclosures broker-dealers and SBSDs can 
        make to their portfolio margin account-holders about positions 
        in a securities account that are not within the SIPA 
        definitions of ``customer,'' ``customer property,'' and ``net 
        equity.'' Comment also is sought on the expectations of market 
        participants as to whether the initial margin and accrued gains 
        associated with uncleared swaps and non-cleared security-based 
        swaps held in a portfolio margin account that is a securities 
        account is subject to SIPA protection in the event of the 
        insolvency of the broker-dealer.
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    \57\ Section 983 of the Dodd-Frank Act amended Section 16 of SIPA 
to define the term ``customer'' to include a person that has a claim 
for futures and options on futures, and to define the term ``customer 
property'' to include futures and options on futures, in each case 
where they are held in a portfolio margining account carried as a 
securities account pursuant to a portfolio margining program approved 
by the SEC. Section 3(a)(10) of the Exchange Act defines the term 
``security'' to include a security-based swap for purposes of the 
Exchange Act. 15 U.S.C[.] 78c(a)(10).

   As noted above, the CFTC margin rules require swap dealers 
        to post initial margin for uncleared swaps entered into with 
        other swap dealers or with financial end-users with material 
        swaps exposure. The SEC's margin rules permit, but do not 
        require, an SBSD to post initial margin for non-cleared 
        security-based swaps entered into with other broker-dealers, 
        SBSDs, swap dealers, or financial end-users. How should the 
        Commissions address the differences in the initial margin 
        posting requirements in a portfolio margin account? If 
        portfolio margining resulted in the transfer of significant 
        swap trading relationships to SBSDs, which would operate under 
        a ``collect only'' regime, would that increase the potential 
        for counterparty risk, including liquidity mismatches between 
        counterparties? Alternatively, would it lower systemic risk by 
        promoting the liquidity of SBSDs? Discuss the potential impact 
        on the markets and market participants if entities registered 
        as broker-dealers and swap dealers or as broker-dealers, SBSDs, 
        and swap dealers are not required to post initial margin to 
        counterparties for uncleared swaps held in a portfolio margin 
        account while stand-alone swap dealers are required to post 
        initial margin to counterparties for uncleared swap 
        transactions. Should the Commissions require entities 
        registered as broker-dealers and swap dealers or as broker-
        dealers, SBSDs, and swap dealers to post margin for uncleared 
        swaps held in a portfolio margin account with covered 
        counterparties? How should such margin be computed? Would 
        requiring these entities to post margin undermine the benefits 
        of portfolio margining? Would it increase costs to customers to 
        compensate these entities for having to use their capital to 
        meet margin requirements? In addition, would requiring these 
        entities to post initial margin create a barrier to entry for 
        smaller firms that do not have the resources to post initial 
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        margin?

   If portfolio margining resulted in the transfer of 
        significant swap trading relationships to broker-dealer SBSDs, 
        which would operate under a ``collect only'' regime, how would 
        this impact the risks customers face in the event of an SBSD's 
        default? How should the Commissions balance the relative 
        concerns related to trying to enhance liquidity of SBSDs while 
        ensuring customer protection? Are there any lessons to be 
        learned from events impacting swap markets during the recent 
        COVID market volatility?

   Identify and describe any operational issues associated with 
        portfolio margining in each of these securities account types.

   SIPA defines the term ``customer'' to include a person that 
        has a claim for futures and options on futures, and defines the 
        term ``customer property'' to include futures and options on 
        futures, in each case where they are held in a portfolio 
        margining account carried as a securities account pursuant to a 
        portfolio margining program approved by the SEC. The 
        Commissions request specific comment on any legal and 
        operational issues associated with holding futures and options 
        on futures in a portfolio margin account that is a securities 
        account.

   As discussed above, an entity that effects transactions in 
        securities must be registered with the SEC as a broker-dealer. 
        A broker-dealer that limits securities dealing to OTC equity 
        options and other OTC derivatives can operate as a special 
        purpose broker-dealer known as OTC derivatives dealer. An 
        entity that deals in security-based swaps above a de minimis 
        notional threshold will need to register with the SEC as an 
        SBSD. An entity that deals in swaps above a de minimis notional 
        threshold must register with the CFTC as a swap dealer. And, an 
        entity that clears futures, or options on futures, or swaps for 
        customers must register as an FCM. Please discuss any 
        regulatory or operational issues raised by portfolio margining 
        in each securities account type in light of these and any other 
        relevant registration requirements.

   Discuss how the Commissions could implement portfolio margin 
        requirements for each securities account type, including 
        potential relief the Commissions could provide to address 
        regulatory and operational issues associated with portfolio 
        margining in each securities account type.

   Identify and describe any conditions the Commissions should 
        consider with respect to portfolio margining in each securities 
        account type to mitigate risk and address regulatory and 
        operational issues.

   Identify the categories of futures, options on futures, 
        uncleared swaps, non-cleared security-based swaps, and 
        securities (other than security-based swaps) that should be 
        permitted to be portfolio margined in each securities account 
        type and discuss why they should be included and, if 
        applicable, why other categories of these instruments should be 
        excluded.

   Discuss whether market participants would be likely to use 
        either of these securities account types to portfolio margin 
        futures, options on futures, uncleared swaps, non-cleared 
        security-based swaps, cash market securities positions, listed 
        securities options, and OTC securities options, and explain why 
        they would or would not use the securities account type.

   Identify and describe the potential costs and benefits, as 
        well as the competitive impact--either positive or negative--of 
        permitting market participants to portfolio margin futures, 
        options on futures, uncleared swaps, non-cleared security-based 
        swaps, cash market securities positions, listed securities 
        options, OTC securities options, and security futures in either 
        of these securities account types. Please quantify, including 
        by way of example, these potential costs, benefits and impacts 
        to the extent practicable.
2. Security-Based Swap Account
    The Commissions request comment on whether non-cleared security-
based swaps, uncleared swaps, and OTC securities options (if the firm 
is registered as an OTCDD/SBSD) should be permitted to be portfolio 
margined in a security-based swap account. Commenters are asked to 
address the following matters.

   Identify and describe the relative benefits of portfolio 
        margining in a security-based swap account, and describe how 
        the benefits compare to the benefits of other account types 
        discussed in this request for comment, as well as how the risks 
        compare to margining under the existing framework.

   Identify and describe the risks of portfolio margining in a 
        security-based swap account, and describe how those risks 
        compare to the risks of other account types discussed in this 
        request for comment.

   Identify and describe what models might be appropriate for 
        portfolio margining positions in a security-based swap account, 
        as well as the process for approving and reviewing such models.

   Identify and describe any regulatory issues associated with 
        portfolio margining in a security-based swap account, including 
        issues relating to (1) differences in the statutes governing 
        uncleared swaps, non-cleared security-based swaps, and 
        securities other than security-based swaps, (2) differences in 
        the regulatory requirements of the CFTC, SEC, and SROs 
        applicable to uncleared swaps, non-cleared security-based 
        swaps, and securities other than security-based swaps 
        (including differences in margin and segregation requirements), 
        and (3) differences in the bankruptcy treatment of uncleared 
        swaps, non-cleared security-based swaps, and securities other 
        than security-based swaps.

   The Dodd-Frank Act amended section 3E(g) of the Exchange Act 
        to provide that a security-based swap shall be considered a 
        ``security'' as the term is used in a stockbroker liquidation 
        under Subchapter III of title 11 of the U.S. bankruptcy code 
        (11 U.S.C. 741-753). Section 3E(g) was not amended to provide 
        that a swap shall be considered a ``security'' as the term is 
        used in a stockbroker liquidation under Subchapter III of title 
        11 of the U.S. bankruptcy code. Section 3E(g) of the Securities 
        Exchange Act also provides that the term ``customer'' as 
        defined in section  741 of title 11 of the U.S. bankruptcy 
        code, excludes any person to the extent that such person has a 
        claim based on a non-cleared option or non-cleared security-
        based swap except to the extent of margin delivered to or by 
        the customer with respect to which there is a customer 
        protection requirement under Section 15(c)(3) of the Exchange 
        Act or a segregation requirement. The Commissions request 
        specific comment on steps SBSDs can take to ensure the 
        protections afforded by the stockbroker liquidation provisions 
        will apply to positions held in a security-based swap account, 
        including swaps and accrued gains on open options and non-
        cleared security-based swaps. What are the implications for 
        customer protection? Can those implications be mitigated? If 
        so, how?

   Comment also is sought on the types of disclosures SBSDs can 
        make to their portfolio margin account-holders about positions 
        in a security-based swap account that are not within the 
        definitions of ``customer,'' ``customer property,'' and ``net 
        equity'' in the stockbroker liquidation provisions of the U.S. 
        bankruptcy code. Comment also is sought on the expectations of 
        market participants as to the extent to which customer claims 
        in a stockbroker liquidation under the U.S. bankruptcy code 
        include property held to margin swaps or accruing to the 
        customer as a result of swap transactions in a portfolio 
        margining account held in a security-based swap account.

   As noted above, the CFTC margin rules require swap dealers 
        to post initial margin for uncleared swaps entered into with 
        other swap dealers or with financial end-users with material 
        swaps exposure. The SEC's margin rules permit, but do not 
        require, an SBSD to post initial margin for non-cleared 
        security-based swaps entered into with other broker-dealers, 
        SBSDs, swap dealers, or with financial end-users. How should 
        the Commissions address the differences in the initial margin 
        posting requirements in a portfolio margin account? If 
        portfolio margining resulted in the transfer of significant 
        swap trading relationships to SBSDs, which would operate under 
        a ``collect only'' regime, would that increase the potential 
        for risk and liquidity mismatches between counterparties? 
        Alternatively, would it lower systemic risk by promoting the 
        liquidity of SBSDs? Discuss the potential impact on the markets 
        and market participants if entities registered as SBSDs and 
        swap dealers are not required to post initial margin to 
        counterparties for uncleared swaps held in a portfolio margin 
        account while stand-alone swap dealers are required to post 
        initial margin to counterparties for uncleared swap 
        transactions. Should the Commissions require entities 
        registered as SBSDs and swap dealers to post margin for 
        uncleared swaps held in a portfolio margin account with covered 
        counterparties? How should such margin be computed? 
        Alternatively, would requiring these entities to post margin 
        undermine the benefits of portfolio margining? Would it 
        increase costs to customers to compensate these entities for 
        having to use their capital to meet margin requirements? In 
        addition, would requiring these entities to post initial margin 
        create a barrier to entry for smaller firms that do not have 
        the resources to post initial margin?

   If portfolio margining resulted in the transfer of 
        significant swap trading relationships to Nonbank Stand-Alone 
        SBSDs, which would operate under a ``collect only'' regime, how 
        would this impact the risks customers face in the event of an 
        SBSD's default? How should the Commissions balance the relative 
        concerns related to trying to enhance liquidity of SBSDs while 
        ensuring customer protection? Are there any lessons to be 
        learned from events impacting swap markets during the recent 
        COVID market volatility?

   Identify and describe any operational issues associated with 
        portfolio margining in a security-based swap account.

   As discussed above, an entity that effects transactions in 
        securities must be registered with the SEC as a broker-dealer. 
        A broker-dealer that limits securities dealing to OTC equity 
        options and other OTC derivatives can operate as special 
        purpose broker-dealer known as OTC derivatives dealer. An 
        entity that deals in security-based swaps above a de minimis 
        notional threshold will need to register with the SEC as an 
        SBSD. And, an entity that deals in swaps above a de minimis 
        notional threshold must register with the CFTC as a swap 
        dealer. Please discuss any regulatory or operational issues 
        raised by portfolio margining in a security-based swap account 
        in light of these and any other relevant registration 
        requirements.

   Discuss how the Commissions could implement portfolio margin 
        requirements for a security-based swap account, including 
        potential relief the Commissions could provide to address 
        regulatory and operational issues associated with portfolio 
        margining in a security-based swap account.

   Identify and describe any conditions the Commissions should 
        consider with respect to portfolio margining in a security-
        based swap account to mitigate risk and address regulatory and 
        operational issues.

   Identify the categories of uncleared swaps, non-cleared 
        security-based swaps, and OTC securities options (if the firm 
        is registered as an OTC derivatives dealer) that should be 
        permitted to be portfolio margined in the security-based swap 
        account and discuss why they should be included and, if 
        applicable, why other categories of these instruments should be 
        excluded.

   Discuss whether market participants would use a security-
        based swap account to portfolio margin uncleared swaps, non-
        cleared security-based swaps, and OTC securities options (if 
        the firm is registered as an OTCDD/SBSD) and explain why they 
        would or would not use this account type for this purpose.

   Identify and describe the potential costs and benefits, as 
        well as the competitive impact--either positive or negative--of 
        permitting market participants to portfolio margin noncleared 
        security-based swaps, uncleared swaps, and OTC securities 
        options (if the firm is registered as an OTCDD/SBSD) in a 
        security-based swap account. Please quantify, including by way 
        of example, these potential costs, benefits and impacts to the 
        extent practicable.
3. Swap Account
    The Commissions request comment on whether uncleared swaps and 
noncleared security-based swaps should be permitted to be portfolio 
margined in a swap account. Commenters are asked to address the 
following matters.

   Identify and describe the relative benefits of portfolio 
        margining in a swap account, and describe how the benefits 
        compare to the benefits of other account types discussed in 
        this request for comment.

   Identify and describe the risks of portfolio margining in a 
        swap account, and describe how those risks compare to the risks 
        of other account types discussed in this request for comment, 
        as well as how the risks compare to margining under the 
        existing framework.

   Identify and describe what models might be appropriate for 
        portfolio margining positions in a swap account, as well as the 
        process for approving and reviewing such models.

   Identify and describe any regulatory issues associated with 
        portfolio margining in a swap account, including issues 
        relating to (a) differences in the statutes governing uncleared 
        swaps, non-cleared security-based swaps, and securities other 
        than security-based swaps, (b) differences in the regulatory 
        requirements of the CFTC, SEC, and SROs applicable to uncleared 
        swaps, non-cleared security-based swaps, and securities other 
        than security-based swaps (including differences in margin and 
        segregation requirements), and (c) differences in the 
        bankruptcy treatment of uncleared swaps, non-cleared security-
        based swaps, and securities other than security-based swaps.

   As noted above, the CFTC margin rules require swap dealers 
        to post initial margin for uncleared swaps entered into with 
        other swap dealers or with financial end-users with material 
        swaps exposure. The SEC's margin rules permit, but do not 
        require, an SBSD to post initial margin for non-cleared 
        security-based swaps entered into with other broker-dealers, 
        SBSDs, swap dealers, or with financial end-users. How should 
        the Commissions address the differences in the initial margin 
        posting requirements in a portfolio margin account? If 
        portfolio margining resulted in the transfer of significant 
        swap trading relationships to SBSDs, which would operate under 
        a ``collect only'' regime, would that increase the potential 
        for risk and liquidity mismatches between counterparties? How 
        do commenters view any systemic risk implications of SBSDs not 
        posting initial margin? Would it lower systemic risk by 
        promoting the liquidity of SBSDs? Discuss the potential impact 
        on the markets and market participants if entities registered 
        as broker-dealers and swap dealers or as broker-dealers, SBSDs, 
        and swap dealers or as SBSDs and swap dealers are not required 
        to post initial margin to counterparties for uncleared swaps 
        held in a portfolio margin account while stand-alone swap 
        dealers are required to post initial margin to counterparties 
        for uncleared swap transactions. Would such a portfolio 
        margining approach provide a disincentive for customers to 
        trade with stand-alone swap dealers and what would be the 
        potential market impact of such a disincentive? Should the 
        Commissions require entities registered as broker-dealers and 
        swap dealers or as broker-dealers, SBSDs, and swap dealers or 
        as SBSDs and swap dealers to post margin for uncleared swaps 
        held in a portfolio margin account with covered counterparties? 
        How should such margin be computed? Alternatively, would 
        requiring these entities to post margin undermine the benefits 
        of portfolio margining? Would it increase costs to customers to 
        compensate these entities for having to use their capital to 
        meet margin requirements? In addition, would requiring these 
        entities to post initial margin create a barrier to entry for 
        smaller firms that do not have the resources to post initial 
        margin?

   As discussed above, an entity that effects transactions in 
        securities must be registered with the SEC as a broker-dealer. 
        A broker-dealer that limits securities dealing to OTC equity 
        options and other OTC derivatives can operate as special 
        purpose broker-dealer known as OTC derivatives dealer. An 
        entity that deals in security-based swaps above a de minimis 
        notional threshold will need to register with the SEC as an 
        SBSD. And, an entity that deals in swaps above a de minimis 
        notional threshold must register with the CFTC as a swap 
        dealer. And, an entity that clears futures, options on futures, 
        or swaps for customers must register as an FCM. Please discuss 
        any regulatory or operational issues raised by portfolio 
        margining in a swap account in light of these and any other 
        relevant registration requirements.

   Identify and describe any operational issues associated with 
        portfolio margining in a swap account.

   Discuss how the Commissions could implement portfolio margin 
        requirements for a swap account, including potential relief the 
        Commissions could provide to address regulatory and operational 
        issues associated with portfolio margining in a swap account.

   Identify and describe any conditions the Commissions should 
        consider with respect to portfolio margining in a swap account 
        to mitigate risk and address regulatory and operational issues.

   Identify the categories of swaps and security-based swaps 
        that should be permitted to be portfolio margined in the swap 
        account and discuss why they should be included and, if 
        applicable, why other categories of these instruments should be 
        excluded.

   Discuss whether market participants would use a swap account 
        to portfolio margin uncleared swaps and non-cleared security-
        based swaps, and explain why they would or would not use this 
        account type for this purpose.

   Identify and describe the potential costs and benefits, as 
        well as the competitive impact--either positive or negative--of 
        permitting market participants to portfolio margin uncleared 
        swaps and non-cleared security-based swaps in a swap account. 
        Please quantify, including by way of example, these potential 
        costs, benefits and impacts to the extent practicable.
4. Other Potential Portfolio Margin Scenarios
    In addition to the requests for comment on the specific account 
types discussed above, the Commissions request comment on whether there 
are any other potential portfolio margin scenarios with regard to 
uncleared swaps, non-cleared security-based swaps, and other related 
positions that the Commissions should consider at this time. Commenters 
should identify and describe the specific products and account type 
involved in any other potential portfolio margin alternatives. 
Commenters also are asked to address any potential regulatory or 
operational issues involving a particular portfolio margin scenario. 
Finally, commenters should address any potential costs and benefits and 
competitive impact the Commissions should consider in evaluating a 
particular portfolio margin scenario.

    By the Securities and Exchange Commission.
    Dated: October 22, 2020.

Vanessa A. Countryman,
Secretary.

    Issued in Washington, DC, on October 23, 2020, by the Commodity 
Futures Trading Commission.

Christopher Kirkpatrick,
Secretary of the Commission.

    Note: The following appendices will not appear in the Code of 
Federal Regulations.
Appendices to Margin Requirements for Uncleared Swaps for Swap Dealers 
        and Major Swap Participants--CFTC Voting Summary and 
        Commissioner's Statement
Appendix 1--CFTC Voting Summary
    On this matter, Chairman Tarbert and Commissioners Quintenz, 
Behnam, Stump, and Berkovitz voted in the affirmative. No Commissioner 
voted in the negative.
Appendix 2--Supporting Statement of CFTC Commissioner Brian Quintenz
    I am proud to support today's request for comment, which marks the 
beginning of the agencies' consideration of ways to implement a 
portfolio margining regime for uncleared swaps and non-cleared 
security-based swaps. Portfolio margining can lead to efficiencies in 
margin calculation by appropriately accounting for the impact 
offsetting positions have on a portfolio's actual risk profile. This, 
in turn, gives firms and customers additional capital that can be 
deployed elsewhere. However, given the differences between the 
regulatory regimes for swaps and security-based swaps, it also 
implicates incredibly important legal and policy considerations. This 
request for comment solicits critical feedback from market participants 
on how portfolio margining could impact the safety and soundness of 
firms, result in competitive advantages for certain types of 
registrants, and raise questions about how collateral would be treated 
in the event of bankruptcy. In order to make an informed decision about 
if, and how, portfolio margining should be implemented for uncleared 
swaps and noncleared security-based swaps, we need thoughtful feedback 
on these complex questions. I encourage all interested parties to 
provide written comments, including data wherever possible, in order to 
further the agencies' understanding of the various options presented in 
the request for comment.

[FR Doc. 2020-23928 Filed 11-4-20; 8:45 a.m.]

BILLING CODE 6351-01-P

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