[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


   HEARING FOR THE PURPOSE OF RECEIVING TESTIMONY FROM THE HONORABLE 
     ROSTIN BEHNAM, CHAIRMAN, COMMODITY FUTURES TRADING COMMISSION

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

                                HEARING

                               BEFORE THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             SECOND SESSION
                               __________

                             MARCH 6, 2024
                               __________

                           Serial No. 118-20
                           
                  [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                           

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

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
56-222 PDF                 WASHINGTON : 2024                            


                        COMMITTEE ON AGRICULTURE

                 GLENN THOMPSON, Pennsylvania, Chairman

FRANK D. LUCAS, Oklahoma             DAVID SCOTT, Georgia, Ranking 
AUSTIN SCOTT, Georgia, Vice          Minority Member
Chairman                             JIM COSTA, California
ERIC A. ``RICK'' CRAWFORD, Arkansas  JAMES P. McGOVERN, Massachusetts
SCOTT DesJARLAIS, Tennessee          ALMA S. ADAMS, North Carolina
DOUG LaMALFA, California             ABIGAIL DAVIS SPANBERGER, Virginia
DAVID ROUZER, North Carolina         JAHANA HAYES, Connecticut
TRENT KELLY, Mississippi             SHONTEL M. BROWN, Ohio
DON BACON, Nebraska                  SHARICE DAVIDS, Kansas
MIKE BOST, Illinois                  ELISSA SLOTKIN, Michigan
DUSTY JOHNSON, South Dakota          YADIRA CARAVEO, Colorado
JAMES R. BAIRD, Indiana              ANDREA SALINAS, Oregon
TRACEY MANN, Kansas                  MARIE GLUESENKAMP PEREZ, 
RANDY FEENSTRA, Iowa                 Washington
MARY E. MILLER, Illinois             DONALD G. DAVIS, North Carolina, 
BARRY MOORE, Alabama                 Vice Ranking Minority Member
KAT CAMMACK, Florida                 JILL N. TOKUDA, Hawaii
BRAD FINSTAD, Minnesota              NIKKI BUDZINSKI, Illinois
JOHN W. ROSE, Tennessee              ERIC SORENSEN, Illinois
RONNY JACKSON, Texas                 GABE VASQUEZ, New Mexico
MARCUS J. MOLINARO, New York         JASMINE CROCKETT, Texas
MONICA De La CRUZ, Texas             JONATHAN L. JACKSON, Illinois
NICHOLAS A. LANGWORTHY, New York     GREG CASAR, Texas
JOHN S. DUARTE, California           CHELLIE PINGREE, Maine
ZACHARY NUNN, Iowa                   SALUD O. CARBAJAL, California
MARK ALFORD, Missouri                ANGIE CRAIG, Minnesota
DERRICK VAN ORDEN, Wisconsin         DARREN SOTO, Florida
LORI CHAVEZ-DeREMER, Oregon          SANFORD D. BISHOP, Jr., Georgia
MAX L. MILLER, Ohio

                                 ______

                     Parish Braden, Staff Director

                 Anne Simmons, Minority Staff Director

                                  (ii)

                             C O N T E N T S

                              ----------                              
                                                                   Page
Johnson, Hon. Dusty, a Representative in Congress from South 
  Dakota, submitted articles.....................................    55
Nunn, Hon. Zachary, a Representative in Congress from Iowa, 
  submitted letter...............................................    59
Scott, Hon. David, a Representative in Congress from Georgia, 
  opening statement..............................................     3
Thompson, Hon. Glenn, a Representative in Congress from 
  Pennsylvania, opening statement................................     1
    Prepared statement...........................................     2

                                Witness

Behnam, Hon. Rostin, Chairman, Commodity Futures Trading 
  Commission, Washington, D.C....................................     4
    Prepared statement...........................................     6
    Supplementary material.......................................    62
    Submitted questions..........................................    63

 
   HEARING FOR THE PURPOSE OF RECEIVING TESTIMONY FROM THE HONORABLE
     ROSTIN BEHNAM, CHAIRMAN, COMMODITY FUTURES TRADING COMMISSION

                              ----------                              


                        WEDNESDAY, MARCH 6, 2024

                          House of Representatives,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 10:02 a.m., in Room 
1300 of the Longworth House Office Building, Hon. Glenn 
Thompson [Chairman of the Committee] presiding.
    Members present: Representatives Thompson, Lucas, Austin 
Scott of Georgia, LaMalfa, Rouzer, Bacon, Johnson, Mann, 
Feenstra, Miller of Illinois, Cammack, Rose, Jackson of Texas, 
Langworthy, Duarte, Nunn, Alford, Miller of Ohio, David Scott 
of Georgia, McGovern, Adams, Hayes, Davids of Kansas, Salinas, 
Davis of North Carolina, Budzinski, Sorensen, Vasquez, Jackson 
of Illinois, Casar, Craig, and Soto.
    Staff present: Paul Balzano, Wick Dudley, Nick Rockwell, 
Kevin Webb, John Konya, Kate Fink, Emily German, Josh Lobert, 
Clark Ogilvie, Ashley Smith, and Dana Sandman.

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

    The Chairman. The Committee will come to order. Good 
morning, everyone, and thank you for joining today's hearing 
where we will hear from Chairman Rostin Behnam of the Commodity 
Futures Trading Commission. After brief opening remarks, 
Members will receive testimony from our witness today, and then 
the hearing will be open to questions.
    I will take the liberty of offering my opening statement. 
But before I begin my opening statement actually, want to take 
a little bit of time and a moment to remember Mike Gill, former 
Chief Operating Officer and Chief of Staff at CFTC, who 
tragically passed away last month. Mike was a dedicated public 
servant, a loving father and husband, and friend to all he met, 
and he will be truly missed.
    Chairman Behnam, thank you again for joining us today to 
discuss the pressing issues within the derivatives markets and 
the upcoming work of the Commodity Futures Trading Commission. 
Under your leadership, the CFTC has tackled a robust rulemaking 
agenda. This year, the agency's unified agenda is no exception. 
It remains ambitious, covering a wide range of topics, 
including rules related to cybersecurity and resilience, 
conflicts of interest and governance, enhanced protections for 
customer property, and event contracts. There is no doubt the 
CFTC has a full rulemaking slate.
    This Committee appreciates the CFTC's commitment to 
providing effective oversight of our derivatives markets, 
especially through its transparent public rulemaking and 
advisory committee processes. This work is deliberative and 
leads to better public policy outcomes. Now, I know the 
Commission's ongoing rulemaking will benefit from this rigorous 
and comprehensive public review.
    Chairman Behnam, the House Agriculture Committee is closely 
monitoring the Basel III endgame and the GSIB proposed rule, 
and we are concerned that these proposals could adversely 
affect commodity derivatives markets and could result in 
increased costs and reduce hedging opportunities for commodity 
end-users. Ultimately, the impacts of these rules could trickle 
all the way down to consumers, driving up prices in agriculture 
and energy markets, as well as for everyday goods and services 
that we all rely on. I hope the Commission continues to review 
these proposals and urge the Prudential Regulators to rethink 
these flawed proposed rules.
    As you are keenly aware, our Committee has been actively 
engaged in crafting a much-needed regulatory framework that 
protects consumers, investors, and fosters American leadership 
in the digital asset space. In July, the Committee reported out 
the Financial Innovation and Technology for the 21st Century 
Act (H.R. 4763), a significant milestone, and I want to thank 
you again for providing us with the Commission's expertise, 
knowledge, and thoughtful feedback on FIT 21. And we look 
forward to advancing this bill and finally bringing regulatory 
clarity to these novel assets.
    Further, we are all aware that the CFTC has not been 
reauthorized since 2008. The Ranking Member and I remain 
committed to reauthorizing the Commission and providing the 
CFTC with the tools and the authorities it needs to 
successfully execute its responsibilities. As we do so, it is 
crucial that the Commission also ensure that it has the right 
policies and procedures in place to execute its mission.
    As with many other Federal agencies, the Commission must 
transition back to normal operation, including by bringing the 
Commission staff back into the office where they can most 
effectively work together to protect our markets.
    Again, Chairman Behnam, I appreciate you taking the time to 
be with us today and look forward to our conversation.
    [The prepared statement of Mr. Thompson follows:]

Prepared Statement of Hon. Glenn Thompson, a Representative in Congress 
                           from Pennsylvania
    Before I begin my opening statement, I would like to take a moment 
to remember Mike Gill, former Chief Operating Officer and Chief of 
Staff at the CFTC, who tragically passed away last month. Mike was a 
dedicated public servant, loving father and husband, and friend to all 
he met. He will be truly missed.
    Chairman Behnam, thank you again for joining us today to discuss 
the pressing issues within the derivatives markets and the upcoming 
work of the Commodity Futures Trading Commission.
    Under your leadership, the CFTC has tackled a robust rulemaking 
agenda.
    This year, the Agency's Unified Agenda is no exception. It remains 
ambitious, covering a wide range of topics including rules related to 
cybersecurity and resilience, conflicts of interest and governance, 
enhanced protections for customer property, and event contracts. There 
is no doubt the CFTC has a full rulemaking slate.
    This Committee appreciates the CFTC's commitment to providing 
effective oversight of our derivatives markets, especially through its 
transparent, public rulemaking and advisory committee processes. This 
work is deliberative but leads to better public policy outcomes. I know 
the Commission's ongoing rulemakings will benefit from this rigorous 
and comprehensive public review.
    Chairman Behnam, the House Agriculture Committee is closely 
monitoring the Basel III Endgame Proposed Rule and the GSIB Proposed 
Rule. We're concerned that these proposals could adversely affect 
commodity derivatives markets and could result in increased costs and 
reduce hedging opportunities for commodity end-users.
    Ultimately, the impacts of these rules could trickle all the way 
down to consumers, driving-up prices in agricultural and energy 
markets, as well as for everyday goods and services we all rely on. I 
hope the Commission continues to review these proposals and urge the 
Prudential Regulators to rethink these flawed proposed rules.
    As you are keenly aware, our Committee has been actively engaged in 
crafting a much-needed regulatory framework that protects consumers and 
investors and fosters American leadership in the digital asset space. 
In July, the Committee reported out the Financial Innovation and 
Technology for the 21st Century Act, a significant milestone.
    I want to thank you again for providing us with the Commission's 
expertise, knowledge, and thoughtful feedback on FIT21. We look forward 
to advancing this bill and finally bringing regulatory clarity to these 
novel assets.
    Further, we are all aware that the CFTC has not been reauthorized 
since 2008.
    The Ranking Member and I remain committed to reauthorizing the 
Commission and providing the CFTC with the tools and authorities it 
needs to successfully execute its responsibilities.
    As we do so, it is crucial that the Commission also ensures that it 
has the right policies and procedures in place to execute its mission. 
As with many other Federal agencies, the Commission must transition 
back to normal operations, including by bringing the Commission staff 
back into the office, where they can most effectively work together to 
protect our markets.
    Again, Chairman Behnam, I appreciate you making time to be with us 
today and look forward to our conversation.

    The Chairman. With that, I would now like to welcome the 
distinguished Ranking Member, the gentleman from Georgia, Mr. 
Scott, for any opening remarks that he would like to give.

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

    Mr. David Scott of Georgia. Thank you so much, Mr. 
Chairman.
    Chairman Behnam, welcome. And first of all, I want to thank 
you for your great service. And I want you to know, as the 
Chairman just said, we remain committed to making sure that we 
do more to get you all reauthorized. And we are going to make 
sure that we get you the proper amount of fiscal and funding 
that you need to do this extraordinary piece of work. And I 
look forward to your testimony this morning. And, as you know, 
I am very concerned about the reauthorization. You remember 
when myself and my good partner over here Austin Scott and I 
got together and we fought the European Union when they wanted 
to take over controlling you. And we said, no way we are going 
to let that happen. And, Austin, you remember that good fight 
we did. And that was one of the good bipartisan fights that we 
have done in this Committee. And so I look forward to your 
testimony on that.
    I want you to also explain what kind of damage is coming. 
It is 10 years, and you haven't been reauthorized. And that is 
what caused the European Union to want to come and use that as 
a reason for them to authorize you.
    And I want to take just a minute to say a few words about 
my distinguished staff. First of all, I want to thank Ms. Emily 
German, who will be unfortunately leaving us and going to you, 
Chairman, over to the CFTC to be your deputy legislative 
director. And I can tell you, you couldn't have a better 
staffer than her. Emily was instrumental in our historic 
bipartisan broadband bill and the CFTC reauthorization bill, on 
all of our good work on cryptocurrency, and our extremely 
important and successful work pushing back, as I mentioned, on 
the European Union, during their proposal and implementation of 
EMIR 2.2, which could have had the European Union regulating 
our markets right here at home. And we fought that together in 
a strong bipartisan way. And we will miss her dearly, but we 
are very happy that, Chairman, you will have such a talented 
and wonderful addition to your team.
    And next, I want to mention one of our other staffers, Mr. 
Britton Burdick, and all we want to say is happy birthday to 
Britton, and a nice round for my staff.
    And with that, Mr. Chairman, I yield back.
    The Chairman. I thank the gentleman.
    The chair would request that other Members submit their 
opening statements for the record so our witness can begin his 
testimony and to ensure that there is ample time for questions.
    I am pleased to welcome back to the Committee our witness 
for today, CFTC Chairman Rostin Behnam. Mr. Chairman, thank you 
for joining us, and we will now proceed to your testimony. You 
will have 5 minutes. The timer is in front of you. It will 
count down to zero, and at which point your time has expired. 
Chairman Behnam, please begin when you are ready.

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

    Mr. Behnam. Thanks, Mr. Chairman. A few comments, first, 
Ranking Member Scott, I am sorry for stealing Emily from you; 
but, this is what happens to great staff. And we are very 
pleased to have her coming over to the CFTC in the next month. 
I think the benefit to the Committee is, as you mentioned, she 
will be deputy of leg. affairs, so she will be very engaged on 
a future basis with this Committee, so I think you will all 
benefit from her expertise and her being at the CFTC.
    And also, Mr. Chairman, I want to echo your comments about 
Mike Gill, obviously a devastating loss for family and friends, 
but also the CFTC community. Mike was a great Chief of Staff. 
He was a great man, and we certainly miss him. And it is a 
tragedy what happened, but we are thinking about him and his 
family as they work through this tragedy.
    Chairman Thompson, Ranking Member Scott, and Members of the 
Committee, thank you for the opportunity to appear before you 
today to provide an update on the work of the CFTC. For over a 
century, derivatives markets have played a key role in the U.S. 
economy, contributing to financial stability and predictability 
of prices that impact the daily lives of all Americans, 
especially our farmers and ranchers. Recognizing the historical 
roots of our agency and the continued importance of derivatives 
to agricultural stakeholders, I am very pleased to announce 
that the CFTC and the Center for Risk Management Education and 
Research at Kansas State University will be hosting the third 
Agricultural Commodity Futures Conference on April 11 and 12 in 
Overland Park, Kansas.
    Today, technology is having a larger impact on CFTC 
jurisdictional markets than ever before. Historically, the 
CFTC's regulations developed over decades to oversee markets 
made of individual, discrete entities, each typically 
performing one function in a multi-step trade cycle. However, 
we are seeing a shift to structures driven by technology that 
combine or compress what have historically been unique and 
separate activities into a single or fewer activities. This 
compression raises important questions about such issues as 
conflicts of interest; the strength of capital, margin, and 
segregation requirements; the role of self-regulatory 
organizations; affiliate risk management; and most importantly, 
customer protections.
    As this Committee continues to consider reauthorization of 
the CFTC, I believe there are several important policy 
questions that will benefit from broader Congressional 
consideration and debate. With the support of the CFTC's 
whistleblowers office, the Commission's exercise of its 
enforcement authorities to address misconduct that has a direct 
impact on CFTC jurisdictional markets, affects the larger 
economy, causes public harm, or interferes with market 
integrity is only just one facet of our approach to innovation 
and the evolution of financial markets.
    Nowhere have we been more active than in the digital asset 
space. In Fiscal Year 2023, which ended in October of 2023, we 
brought 47 actions involving conduct related to digital 
commodities, representing more than 49 percent of all CFTC 
actions filed, a staggering statistic given the fact that no 
Federal agency retains any direct regulatory authority over the 
underlying or cash digital commodity market.
    One very important topic that continues to challenge the 
derivatives industry and the CFTC is of course cyber risk. 
Under my direction, the Commission voted unanimously in 
December to issue a notice of proposed rulemaking to require 
futures commission merchants, swap dealers, and major swap 
participants to establish an operational resilience framework 
and adopt non-binding Commission guidance related to the 
management of risks stemming from third-party relationships. As 
I have often said, we recognize that our rules apply to covered 
entities that represent many different business models and may 
be a part of a larger corporate family subject to the 
concurrent supervision of multiple domestic and perhaps 
international regulators. We are actively working with our 
fellow regulators on a number of matters that impact CFTC 
regulated markets.
    Another topic presenting challenges and opportunities for 
the agency is artificial intelligence. I am proud to say that, 
recently, the CFTC's new AI Task Force issued a request for 
comment on the use of AI in CFTC-regulated markets. The AI RFC 
is part of a greater vision I have had since my first days as 
Chairman, advancing analytical capabilities through building 
talent, leveraging the cloud, and developing a forward-looking 
AI culture.
    In December, the Commission proposed guidance regarding the 
listing of voluntary carbon credit derivatives contracts. This 
is the first proposed guidance on standards applicable to 
exchanges, listing products aimed at providing tools to manage 
risk, promote price discovery, and help encourage integrity in 
these markets. All landowners, including America's farmers and 
ranchers, can benefit from high-integrity voluntary carbon 
markets.
    Under my direction as Chairman, the CFTC hired its first 
ever Chief Diversity Officer, who oversees the agency's Office 
of Minority and Women Inclusion. In the near future, I plan to 
release the CFTC's first DEIA strategic plan, and I am eager to 
see the CFTC's OMWI statutorily authorized, similar to other 
Federal financial regulators.
    The CFTC has consistently been at the forefront of 
identifying and addressing risks with a balanced, thoughtful, 
and measured approach. I strongly believe our collective goal 
is to keep the U.S. derivatives markets the safest, the 
strongest, and the most effective, and the most desirable in 
the world. By focusing on this goal, we can maintain America's 
position as the preeminent economy in the world and uphold 
national security for all Americans. As this Committee knows, 
our nation's agricultural, energy, and precious metals 
resources are some of our most critical assets. I believe that 
without robust derivatives markets, these assets cannot be 
optimally produced or sold.
    An investment in the CFTC is an investment in America. As 
Chairman of the agency, you have my commitment to work with 
this Committee on achieving all of these goals, and I look 
forward to your questions today. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Behnam follows:]

 Prepared Statement of Hon. Rostin Behnam, Chairman, Commodity Futures 
                  Trading Commission, Washington, D.C.
    Chairman Thompson, Ranking Member Scott, and Members of the 
Committee, thank you for the opportunity to appear before you today to 
provide an update on the work of the Commodity Futures Trading 
Commission (CFTC), our priorities, and some emerging trends in our 
jurisdictional space.
    For over a century, derivatives markets have played a key role in 
the U.S. economy, contributing to financial stability and 
predictability of prices that impact the daily lives of all Americans, 
especially our nation's farmers and ranchers. Recognizing the 
historical roots of our agency and the continued importance of 
derivatives to agricultural stakeholders, I am pleased to announce that 
the CFTC and the Center for Risk Management Education and Research 
(CRMER) at Kansas State University will be hosting the third 
Agriculture Commodity Futures Conference on April 11th and 12th in 
Overland Park, Kansas.\1\
---------------------------------------------------------------------------
    \1\ See Press Release Number 8857-24, CFTC, CFTC, Kansas State 
University Announced Featured Panels for AgCon2024 (Feb. 8, 2023), 
(https://www.cftc.gov/PressRoom/PressReleases/8857-24); Press Release 
Number 8832-23, CFTC, AgCon2024 Set for April 11-12 (Dec. 8, 2023), 
(https://www.cftc.gov/PressRoom/PressReleases/8832-23).
---------------------------------------------------------------------------
    I know I speak for all the Commissioners when I thank CFTC staff 
for their commitment to the agency and its mission. My team and I are 
working closely with staff and their union representatives in order to 
find a suitable work posture, post-pandemic, that honors the importance 
of being present and together in the office with appropriate 
flexibility, and ensures our accountability as good stewards of 
taxpayer money. The agency's long-term health and success depend on it.
    It has been over 13 years since the Dodd-Frank Wall Street Reform 
and Consumer Protection Act \2\ expanded the CFTC's authority. In that 
time, derivatives markets have experienced massive growth: trading 
volumes in exchange-traded futures and options have more than doubled; 
and the swaps market brought within our jurisdiction pursuant to the 
Dodd-Frank Act is now over $350 trillion,\3\ which is approximately \1/
2\ of the estimated $715 trillion global market.
---------------------------------------------------------------------------
    \2\ Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. 
L. No. 111-203, 124 Stat. 1376 (2010) (the ``Dodd-Frank Act'').
    \3\ CFTC, Weekly Swaps Report, Weekly Swaps Report D CFTC (https://
www.cftc.gov/MarketReports/SwapsReports/L1GrossExpCS.html).
---------------------------------------------------------------------------
    Today, technology is having a larger impact on CFTC jurisdictional 
markets than ever before. Innovators eager to meet demand for products 
and services are proposing traditional and nontraditional models that 
leverage technology in synergistic ways. At the same time, a growing 
number of less traditional retail participants are entering our 
markets, enabled by mobile phone application technology and an endless 
stream of information to pursue investment opportunities.
    Surveying the current landscape, the CFTC's regulations have 
developed over decades to oversee markets made of individual, discrete 
entities, each typically performing one function in a multi-step trade 
cycle. However, we are seeing a shift to structures, driven by 
technology, that combine or compress what have historically been unique 
and separate activities into a single or fewer entities. This 
compression raises many important questions including those regarding 
conflicts of interest within vertically integrated structures, the 
strength of capital, margin, and segregation requirements, the role and 
responsibilities of self-regulatory organizations, affiliate risk 
management, and most importantly, customer protections.
    As this Committee continues to consider reauthorization of the 
CFTC, I believe there are several important policy questions that will 
benefit from broader Congressional consideration and debate regarding 
market structure, permissible products, and retail participation. While 
our current regulatory agenda demonstrates significant agility within 
our jurisdictional space, we periodically bump up against the limits of 
what may be contemplated under existing law given the relatively rapid 
evolution of markets, market structure, and technology.
    To provide a glaring example from the past decade, the recent 
technology driven increase in direct retail participation in the 
derivatives markets and underlying commodity markets in areas such as 
digital commodity assets has tested the limits of the existing 
regulatory framework. The CFTC's mission and duties, while providing 
room for some adaptation to new products and structures, are not 
endlessly flexible: we must be able to ensure that the products offered 
and available are suitable for all participants, that only appropriate 
persons or entities may solicit or handle customer funds, and that the 
disclosure information provided is material for main street customers.
    As Chairman, I have stressed that new market structures and 
participants eager to deploy all manner of financial technology must 
comply with the agency's rules and regulations.\4\ This is especially 
true when it comes to protecting customers, consumers, and the larger 
financial markets from fraud, money laundering, and other financial 
crimes. For example, when the use of digital assets and related 
enabling technologies for illicit financial purposes threatens national 
security and may fund acts of war and terrorism, our laws must continue 
to aggressively demand that all market entrants implement and comply 
with know-your-customer (KYC) and anti-money laundering (AML) 
procedures, and Customer Information Programs (CIPs).
---------------------------------------------------------------------------
    \4\ See, e.g., Rostin Behnam, Chairman, CFTC, Keynote of Chairman 
Rostin Behnam at the 2023 U.S. Treasury Market Conference (Nov. 16, 
2023), (https://www.cftc.gov/PressRoom/SpeechesTestimony/opabehnam39).
---------------------------------------------------------------------------
    Enforcement matters like the CFTC's globally significant BitMex \5\ 
and Binance \6\ cases amplify the urgency. I believe we could do even 
more to protect customers and markets if given additional authority in 
the KYC, AML, and CIP space and welcome the opportunity to work with 
Congress on solutions.
---------------------------------------------------------------------------
    \5\ See Press Release Number 8412-21, CFTC, Federal Court Orders 
BitMex to Pay $100 Million for Illegally Operating a Cryptocurrency 
Trading Platform and Anti-Money Laundering Violations (Aug. 10, 2021), 
(https://www.cftc.gov/PressRoom/PressReleases/8412-21).
    \6\ See Press Release Number 8680-23, CFTC, CFTC Charges Binance 
and its Founder, Changpeng Zhao, with Willful Evasion of Federal Law 
and Operating an Illegal Digital Asset Derivatives Exchange (Mar. 27, 
2023), (https://www.cftc.gov/PressRoom/PressReleases/8680-23).
---------------------------------------------------------------------------
    The Commission's exercise of its enforcement authorities to address 
misconduct that has a direct impact on CFTC jurisdictional markets, 
affects the larger economy, causes public harm, or interferes with 
market integrity is one facet of our approach to innovation and the 
evolution of financial markets.
    Nowhere have we been more active than in the digital asset space. 
In FY 2023, we brought 47 actions involving conduct related to digital 
commodities, representing more than 49% of all CFTC actions filed 
during that period. A staggering statistic given the fact that no 
Federal agency retains any direct regulatory authority over the 
underlying (or cash) digital commodity asset market. To date, FY 2024 
is demonstrating a similar cadence.
    The lack of legislation addressing the regulatory gap over the 
digital commodity asset spot market has not hindered the public's 
enthusiasm for digital assets, and I continue to believe Congress must 
act, as the 2022 FSOC report highlighted,\7\ and as I have mentioned 
publicly on multiple occasions.\8\ I am grateful to Members of this 
Committee for your continued leadership in recognizing these gaps, and 
for leading legislative efforts to provide the CFTC with the necessary 
authority to properly regulate digital commodity assets and protect the 
U.S. financial system.
---------------------------------------------------------------------------
    \7\ Financial Stability Oversight Council, Report on Digital Assets 
and Financial Stability Risks and Regulation (Oct. 2022) (https://
home.treasury.gov/system/files/261/FSOC-Digital-Assets-Report-
2022.pdf).
    \8\ See, e.g., Rostin Behnam, Chairman, CFTC, Keynote of Chairman 
Rostin Behnam at the ABA Business Law Section Derivatives & Futures Law 
Commission Winter Meeting (Jan. 26, 2024), (https://www.cftc.gov/
PressRoom/SpeechesTestimony/opabehnam41).
---------------------------------------------------------------------------
    A key to the effectiveness of our enforcement division is the 
CFTC's whistleblower program. The Dodd-Frank Act established the 
Customer Protection Fund \9\ that supports our Whistleblower Program 
\10\ and the Office of Customer Education and Outreach (OCEO). As of FY 
2023, the Whistleblower program has issued 41 orders granting awards 
totaling almost $350 million since its inception in FY 2010.\11\ In 
Fiscal Year 2024, the program has, thus far, awarded $18 million to 
whistleblowers. The total sanctions ordered in all whistleblower-
related enforcement actions has surpassed the $3 billion milestone. 
Without this important program, the CFTC would not be as successful in 
bringing actions against misconduct in the digital commodity asset spot 
market.
---------------------------------------------------------------------------
    \9\ CEA 23(g), 7 U.S.C. 26(g).
    \10\ Commodity Futures Trading Commission Whistleblower Program, 
(https://www.whistleblower.gov/).
    \11\ See CFTC, FY 2023 Whistleblower Program & Customer Education 
Initiatives 2023 Annual Report (Oct. 2023), (https://
www.whistleblower.gov/sites/whistleblower/files/2023-10/FY23 Customer 
Protection Fund Annual Report to Congress.pdf).
---------------------------------------------------------------------------
    As this Committee knows, the overwhelming success of the 
Whistleblower Program has unintentionally led to the potential for 
disruptions in these two vital offices due to their funding mechanisms. 
In addition to the importance of a long-term fix to avoid depletions 
greater than the total balance of the fund, I believe Congress should 
amend the statutory provisions to clarify the permitted uses of the 
Customer Protection Fund by the OCEO.\12\ This change would allow the 
Commission to implement a host of new investor protection programs and 
provide information aimed at ensuring American families have the 
knowledge and tools to not only protect themselves from fraud and 
manipulation, but to more fully engage with the Commission and the 
markets we oversee.
---------------------------------------------------------------------------
    \12\ See CEA section 23(g)(2); 7 U.S.C. 26(g)(2).
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    One very important topic that continues to challenge the 
derivatives industry and the CFTC is cyber risk. Last year at this 
time, we were addressing the impacts of a cyber-related incident on ION 
Cleared Derivatives, a third-party service provider.\13\ The severity 
of the impact on each futures commission merchant's (FCM's) operations, 
as well as each FCM's ability to work-around impacted applications, 
varied based on the ION application used.\14\ Notably, the incident 
impacted the timely and accurate submission of positions data to the 
CFTC, and therefore delayed the timely release of the Commitments of 
Traders (CoT) report.
---------------------------------------------------------------------------
    \13\ See CFTC, CFTC Statement on Ion and the Impact to the 
Derivatives Markets (Feb. 2, 2023), (https://www.cftc.gov/PressRoom/
SpeechesTestimony/cftcstatement020223); see also, Press Release Number 
8655-23, CFTC, CFTC Issues Statement on the Ongoing Impact to Reporting 
(Feb. 10, 2023), (https://www.cftc.gov/PressRoom/PressReleases/8655-
23); Press Release Number 8662-23, CFTC Announces Postponement of 
Commitments of Traders Reports (Feb. 16, 2023), (https://www.cftc.gov/
PressRoom/PressReleases/8662-23).
    \14\ See Rostin Behnam, Chairman, CFTC, Keynote of Chairman Rostin 
Behnam at the FIA Boca 2023 International Futures Industry Conference, 
Boca Raton, Florida (Mar. 15, 2023), (https://www.cftc.gov/PressRoom/
SpeechesTestimony/opabehnam33); Rostin Behnam, Chairman, CFTC, 
Testimony of Chairman Rostin Behnam Regarding ``Oversight of the 
Commodity Futures Trading Commission'' before the U.S. Senate Committee 
on Agriculture, Nutrition, and Forestry (Mar. 8, 2023), (https://
www.cftc.gov/PressRoom/SpeechesTestimony/opabehnam32).
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    Under my direction, the Commission voted unanimously in December to 
issue a notice of proposed rulemaking to require FCMs, swap dealers 
(SDs), and major swap participants (MSPs) to establish an operational 
resilience framework and adopt non-binding Commission guidance related 
to the management of risks stemming from third-party relationships.\15\ 
The proposed rule would require the covered entities to establish, 
document, implement, and maintain an Operational Resilience Framework 
(ORF). This proposal would require a process to identify, monitor, 
manage, and assess risks relating to IT security, third-party 
relationships, and emergencies or other significant disruptions to 
their operations as a CFTC registrant.\16\ The ORF would need to 
include three components: an IT security program, a third-party 
relationship program, and a business continuity and disaster recovery 
(BCDR) plan.
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    \15\ Operational Resilience Framework for Futures Commission 
Merchants, Swap Dealers, and Major Swap Participants, 89 FR 4706 
(Proposed Jan. 24, 2024) (to be codified at 17 CFR pts. 1 and 23), 
(https://www.cftc.gov/sites/default/files/2024/01/2023-28745a.pdf).
    \16\ See CFTC, Fact Sheet and Q&A--Notice of Proposed Rulemaking to 
Require Futures Commission Merchants, Swap Dealers, and Major Swap 
Participants to Establish an Operational Resilience Framework (Dec. 13, 
2023), (https://www.cftc.gov/PressRoom/Events/
opaeventopenmeeting121323).
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    As I have often said, we recognize that our rules apply to covered 
entities that represent many different business models, and may be a 
part of a larger corporate family subject to the concurrent supervision 
of multiple domestic and perhaps international regulators. CFTC staff 
have strong working relationships with our fellow market and prudential 
regulators. Whether we are working on joint rulemakings or engaging in 
discussions regarding policy that impacts the derivatives markets 
directly or indirectly, our approach is always aimed at harmonizing 
where we can and avoiding duplicative and unnecessarily burdensome 
outcomes. We are actively working with our fellow regulators on a 
number of matters that impact CFTC regulated markets.
    Another topic presenting challenges and opportunities for the 
agency is artificial intelligence (AI). I am proud to say that recently 
the CFTC's new AI Task Force issued a request for comment (RFC) on the 
use of AI in CFTC-regulated markets.\17\ The AI RFC is part of a 
greater vision I have had since my first days as Chairman: advancing 
analytical capabilities through building talent, leveraging the cloud, 
and developing a forward-looking AI culture. We have a process in place 
for exploring AI use cases to help the agency better monitor, regulate, 
surveil, identify pockets of stress, and enforce compliance. Further, 
our OCEO recently issued a Customer Advisory warning the public about 
AI-driven fraud and scams.\18\
---------------------------------------------------------------------------
    \17\ See Press Release Number 8853-24, CFTC, CFTC Staff Releases 
Request for Comment on the Use of Artificial Intelligence in CFTC-
Regulated Markets (Jan. 25, 2024), (https://www.cftc.gov/PressRoom/
PressReleases/8853-24).
    \18\ See Press Release Number 8854-24, CFTC, CFTC Customer Advisory 
Cautions the Public to Beware of Artificial Intelligence Scams (Jan. 
25, 2024), (https://www.cftc.gov/PressRoom/PressReleases/8854-24).
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    In December, the Commission proposed guidance regarding the listing 
of voluntary carbon credit (VCC) derivative contracts.\19\ Identified 
as one of the most important developments for the carbon industry,\20\ 
this is the first proposed guidance on standards applicable to 
exchanges listing products aimed at providing tools to manage risk, 
promote price discovery, and help encourage integrity in these 
markets.\21\ All landowners, including America's farmers and ranchers, 
can benefit from high integrity voluntary carbon markets.
---------------------------------------------------------------------------
    \19\ Commission Guidance Regarding the Listing of Voluntary Carbon 
Credit Derivative Contracts; Request for Comment, 88 FR 89410 (Dec. 27, 
2023), (https://www.cftc.gov/sites/default/files/2023/12/2023-
28532a.pdf).
    \20\ See Vasil Valev, COP28 Update on Day Six: The Most Important 
Developments for the Carbon Industry, Carbon Herald (Dec. 5, 2023), 
(https://www.cftc.gov/Exit/index.htm?https://carbonherald.com/cop28-
update-on-day-six-the-most-important-developments-for-the-carbon-
industry/).
    \21\ See Rostin Behnam, Chairman, CFTC, Statement of Chairman 
Rostin Behnam on the Proposed Commission Guidance Regarding the Listing 
of Voluntary Carbon Credit Derivative Contracts (Dec. 4, 2023), 
(https://www.cftc.gov/PressRoom/SpeechesTestimony/behnam
statement120423).
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    Under my direction as Chairman, the CFTC hired its first ever Chief 
Diversity Officer (CDO) who oversees the agency's Office of Minority 
and Women Inclusion (OMWI). In the near future, I plan to release the 
CFTC's first DEIA Strategic Plan. Among other things, the Plan will aim 
to further develop our workforce. Current efforts through our OMWI 
include establishing partnerships and recruiting at minority serving 
institutions and rural colleges and universities, engaging urban and 
rural communities and related professional associations, and planning a 
robust mass media campaign to enhance our outreach efforts. I am eager 
to see the CFTC's OMWI statutorily authorized, similar to other Federal 
financial regulators.\22\
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    \22\ Section 342 of the Dodd-Frank Act, codified at 12 U.S.C. 5452, 
required the Departmental Offices of the Department of the Treasury, 
the Office of the Comptroller of the Currency (OCC), the Board of 
Governors of the Federal Reserve System (Board), each of the Federal 
reserve banks, the Federal Deposit Insurance Corporation (FDIC), the 
National Credit Union Administration (NCUA), the Bureau of Consumer 
Financial Protection (CFPB), the Federal Housing Finance Agency (FHFA), 
and the Securities and Exchange Commission (SEC) to each establish an 
Office of Minority and Women Inclusion (OMWI) to be responsible for all 
matters of the agency relating to diversity in management, employment, 
and business activities. The Act also instructed each OMWI Director to 
develop standards for assessing the diversity policies and practices of 
entities regulated by the respective agency.
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    Under my direction, the agency also is embarking on developing its 
first centralized workforce succession planning program. The lack of 
adequate succession planning poses several risks to the agency, 
including disruption to processes, workflows, and protocols that can 
threaten core functions; the loss of mission critical knowledge and 
expertise; and the increased expense of retaining critical talent in 
urgent situations. Looking at our workforce demographics and 
trajectory, the inescapable conclusion is that roughly a decade of 
budget uncertainty is degrading our ability to effectively and 
consistently hire and maintain the skilled workforce necessary to keep 
pace with our jurisdictional markets.
    As we near the 50th anniversary of President Ford signing of the 
Commodity Futures Trading Commission Act of 1974, we should reflect on 
the past 50 years of market development, evolution, and growth, while 
also looking forward to the next 50 years, and to the role the CFTC 
will play in the continued health and dominance of the U.S. financial 
markets and economy. We cannot simply sit back and hope that the next 
50 years will replicate the success of the past 50. Technology is 
driving change faster than it ever has, and we collectively must keep 
up, both to set the guardrails that will serve as foundations for 
customer protections and market resiliency, and to allow for growth and 
innovation.
    The CFTC has consistently been at the forefront of identifying and 
addressing risks with a balanced, thoughtful, and measured approach. I 
strongly believe our collective goal is to keep the U.S. derivatives 
markets the safest, strongest, the most effective, and the most 
desirable in the world. These goals are necessary to maintain America's 
position as the preeminent economy in the world. These goals are also 
necessary to maintain national security for all Americans. As this 
Committee knows, our nation's agricultural, energy, and precious metals 
resources are some of our most critical assets. I believe that without 
a robust derivatives market, these assets cannot be optimally utilized. 
An investment in the CFTC is an investment in America. As Chairman of 
the agency, you have my commitment to work with this Committee on 
achieving these goals. I look forward to your questions.

    The Chairman. Well, Mr. Chairman, thank you so much for 
your important testimony today, and we look forward to that 
continue collaborative relationship.
    At this time, Members will be recognized for questions in 
order of seniority, alternating between Majority and Minority 
Members and in order of arrival for those who joined us after 
the hearing convened. You will be recognized for 5 minutes each 
in order to allow us to get to as many questions as possible. I 
will recognize myself for 5 minutes.
    Chairman Behnam, we have heard a lot about the potentially 
disastrous ramifications of the Prudential Regulators, Basel 
III Endgame, and the GSIB surcharge proposed rules, including 
that they may curtail banks' ability to offer crucial hedging 
services to clients such as farmers and ranchers and other end-
users who are seeking to manage the risks associated with 
operating their businesses. You have stated publicly that CFTC 
staff are looking at two proposals to determine if the changes 
will harm end-users' ability to hedge risk in the commodity 
derivatives markets. Can you please share with the Committee 
any of the CFTC staff's findings on this issue?
    Mr. Behnam. Thanks, Mr. Chairman, a very important 
question. And I will tell you a few things that I think should 
maybe level set. One, I have been personally engaged with other 
colleagues at the Prudential Regulators and market regulators, 
sharing some of the issues that we have examined and thought 
about and wanting to help steer potentially their thought 
process as they continue towards finalizing the rule.
    I would say a few important data points that really 
represent some of the issues that we have identified. Going 
back to 2004, we had 177 registered FCMs, futures commission 
merchants, at the CFTC. In 2024, currently, we have just about 
64, a huge reduction in the capacity to clear and execute 
transactions for all market participants, including end-users. 
Also, at the same time, we have seen an increase in customer 
funds from approximately $80 billion in 2004 to about $\1/2\ 
trillion, so huge growth in markets, reduction in capacity. We 
see concentration in the largest five clearing members, just 
about 60 percent or more clearing futures swaps and foreign 
futures as well.
    So I think we have to be very careful as we think about 
capital. I would say this very confidently that capital is one 
of the benchmarks and the foundations of good financial 
regulation, and it is important that Prudential Regulators move 
forward with Basel III and the surcharge, but we have to be 
careful about how it is implemented. We have to create 
incentives for clearing. Clearing is one of the hallmarks of 
the financial crisis. We see the SEC recently finalized a rule 
for clearing Treasury markets. I think this is a clear 
indication that, collectively, we believe clearing works.
    So we need to continue to incentivize clearing, make market 
participants feel comfortable that the costs will not be 
prohibitive, and ultimately create an avenue for clearing 
members to provide services to all customers. So this is not 
just large asset managers. This is not just large pension funds 
or large financial institutions and manufacturers. We have to 
think about all of your constituents--farmers, ranchers, small 
business owners--to an extent, energy producers, any commodity 
producer that needs to use our markets. They need to have 
access and it needs to be a fair price. And as we think about 
these rules going forward, we need to make sure that we are 
ensuring the integrity of the derivatives market, but also 
making sure it is accessible, fair, and at a reasonable price 
such that there will be incentives to participate in the 
market.
    The Chairman. Mr. Chairman, an SEC-registered special 
purpose broker dealer Prometheum announced recently that it 
will custody customers' Ether beginning in March. According to 
the SEC's guidance, SPBDs are only allowed to custody 
securities. Now, you have previously stated on a number of 
occasions that you consider Ether to be a commodity. To that 
end, the CFTC has allowed CFTC-registered commodity derivatives 
exchanges to list Ether derivatives contracts. And in October 
2023, SEC approved an Ether exchange traded fund that 
characterized Ether as a commodity and was based on those 
futures contracts, thereby tacitly accepting that Ether is a 
commodity. Can you please share with us your views on 
Prometheum's plans to custody Ether an asset that you and at 
least at one point the SEC considered to be a commodity?
    Mr. Behnam. Mr. Chairman, I think the point you raise is 
really the critical one. We do have listed Ether futures 
contracts, and we have had them for a number of years, just 
about 4 years. And by default, this is at least in part why 
have I publicly stated that both Bitcoin and Ether are 
commodities. I have not been in communication with Prometheum. 
I have not discussed their decision-making, but from my 
understanding, essentially reading the press and talking to my 
staff who have reached out to the SEC, this was an independent 
decision by Prometheum, which is, as you mentioned, a special 
purpose broker dealer, to signal to the market that it is their 
intent to custody Ether. So, it is my understanding that this 
was not at all a decision by the SEC and that this was an 
individual decision by the entity.
    How this plays out, obviously, is very critical and really 
goes to your point. And the issue is, if we do have any action 
by the SEC to essentially validate that decision, i.e., 
constituting Ether as a security, it would then put our 
registrants, our exchanges who list Ether as a futures contract 
sort of in noncompliance of SEC rules as opposed to CFTC rules.
    So I am working with Chairman Gensler. We are working with 
his office. We are working with the agency to ensure that 
whatever steps are taken are deliberate, that we are involved, 
and that they understand certainly what the consequences would 
be if there was a decision by the agency to determine that 
Ether was a security. As of now, we need to preserve the 
integrity of our markets and understand that this is a years-
old decision where these markets are functioning well under the 
decision and the conclusion that Ether is a commodity.
    The Chairman. Thank you very much.
    I now recognize the distinguished gentleman from Georgia, 
the Ranking Member, for 5 minutes' worth of questions.
    Mr. David Scott of Georgia. Thank you, Mr. Chairman.
    Chairman Behnam, I want to talk about a couple of things 
here. First of all, I want you to address the dangers of 
continuing after 10 years this whole failure for the CFTC to be 
reauthorized. Can you tell us why this is a terrible mistake 
and why we need to move on it right now?
    Mr. Behnam. Ranking Member Scott, thanks for the question. 
And I think I am going to highlight something you said, which 
was the issue we had a few years ago and that this Committee 
addressed very deliberately and intentionally and successfully 
with the Europeans. I think it is easy for us collectively in 
this room to realize, yes, the agency hasn't been reauthorized 
for now 16 years. But the agency door is still open, we still 
fulfill our mission, and we do a really good job at it.
    But there is an external issue in terms of folks overseas 
and perhaps folks not in Washington seeing that the agency is 
not reauthorized. And I think that sends a bad signal not only 
from the Committee's perspective, but from the agency's 
perspective that it is not viewed as important as it needs to 
be. So I think externally we have to reauthorize the agency to 
ensure that the public, the investing public, that our 
international partners understand that this Committee and this 
Congress takes the derivatives markets and the U.S.'s supremacy 
in derivatives markets very importantly, that we actively look 
at these issues, that we are actively thinking about the 
statute and the policy and how our markets are evolving and how 
we need to evolve with the marketplace and others across the 
globe. We have the deepest, biggest markets in the world, and I 
think we all want to keep it that way. And reauthorization is 
one step to ensure that that condition remains the same.
    Mr. David Scott of Georgia. Well, I can tell you, I have 
been in touch with our friends at CME and ICE clearinghouses, 
and they are very much concerned about this issue. And I know a 
number of us, both Democrats and Republicans, are very 
concerned about this, as we have fought this tooth and nail, 
and we will look to you for any recommendations you can make to 
us on this Committee of what we need to do to stop this failure 
to reauthorize the CFTC.
    Now, let me also talk about this issue of inadequate 
funding. You are still suffering from the lack of 
appropriations. And even in this year, we have not been able to 
give you the level of funding that you need. Can you please 
express what this means to your agency?
    Mr. Behnam. Thanks, Ranking Member. Certainly, as we are 
all feeling costs going up, this is not unique to individuals 
or organizations outside of Washington. So whether it is 
hardware or software for cyber resilience, for IT, for services 
from vendors and whatnot, we are seeing those costs go up, 
salaries and expenses related to personnel recruitment, 
retention, these important things that any large organization 
has to deal with, ensuring that we have adequate funding to 
make sure that we can fulfill the mission.
    I can tell this Committee with confidence we continue to 
fulfill our mission above par without a doubt, but as we look 
forward to the future and the growth of the agency, as we see 
growth in our markets, as we see new participants, as we see 
new registration requirements, huge markets coming in, 
obviously, crypto a huge part of that, this is pulling us in a 
lot of different directions, requiring a lot of different areas 
of personnel expertise that we need to be able to fund.
    So as you think about our resources--and I appreciate you 
being dogged about this for many, many years--I think we have 
to look to the future. And as I said in my statement, this is 
about national security. This is about us preserving the U.S. 
derivatives markets as the best in the world. And this is a 
long-term goal that we need to achieve in order to meet that 
goal.
    Mr. David Scott of Georgia. And let me just say, I am very 
appreciative and very delighted to see you move with your 
excellent diversity program. But in my short time I have left, 
you mentioned AI, and you mentioned some good things about it. 
Let me ask you, do you see some dangers here? As other people 
and other entities are mentioning, they are all not saying good 
things about AI unless we are careful.
    Mr. Behnam. Ranking Member, 100 percent. What I have done--
I mentioned this in my statement--we put out a request for 
comment. This is in my mind a deliberate, intentional way of 
seeking feedback from the market, from academics, from public 
interest groups to see how AI is being used in the marketplace 
right now and how it may be used in the future. And that is 
both risks and benefits.
    I think, as a regulator, we need to be very focused on the 
risks of AI and what we need to do to preserve the integrity of 
markets, and that really is the goal. So we are in the 
factfinding stage right now. All things are on the table in 
terms of policy advisory or guidance. But it was very 
intentional that we sought comment and sought input from the 
public at first to get a better understanding of how artificial 
intelligence is being used so that we can eliminate and if, at 
a minimum, mitigate these risks that can be caused to the 
financial system and our economy ultimately if AI is not used 
appropriately.
    Mr. David Scott of Georgia. Thank you, Mr. Chairman. And 
keep doing your excellent work.
    The Chairman. I thank the gentleman. I now recognize the 
other distinguished gentleman from Georgia, Mr. Austin Scott, 
for 5 minutes.
    Mr. Austin Scott of Georgia. Thank you. Thank you, Mr. 
Chairman.
    Chairman Behnam, welcome to the House Agriculture 
Committee. You have a lot of respect from this Committee for 
personally the work you do and for your agency. I appreciate 
your bipartisanship and just being a fact-based regulator.
    You mentioned safe, strong, effective markets. I couldn't 
agree with you more. I couldn't agree with you more about our 
financial system and our economy being a big part of our 
national security, just as big a part as our military and the 
State Department is. My concern with kind of where we have 
gotten here--and I heard you say already that you have 
personally engaged in discussions with the regulators that 
proposed the changes. Were you consulted prior to the rules 
being proposed by the bank regulators, or did they ask you to 
help with the analysis after they proposed the rules and how 
they would impact end-users, or did you have to go to them?
    Mr. Behnam. Congressman, so we were not consulted as the 
rule was being crafted. I regularly see members of the 
Prudential Regulators at the Federal Reserve, the OCC, the 
FDIC. So we have talked about it, sort of, over the course--I 
knew this was coming because of the Basel requirements and 
Basel III being sort of on the horizon. But we as an agency 
were not consulted as the rule was being crafted, and we 
proactively reached out after reviewing the rule and seeing the 
potential impacts on derivatives markets.
    Mr. Austin Scott of Georgia. So you had to go to them?
    Mr. Behnam. Correct.
    Mr. Austin Scott of Georgia. Okay. Thank you for that, and 
thank you for being proactive because it is important that our 
regulators work together if we are going to have those markets. 
Are you aware that just, for example, a mutual insurance 
carrier would be treated differently than a stock carrier under 
the rule as it is proposed?
    Mr. Behnam. I am not aware of that specific provision. We 
could certainly look at it; but, I would think we would want 
equity in terms of how they are treated, just hearing what your 
issue is and how it is raised.
    Mr. Austin Scott of Georgia. That is one of my concerns is 
that there has to be equitable treatment of competitive 
companies. I mean, we don't want to benefit one and penalize 
the other. So I would appreciate if you would stay in touch 
with them on that. We don't want to put an industry, because of 
their structure, at a competitive disadvantage. We want the 
markets to be safe, strong, and effective for everybody.
    I want to move on to another issue. Are you supportive of 
the expansion of Federal Reserve deposit accounts for all CFTC-
regulated clearinghouses?
    Mr. Behnam. Congressman, I have stated this before. I think 
master accounts at the Fed would provide a sense of financial 
stability for our CCPs, our clearinghouses. I mentioned this 
earlier. Since 2008, we have seen a huge growth in our markets, 
which ultimately means there is risk being concentrated in 
clearinghouses. We do have two clearinghouses that are 
designated as significantly important, which gives them access 
to the master accounts at the Fed, which provides stability and 
certainty for the funds that they collect from customers and 
other users. So I do think it would be an important policy 
change I have stated in the past, and I continue to advocate 
for it.
    Mr. Austin Scott of Georgia. Okay. So in your opening 
testimony I think you said that 60 percent of the trades were 
through the largest five. Is that correct?
    Mr. Behnam. Sixty-two percent of customer money is in the 
largest five clearing members.
    Mr. Austin Scott of Georgia. Sixty-two percent?
    Okay. How much is in those two?
    Mr. Behnam. The top two?
    Mr. Austin Scott of Georgia. Right.
    Mr. Behnam. I would have to look at the data.
    Mr. Austin Scott of Georgia. Okay. All right. I just think 
that is something we need to do. I mean, it should be simple. 
It is the safest place in the world for the money to be held, 
and I am a little disappointed that we haven't been able to get 
that done yet, as I am disappointed that we haven't yet been 
able to get the reauthorization done.
    Just one final question as I am running down, just what are 
you hearing are the concerns from the end-users that you know?
    Mr. Behnam. Well, it really does come down to access to 
markets. And this goes to my statistic, which I raised in 
response to the Chairman's question where we have seen a 
reduction of clearing members, of FCMs, from 177 20 years ago 
to about 64 right now. It is not like the largest ones are 
leaving the market. It is the smaller FCMs. It is the FCMs that 
facilitate and service smaller businesses, agricultural 
stakeholders, energy stakeholders. So as much as that is a key 
component of our constituency, as it is yours, I want to ensure 
that the market is fair in offering these risk management 
services to all participants.
    And right now, we are seeing that business being 
concentrated in the largest banks, significantly important 
financial institutions, global banks. And you can imagine 
because of economies-of-scale and because of costs like capital 
and otherwise, it doesn't necessarily become a viable business 
model to provide a co-op from Georgia a futures servicing 
business. So we need to ensure that diversity of futures 
commission merchants so that all American businesses, small and 
large, can have access to derivatives markets to manage risk.
    Mr. Austin Scott of Georgia. Thank you, Mr. Chairman.
    The Chairman. The gentleman yields back now.
    I am now pleased to recognize Ms. Adams from North Carolina 
for 5 minutes.
    Ms. Adams. Thank you, Mr. Chairman. And thank you, Ranking 
Member, for hosting the meeting today, the hearing. Chairman 
Behnam, thank you for testifying today. It is good to see you 
again. I do want to follow up on an issue that you spoke about 
a bit last time when you came before the Committee. The Dodd-
Frank Act added a new core principle, diversity of board of 
directors for future exchanges or designated contract markets. 
Under the core principle, a DCM, if a publicly traded company, 
shall endeavor to recruit individuals to serve on its board of 
directors and its other decision-making bodies as determined by 
the Commission from among them, reflecting a board and 
culturally diverse pool of candidates. And so as I understand 
it, it has been more than 10 years since this provision was 
implemented by the CFTC. So after all of this time, are you 
seeing a greater diversity in boards of directors at DMCs?
    Mr. Behnam. Congresswoman, thanks for the question, a very 
important one. And as you stated, this is a priority of mine. I 
would say since 2010 we have seen an improvement, but there is 
certainly more work to be done. And I am hopeful that the work 
that we are doing at the agency by hiring a Chief Diversity 
Officer, having a DEIA strategic plan is going to further 
improve the diversity of boards across the industry and our 
stakeholders. But ultimately, that is their decision, and we 
are doing what we can at the CFTC to make sure that we are 
casting a wide net for individuals and professionals across the 
country.
    Ms. Adams. Thank you. So how does diversity and leadership 
at DCMs compare with the leadership of other publicly traded 
entities regulated by the CFTC that operate under the Commodity 
Exchange Act core principles?
    Mr. Behnam. Congresswoman, I would probably have to look at 
the specific number of DCMs, the designated contract markets, 
and the other participants and identify the diversity of their 
boards. It is not something I necessarily look at regularly, 
but I am happy to look at that and work with your office to get 
you some statistics, again, ensuring that that core principle 
is complied with from Dodd-Frank.
    [The information referred to is located on p. 62.]
    Ms. Adams. Right. Well, let me switch gears for a moment to 
climate change. I was glad to see the Commission issue its 
proposed guidance regarding the listing of voluntary carbon 
credit derivatives contracts. But critics wonder whether the 
CFTC should be the source of this guidance. So could you 
explain the justification for issuance of this guidance? And 
was the CFTC getting questions on standards, or were there 
concerns about the wide array of various standards for 
voluntary carbon credits?
    Mr. Behnam. Thanks, Congresswoman. So we do have listed 
futures on voluntary carbon credits on our registered 
exchanges. So just by that fact, the reality that we have 
listed futures, we then have, as an agency, as a regulatory 
body, an interest in the health of the underlying market. Just 
as we would in a corn contract, we want to make sure the 
underlying cash market is healthy and free from fraud and 
manipulation.
    Concerns have been raised about the voluntary carbon credit 
market for a number of years. There have been issues around 
integrity and the sort of trustworthiness and intention of some 
of the registries. So the intent from an agency perspective is 
really to elevate the diligence that the DCMs, which you 
mentioned earlier, the exchanges use when they list CFTC-
regulated futures contracts. We want to make sure those 
contracts listed on our exchanges are free from fraud and 
manipulation and fairly represent price discovery, bids and 
offers, and supply and demand. And that is why we think and we 
are hopeful that guidance will send a signal to the exchanges, 
the regulated exchanges, that there needs to be a little bit of 
diligence as they start to continue to list contracts around 
voluntary carbon credits.
    Ms. Adams. Right. Okay. Well, that was the second part of 
my question in terms of what the expectation would be in terms 
of the benefits of providing it. So thank you very much. Thank 
you very much for being here, and thank you for your responses 
and for the work that you do. I appreciate it.
    I yield back, Mr. Chairman.
    Mr. Austin Scott of Georgia [presiding.] Thank you, Ms. 
Adams.
    The chair now recognizes Mr. Mann, from Kansas, for 5 
minutes.
    Mr. Mann. Thank you, Mr. Chairman.
    And, Mr. Chairman, thank you for being here. Good to see 
you again.
    I represent the 1st District of Kansas, which is a good bit 
of the western \2/3\ of Kansas. We produce a lot of beef, a lot 
of wheat, a lot of sorghum. We are the number-three ag-
producing district in the country. Our ag producers work hard 
every day to deliver the food that feeds all of us and people 
around the world. And I appreciate that you oversee the markets 
that help our ag producers manage risk. When I think about 
agriculture, such a risky business, and we can take a little 
bit of the risk out of it by being able to hedge some of--not 
all of--some of the market risk, which I appreciate that.
    Early March, 4 years ago, the COVID pandemic was starting 
to hit. I think most people remember where they were when the 
NCAA basketball tournament got canceled. We have to remember 
that not a single ag producer in my district around the country 
took time off. They continued to go the fields, feed their 
cattle, do the work that they do to feed us. But here we are 4 
years later, and we still have a lot of people at CFTC and 
other government agencies for that matter that still have not 
returned back to their offices for work. Could you comment on 
that, and specifically, what I should tell my ag producers who 
are working every day when they find out that there are folks 
at the CFTC that haven't even returned to their office yet? Any 
thoughts on that?
    Mr. Behnam. Yes, Congressman, I would say first thing I 
would tell them is that the Chairman of the agency agrees with 
you that I think it is extremely important that we are 
together, we are in the office, and we are collaborating and we 
are discussing issues that are extremely important to the 
American economy and all Americans, farmers, ranchers, and 
others.
    Just to give you a little bit of a sense of our current 
posture, I have about 700 full-time employees. I have about 180 
managers, and the managers, by my request, are coming in 2 days 
a week. I call it my quasi-cabinet, the leadership team, which 
is about 10 to 15 individuals, are coming in 3 days a week. My 
direct team and myself, we are in 4 or 5 days a week. There is 
a large portion of the agency approximately, 500 individuals, 
who are either a part of the National Treasury Employee Union, 
the NTEU, or not necessarily part of the union, but not 
managers either. And that is where we are in ongoing 
negotiations to determine essentially the future of our work 
posture at the CFTC.
    My position and my strategy from day one, which I would say 
was probably late 2021, maybe early 2022 when folks started 
shifting back to work in person, is to play the long game. And 
I hate to use sort of a phrase there, but the impact that--the 
decision that is going to be made that is going to determine 
the work posture will be one that will likely have an impact 
for decades to come. So I haven't wanted to rush it.
    We are negotiating with the union and its representatives 
in good faith. I am mindful and very much support being in the 
office and being together and collaborating, understanding the 
risks that our markets have and having to have those bits of 
communication, whether it is near a water cooler or by our 
office. But I am also mindful of the current work environment, 
that hybrid does work, and that we have to give some level of 
balance. So I am trying to strike the right balance, bring 
folks back, but negotiate in good faith with patience and 
ultimately come up with an outcome that is suitable for 
everyone.
    Mr. Mann. Yes, and I appreciate that, appreciate your take 
on the issue. Feel free to let the union know as you are 
negotiating that there is at least one Member of the 
Agriculture Committee that is very concerned about this, and I 
know there are others as well. I would remind them that they 
are overseeing markets that you have people that literally lay 
it on the line 7 days a week, and it is hard for them to 
understand when folks are in the office 0 days, 1 day, 2 days a 
week. It just makes no sense.
    With my remaining time, I would like to quickly touch on 
Basel III, which I know was mentioned a couple times here. 
Basel, Basel, bamboozle. When you name something--I know you 
didn't name it. When you name something Basel III Endgame, it 
sounds like an Avengers movie, right? I mean, it causes concern 
and skepticism, as it should, across Kansas and across the 
country. Any comments? I hear regularly from folks that are 
concerned that these proposals are going to drive banks to 
scale back or even abandon clearing services altogether. Any 
thoughts on what your agency is getting ready to do as this 
hits and how do we pick up the pieces and make sure that 
markets stay intact and we continue to deliver the risk 
management tools that our ag producers need?
    Mr. Behnam. Congressman, thanks for the question. My 
intention from the start has been to put together a team of 
experts at the CFTC and to go work with our fellow regulators 
at the Fed, at the OCC, at the FDIC and to help inform them the 
best we can about what we are seeing in our markets, the 
changes that have occurred--I mentioned this to the Chairman--
the concentration of participants and players, the lack of 
access and services for smaller participants, and the 
importance of the diversity of participants in this pool so 
that farmers and ranchers in Kansas can have access to futures 
markets.
    You hit the nail on the head when you said the futures 
markets are not going to eliminate all of your risk, but it can 
be a part of a larger toolbox, some of the commodity programs 
over at USDA, to mitigate risk and reduce it to a point where 
that farmer can go into planting season every March or April 
and feel confident they are going to come out during harvest on 
the right end of the season.
    Ultimately, we have to make sure that banking regulators 
understand what we are seeing in our markets, that there is an 
incentive to clear, and in order to clear, we need FCMs and 
brokers offering these services to all constituents. So we will 
continue working with them as the prudential, the banking 
regulators have finalized a rule, and we will keep harping on 
the importance of derivatives markets, clearing, and making 
sure that we are not laying on unnecessary burdensome rules 
that will essentially create further concentration and 
ultimately increased risk in the markets.
    Mr. Mann. Which will lead to higher food costs for all of 
us. Thank you, Mr. Chairman. And thank you for being here.
    Mr. Austin Scott of Georgia. The chair now recognizes Ms. 
Salinas from Oregon.
    Ms. Salinas. Thank you. Thank you to the Chairman and 
Ranking Member for today's hearing. And thank you to Chairman 
Behnam to answer the Committee's questions and really to the 
whole Commission and its staff. For all the hard work you are 
doing, I know we are in challenging times.
    I want to just start off by asking about something I am 
particularly concerned by, the rise of political event 
contracts or, in simpler terms, political gambling. I 
understand that the legal battle surrounding the use of a no-
action letter that was issued to the platform PredictIt and 
then subsequently withdrawn is still underway, but I don't want 
to address the issue of no-action letters. Instead, I want to 
focus on how we prevent these kinds of platforms from taking 
root in the first place. In my view, public elections should 
not be subject to the influence of betting markets.
    And so to that end, how does the CFTC intend to prevent 
sites like PredictIt from establishing themselves in the 
future?
    Mr. Behnam. Congresswoman, thanks for the question, 
extremely important one, as you point out. We are sort of 
dealing with litigation on multiple fronts, so I will be 
mindful of what I say. But ultimately, there is a provision in 
the statute, section 5, which prohibits certain types of 
contracts, around war, terrorism, assassination, anything that 
is illegal under state or Federal law, or anything that is not 
in the public interest, and also gaming. And that is really the 
tricky issue that we have been trying to navigate.
    The Commission has said that political event contracts are 
illegal under the law, under both the state prohibition and the 
gaming prohibition. But obviously, there are differences of 
opinion. And, our decisions to prohibit these contracts have 
been challenged in court. So, my goal over the next couple of 
months--and it has been one that has taken quite some time 
because you can imagine producing a rule is quite complicated. 
But it is to further clarify the existing rules that we have to 
ensure that no new participant or company simply just starts 
listing political event contracts.
    At this point, we can't stop a company from organizing and 
establishing an exchange. They have to comply with the law. 
There will be an enforcement action if they don't. But 
ultimately, there has just been a bit of confusion, I would 
say. And because of the entity you suggested, the agency has 
issued no-action letter relief on two instances in the past 30 
years. But it has been very, very specific in what the 
Commission has allowed, not-for-profit and essentially data-
gathering for academic purposes. We are seeing a shift away 
from academic purposes and not-for-profit such that folks want 
to do for-profit entities that are using elections as a means 
to have an event contract-type product. So we are working 
towards a rule, clarifying what we believe needs to be 
clarified so we don't see these contracts in the future.
    Ms. Salinas. In your view, would additional Congressional 
clarification help?
    Mr. Behnam. Always, yes.
    Ms. Salinas. Thank you. Thank you. Now shifting a little 
bit, another element of the ever-changing landscape at CFTC is 
the rise of artificial intelligence. In your testimony, you 
noted CFTC's Office of Customer Education recently issued a 
customer advisory warning about AI-driven fraud and scams. For 
people back home in Oregon's 6th District, could you expand on 
what the Commission is observing in terms of AI-driven fraud 
and the scale of the threat it poses?
    Mr. Behnam. Thanks, Congresswoman. At this point, it is a 
bit early. And we are aware through really anecdotal 
conversations that artificial intelligence is being used by 
some of the more sophisticated, well-resourced entities. But we 
also know that it is growing, and it is going to grow beyond 
these larger financial institutions, to potentially many 
registrants, if not all registrants, given the sort of ubiquity 
that AI seems to be having in our culture and our society these 
days.
    So my intention was to put out a request for information to 
get a sense of what is going on in the market, how registrants 
and participants are using it, what potential risks there are, 
and what potential benefits there are, and from that bit of 
information gathering, potentially use it as a tool to produce 
policy through a rule, through an advisory, or through 
guidance.
    You can imagine a lot of registrants kind of keep this 
close to their chest. They don't necessarily want to share what 
they are doing or how they are using it. They view it as 
intellectual property, which in many senses, I understand and I 
agree with, but as a regulator, we need to see the whole 
playing field. We want to get a sense of what they are doing, 
making sure they know what the AI is, the artificial 
intelligence program is, and how it would be impacted or how it 
would react under different scenarios, and ultimately, make 
sure that we are continuing to do our job. But ultimately, we 
want to start right now at information gathering and then move 
forward at a good cadence to move quickly, but also to move 
cautiously so we don't get ahead of ourselves and do something 
that really wouldn't apply to the way the technology is being 
used.
    Ms. Salinas. And thank you for your comments on just 
balancing that investigation around risks and benefits because 
I do think, yes, there is both to be had there.
    Mr. Behnam. Yes.
    Ms. Salinas. Thank you.
    Mr. Behnam. Thanks.
    Ms. Salinas. I yield back.
    Mr. Austin Scott of Georgia. The chair now recognizes Mr. 
Rose, from Tennessee, for 5 minutes.
    Mr. Rose. Thank you, Mr. Chairman. I appreciate you holding 
this hearing, the Chairman holding this hearing, and appreciate 
our witness for being with us today.
    Chairman Behnam, considering the potential disruptions of 
quantum computing in derivatives markets such as the ability to 
break current encryption methods or to solve complex 
optimization problems that could be exploited for manipulative 
trading strategies, how is the CFTC preparing to address these 
challenges?
    Mr. Behnam. Congressman, thanks for the question. Quantum 
and AI are in many respects related. Quantum is going to pose a 
lot of issues and challenges. I think there are going to be 
benefits, but it is also going to disrupt markets and cyber 
issues and sort of protection of data. I have looked into this 
a bit over the past actually couple of months. And this really 
led to what I mentioned to the Congresswoman, the issuance of 
this request for information about artificial intelligence. 
And, if you have a chance, if you look at the document, we 
asked a series of questions. I think they were very well-
crafted and very intentional in how we crafted them, going 
pretty deep in terms of technical nature, but also wanting to 
get a better sense of how market participants are using AI and 
how technology is driving their business operations and what we 
need to do as a regulator to address those risks or the 
opportunities that might arise.
    In some respects, our core principles already address these 
issues. One could look through our core principles and think 
about governance and markets being free from fraud and 
manipulation and other core principles that really are the 
driving engine of our statute. But this technology is so novel, 
can pose so many unique risks, but also opportunities that we 
really have to take a very unique look at what we need to do as 
an agency and potentially this Committee legislatively to 
address the adoption, the growth of AI, and how it might impact 
our markets.
    Mr. Rose. Do you think the Commission has sufficient 
resources to stay abreast of this quickly changing environment?
    Mr. Behnam. I would say so. Right now, I think the most 
important thing I will say about resources--and this has been 
an observation I have made over 15 years being around the 
agency in a policy role--is consistency and certainty are the 
most important things. If I have a sense as the head of the 
organization that we are going to have this budget for the next 
couple fiscal years, whether it is increasing at a small clip 
or a large clip or not at all, it provides me that certainty so 
I can allocate resources towards these types of things.
    AI, cybersecurity, IT infrastructure, these are going to be 
the components that drive the large costs, in addition to 
salaries, of the agency into the future. And if we are going to 
move with the market, we need as much certainty around our 
budget going forward so that we can have that ability to 
recruit the best talent, to retain the best talent, and 
ultimately build a diverse workforce.
    Mr. Rose. Thank you. I appreciate that. I would like to 
briefly discuss a recent news story that detailed a case of 
insider trading. An individual overheard their spouse's work 
conversations while both were working from home and used that 
information to trade stocks based on a planned acquisition. The 
case involved the oil company British Petroleum. Considering a 
significant portion of the CFTC's workforce is currently 
working--or teleworking, that is--can you please detail the 
specific policies and procedures in place to safeguard 
sensitive data accessed by CFTC employees who are working 
remotely?
    Mr. Behnam. Thanks, Congressman, important question. And, 
the same requirements that we have around retention of 
confidential information apply at home. We have sent out 
periodic notices to staff going back to 2020 when we went into 
full remote posture after COVID hit 4 years ago to ensure that 
your work environment is safe. And in this particular instance, 
which I am familiar with, that spouse, family, friends are not 
becoming privy to any information that is confidential.
    So we work hard with it, constantly reminding staff of the 
importance of the information they have, that it is a violation 
of Federal law to provide information, either to trade on it or 
to leak information. I do that quite often, actually. But it is 
something that we continually drumbeat and ultimately drives me 
towards what I said to Mr. Mann is the importance of being back 
in the office and feeling that sort of continuity of work, 
office, and collegiality among colleagues.
    Mr. Rose. Sir, we don't have much time left, but are you 
aware of any incidents of CFTC employees accidentally 
disclosing or misusing confidential data while working 
remotely?
    Mr. Behnam. I am not aware of any information being leaked 
by any staff.
    Mr. Rose. If you wouldn't mind checking with your team and 
getting back to us if there had been any examples of that?
    Mr. Behnam. Of course.
    Mr. Rose. Thank you, and I yield back.
    The Chairman [presiding.] The gentleman from Tennessee 
yields back. I am now pleased to recognize the gentlelady from 
Illinois, Congresswoman Budzinski, for 5 minutes.
    Ms. Budzinski. Thank you, Mr. Chairman. And thank you, 
Chairman Behnam, for being here today.
    Last summer when the Agriculture Committee came together to 
mark up the FIT for the 21st Century Act, I was glad to 
introduce two amendments to safeguard consumers. One of my 
amendments was written to close loopholes that threaten 
consumers' rights and to protect against market volatility. It 
provides bankruptcy support for companies and individuals and 
allows customers to access their investments in the event of a 
collapse, protecting the little guy, the small-time investors 
who would otherwise be unable to access those funds. I am very 
glad to say that that amendment was agreed to in Committee, and 
I am grateful to the Chairman and his staff for the bipartisan 
work we did here.
    Chairman Behnam, the joint rulemaking requirement for the 
FIT for the 21st Century Act poses a number of implementation 
concerns, from differences in opinion on whether additional 
authorities are needed to size and funding. should Congress 
move forward with a bill that addresses only the CFTC's 
expanded regulatory authority needs? And assuming sufficient 
funding is included, what would the time frame and logistics of 
implementation look like from your perspective?
    Mr. Behnam. Thanks, Congresswoman. I have said this before, 
and I will say it certainly again, we need to fill the gap in 
crypto regulation. I think, as I am sure you are reading and 
others on the Committee, Bitcoin is again hitting all-time 
highs. It feels like every day I read in The Wall Street 
Journal or the Financial Times or The New York Times or The 
Washington Post that there is some storyline about crypto and 
that it is back from 2022. This notion of crypto going away I 
think is just a false narrative and potentially it wouldn't be 
an understatement to suggest that there is another period of 
irrational exuberance going on with these price swings and the 
volatility.
    So I think this just validates the fact that we need to 
act, Congress needs to act to fill this gap, specifically 
around Bitcoin, which I think clearly is a commodity. And, as I 
said to the Chairman, Ether as well. These are two of the 
largest tokens, making up approximately 60 to 70 percent of the 
whole market capitalization. In terms of implementation, with 
funding, I am confident we could use the bill and the 
framework--which I am very familiar with the FIT bill at this 
point--and the expertise we have at the agency to implement a 
regulatory structure within 12 months.
    Ms. Budzinski. Great, thank you. And I will yield back. 
Thanks.
    The Chairman. The gentlelady yields back now. I am now 
pleased to recognize the gentleman from Nebraska, Mr. Bacon, 
for 5 minutes.
    Mr. Bacon. Thank you, Mr. Chairman. I want to use this 
opportunity to yield to my friend from Oklahoma.
    The Chairman. The gentleman from Oklahoma is recognized.
    Mr. Lucas. Thank you, Mr. Chairman, and I thank my 
colleague from Nebraska.
    Chairman Behnam, thank you for appearing before the 
Agriculture Committee today. During our discussion when you 
were last before the Committee, the Basel Endgame proposal had 
not yet been proposed by the banking regulators. And since 
then, we have seen an overwhelming response to the negative 
consequences of the proposal, particularly to derivative end-
users. The proposal would have significant consequences for the 
health of the U.S. derivatives market and would make hedging 
more expensive for market participants like farmers and 
ranchers.
    I just had the chance to speak with the Federal Reserve 
Chairman, Mr. Powell, on this topic over at the Financial 
Services Committee, and Chairman Powell expressed that he was 
willing to give these concerns a closer look. Chairman Behnam, 
would you be willing to assist the Fed in taking a closer look? 
And has the CFTC been asked by the Fed board to offer feedback?
    Mr. Behnam. Thanks, Congressman. Certainly, we are willing. 
We have been quite active, me personally with my colleagues at 
the board level, but also staff at the staff level, to share 
some of these concerns around what I have sort of determined as 
the shifting market structure and environment, which is fewer 
FCMs, clearing brokers, less services for small ag and energy 
producers in Oklahoma and across the country, and making sure, 
as you remember well, after 2008 that we are incentivizing 
clearing. In order to have a healthy clearing environment, we 
need all the parts together, and we want to make sure that we 
are not creating unnecessary barriers to clearing and clearing 
services for end-users.
    Mr. Lucas. Congress has a long history of broad bipartisan 
support for not disadvantaging end-users, including in Dodd-
Frank, where I served on the conference committee. 
Unfortunately, the Fed is proposing to undermine the work done 
by Congress and this Committee and to cause disruption in the 
U.S. derivatives market that your agency regulates.
    I also had the opportunity to discuss with Chairman Powell 
how the proposal will disincentivize banks from offering 
clearing services. As you know, Chairman, in Dodd-Frank, 
Congress mandated central clearing as a way to reduce risk in 
the system. I know you have expressed concerns about the 
decline in the number of banks that can clear derivatives for 
end-users, which has made it harder for end-users to find a 
bank to offer the service. Chairman Powell also acknowledged 
this impact is something he is looking at in the Basel Endgame 
proposal. How do you see the proposal impacting the willingness 
of banks to clear derivatives for end-users? And will you 
commit to working with the Fed to fix this?
    Mr. Behnam. Congressman, the clearing business has very 
tight margins. And with low interest rates historically, I know 
that has changed over the past couple years and the costs 
related to clearing. There have been a number of clearing 
members that have left the business. I stated earlier to the 
Chairman, 20 years ago, we had 177 FCMs. Now, we are down to 
64. We have concentration in the top five clearing members, 
which are the largest banks, of over 60 percent of all customer 
money. So, as you point out from 2008 in Dodd-Frank, we need to 
incentivize clearing. Clearing is a risk-reducing function of 
the market, and I think we need to recognize that risk-
reduction function to ensure that we incentivize participants 
on the clearing side and then end-users from using these 
markets.
    Mr. Lucas. Mr. Chairman, at the same time that this is 
happening, the Securities Exchange Commission just finalized a 
rule in December that will increase clearing in Treasury 
markets. This will have a substantial impact on market access. 
Chairman Behnam, with the current shortage of firms available 
to provide clearing services to agriculture end-users, do you 
see this being an additional stress on the Treasury markets?
    Mr. Behnam. It is potentially an additional stress. We 
would have to see how the rollout of the SEC is implemented, a 
very different market, obviously, as you know, coming from the 
Financial Services Committee, but ultimately, we need a diverse 
pool of clearing members. And right now, we are seeing a 
concentration of clearing members in the largest banks. 
Historically, we have had non-bank clearing members. We have 
had other small FCMs servicing end-users, and we are just not 
seeing that population of clearing services like we did even 10 
years ago, let alone 20 years ago.
    Mr. Lucas. With my remaining time, I would just like to 
reiterate that the futures markets play an important role in 
price stability for consumers and businesses. And, Chairman 
Behnam, could you offer any final thoughts on the importance of 
protections in the Dodd-Frank Act for firms that use 
derivatives hedging?
    Mr. Behnam. Commercial end-users, as you noted, are very 
much prioritized in Dodd-Frank, creating exemptions in part to 
incentivize the use of markets, but ultimately to understand 
that commercial end-users typically do not present risk like a 
financial institution. And I think that treatment needs to 
remain the same as we think about policy going forward.
    Mr. Lucas. Thank you, Mr. Chairman. I yield back, Mr. 
Chairman.
    The Chairman. The gentleman yields back.
    I am now pleased to recognize the gentleman from Illinois, 
Mr. Jackson, for 5 minutes of questions.
    Mr. Jackson of Illinois. Thank you so much. I was delighted 
once again to have you and your participation. Thank you, Mr. 
Chairman.
    The concentration in banks, if you could further elaborate 
on the challenges that you can see that could be unintended 
that we should step in front of now to make sure there is 
sufficient liquidity in the market. Any thoughts, Mr. Chairman?
    Mr. Behnam. So, Congressman, thanks. It is an extremely 
important question because we think about policy and the shift 
towards clearing and the benefits of clearing which I am a huge 
advocate for, and we have seen the benefits of clearing and 
mitigating risk and neutralizing risks. But ultimately, over 
the past 15 years, nearly since Dodd-Frank, we have seen 
concentration. We have seen a reduction in clearing members, as 
I mentioned to Mr. Lucas. And ultimately, that puts a higher 
point of pressure on just a few large banks. And as we think 
about policy going forward, whether it is Basel III or the 
capital surcharge, I think this has to be a serious, 
intentional point of debate is to ensure that we are stopping 
this trend that has been going on for the better part of 20 
years.
    I don't think it is a surprise that we are seeing 
concentration in markets. We see them across different 
industries. But ultimately, we have to strike the right balance 
where we are seeing enough participants, especially in the 
clearing ecosystem, so that not only that risk isn't 
concentrated in just a few participants because if one or more 
were to fail, you can imagine the consequences would be dire 
for the financial system.
    But ultimately, it is for smaller constituents who use 
futures markets to manage risk. These larger institutions are 
not going to necessarily have an economic incentive to provide 
these services, these types of risk management services to 
smaller participants, and this is really who all of you serve 
and we serve. We want to make sure America's farmers, ranchers, 
energy producers have access to futures markets. That makes 
prices stable. That makes our economy strong for all consumers 
across the country.
    Mr. Jackson of Illinois. Once again, thank you for your 
candor, your consistency, and your clarity. I yield back. Thank 
you, Mr. Chairman.
    The Chairman. The gentleman yields back.
    I now recognize the gentleman from California, Mr. Duarte, 
for 5 minutes.
    Mr. Duarte. Thank you, Mr. Chairman. Thank you, Chairman, 
for being here to answer some questions.
    I am mainly interested in my questioning on the regulation 
of cryptocurrencies in the Chicago Board of Trade, and I also 
have concerns of regulating them in the SEC, which I may get to 
later, realizing that that is not really your responsibility.
    When a commodity is listed on the Chicago Board of Trade, 
what are the primary requirements for it to be eligible for 
listing?
    Mr. Behnam. Well, above all else, it needs to be a 
commodity. The definition of commodity is quite broad. And it 
is essentially in some respects a non-security. There are 
enumerated commodities, many of which this Committee knows that 
are physical commodities, but other types of commodities that 
could be services, rights, or interests. This is just a 
regurgitation of the statute.
    But ultimately, there has been a process that has been 
built over decades where the exchange--and in the case, you are 
using, the Chicago Board of Trade--looks at the statute, our 
statute and the regs, the implementing regulations of the law, 
and essentially complies with the requirements around listing a 
contract and providing specifications. And then----
    Mr. Duarte. Is there a document that underlies these 
qualifications like when Bitcoin or Ethereum were listed on the 
Chicago Board of Trade as derivatives? Were there documents 
that suggested what the criterion were and how they how they 
met those criterion?
    Mr. Behnam. In some respects, the Bitcoin or Ether listings 
on the futures exchange were no different than the steps that 
needed to be taken or have been taken to list an agricultural 
or energy futures contract. It really just starts with that 
definitional question is whether or not the product, the 
underlying product is a commodity. If you can answer that 
question in the affirmative, everything else kind of falls into 
place.
    Mr. Duarte. Do you take interest in, is it a broadly held 
commodity, is their transparent diversity of producers? Are 
there transparent diversity of buyers and sellers?
    Mr. Behnam. Yes. So from an exchange perspective, an 
exchange is never going to list a contract that it knows will 
not succeed, so they want to make sure they have a sufficient 
amount of buyers and sellers and that the contract will succeed 
in that respect.
    Mr. Duarte. Have there been commodities that failed to be 
qualified for listing on the exchange?
    Mr. Behnam. I don't think we would have ever gotten to a 
point where it would have been listed if there was a question 
about the definitional structure of the underlying product. We 
would largely answer that question in the affirmative with 
confidence before the exchange self-certifies or it seeks 
approval from the agency to list a contract.
    Mr. Duarte. So with Bitcoin, Ethereum, these 
cryptocurrencies, what is it that is being sold? What is it 
that it meets the essence of a commodity, a physical commodity, 
or like an interest rate swap derivative that has a real-world 
business purpose? What is it at the end of the day that 
qualifies these things to be sold as something other than 
Beanie Babies, pop-tops, baseball cards?
    Mr. Behnam. So in the cash market, in the underlying 
market, which is what I take your question to be really the 
interpretation of what it is, is less a physical commodity, 
which are enumerated in the statute, whether it is corn, 
soybeans, or a metal--gold, silver--or an energy product like 
natural gas or fuel. It is mostly used in the counter, the 
negative, it is not a security. And if it is not a security, 
then it is a commodity, in which case, the analysis has to take 
place to make a determination that it is not a security, which 
is frequently the Howey test, whether it is an investment 
contract. If you can't answer that question in the affirmative, 
that it is not a security, then it becomes a commodity.
    Mr. Duarte. So anything that seeks to get on the Chicago 
Board of Trade that can't be categorized as a security, meaning 
maybe it is a common stock that has dividends, earnings per 
share, forward-looking statements, a board, a management team 
book value.
    Mr. Behnam. Yes.
    Mr. Duarte. Anything that doesn't meet the qualifications 
of a security can be listed on the Chicago Board of Trade 
simply because it is not a security?
    Mr. Behnam. So differentiating a Beanie Baby from the 
company that produces Beanie Babies and has a board of 
directors and an executive team and et cetera, like that share 
of the company that it is used to invest or to raise capital is 
a security, but the actual product itself, in this case, the 
Beanie Baby is likely a commodity.
    Mr. Duarte. Yes.
    So our current legislation to regulate cryptocurrencies 
begins with the cryptocurrencies being traded as commodities, 
but then elevates the currencies themselves, not the company, 
which you just elaborated very clearly, to be traded as a 
security. How is a cryptocurrency in your mind, realizing that 
you are a commodities guy, ever going to meet the standards of 
a security?
    Mr. Behnam. So you can imagine that there are 
cryptocurrencies, and this happened certainly 4 or 5 years ago. 
We will see if it starts again, highly unlikely, where a group 
of individuals tries to raise money, and in exchange for 
raising fiat, capital, whether it is dollars or some non-U.S. 
currency, issues a token, a cryptocurrency, as opposed to a 
traditional share of stock, which we are accustomed to in 
traditional equity markets. It is in that situation where that 
group of individuals would raise money and use that money to 
develop some sort of software or protocol that you could 
interpret that token to be a security.
    Mr. Duarte. But it has no share issuance.
    It has no board of directors. It has no management team. It 
has no earnings per share. It has no book value. It is simply a 
broadly traded issuance of crypto. It really doesn't match any 
of the tools available to the SEC to regulate forward-looking 
statements, insider trading. There are a lot of gaps, in my 
opinion, both on the commodities exchange, as well as the SEC, 
to treat cryptocurrencies as either commodities or securities. 
And I think we are shoehorning here to try and fit them into 
regulatory schemes and give them credibility that they don't 
deserve.
    Mr. Behnam. Congressman, I don't disagree with you on the 
former part, that we are shoehorning to an extent. I think 
there are some points which are more clear than others. But 
given the nature of the technology and what I have observed 
over 7 years at the CFTC, it demands legislative change. I 
would disagree with you in part on the second part of your 
comment. Legitimacy is neither here nor there from my 
perspective as a regulator. What I have observed is a market 
evolve, develop, and see extreme amounts of adoption by retail 
investors. And I have a responsibility to protect those 
investors, and I need the tools to do that.
    Mr. Duarte. Well, protecting the investors is accomplished 
by giving credibility in a regulatory scheme that has failed in 
many ways to provide investor protection.
    Mr. Behnam. Well, I mean, we can look at the history of 
Bitcoin right now and where we are today, and the fact of the 
matter is there are investors who continue to want exposure, 
both institutional and retail, to Bitcoin. So for me to step 
back and say I don't want to legitimize it, that is an option, 
but ultimately, people are going to get hurt. They are going to 
lose money. And I feel like I need to use the tools I have----
    Mr. Duarte. Well, there is nothing ``there'' that is going 
to cause people to lose money.
    The Chairman. The gentleman's time has expired.
    Mr. Behnam. That is a subjective----
    Mr. Duarte. Thank you, Mr. Chairman. You have been very 
generous.
    Mr. Behnam. Thanks.
    The Chairman. The gentleman's time has expired. I now 
recognize the gentleman from South Dakota, Mr. Johnson, for 5 
minutes.
    Mr. Johnson. Thank you, sir. First off, Mr. Chairman, I 
would observe that you have exhibited great leadership over the 
course of the last year, as we have really been trying together 
on a bipartisan basis to plug these gaps that you and Mr. 
Duarte were talking about. We do need to plug those gaps. We do 
need to fill this in, so thanks for your leadership there.
    Number two, I grew interested in Mr. Mann's line of 
questioning, and I want to make sure I understand this. Your 
managers are in 2 days a week in the office?
    Mr. Behnam. The layer of management, which is about 180 
people, are in 2 days a week.
    Mr. Johnson. And so below that, not the 170 managers but 
the others of the 700 workers, what is the average number of 
days that they are physically in the office?
    Mr. Behnam. I mean, if I were to have to take the average 
of about 500 people, it would probably be less than a single 
day across the board. Some do come in, but very few come in at 
all.
    Mr. Johnson. You mentioned negotiating with the union. 
Presumably, the previous contract did not lay out any right to 
remote work days, did it?
    Mr. Behnam. So we actually, prior to COVID, had a scheme 
which allowed staff, the union representatives, the union staff 
to work remotely 2 days per week, but they had to be in the 
office 3 days a week.
    Mr. Johnson. I mean, the national health emergency is over. 
Why doesn't that framework apply today?
    Mr. Behnam. So a good question, but one, when we went into 
full telework posture at the start of COVID, the negotiation 
and the contract had to essentially be rewritten such that 
there were certain rights afforded the union members when we 
went into full telework posture. In order to return to either 
status quo or something where the staff were coming in, we 
would again have to--we are renegotiating the existing posture.
    Mr. Johnson. Well, Mr. Chairman, I understand your desire 
to move in a deliberate and long-term, focused fashion. I would 
just mention to the bargaining unit, they are absolutely behind 
the times. I mean, I observe a CNBC article that notes that 90 
percent of companies say they will return to the office by the 
end of this year. That article outlines the negative impacts on 
productivity, collaboration, and employee engagement. And then 
the Society for Human Resource Managers on their website, they 
observed that 63 percent of CEOs predict a full return to in-
office work. And, Mr. Chairman, I would ask unanimous consent 
to submit for the record both the CNBC analysis, as well as 
that from SHRM.
    The Chairman. Without objection.
    [The articles referred to are located on p. 55.]
    Mr. Johnson. So I would just keep doing what you are doing. 
Let's get people back in the office. Again, the literature is 
becoming increasingly clear about the benefits of in-person 
interaction.
    And then we have talked a little bit about the importance 
of these derivative markets to provide risk management tools 
and strategies for American producers, as well as other market 
participants. As you look out, say, 3 or 5 years, sir, what 
changes might evolve in the marketplace that would require 
additional or new efforts from you all to make sure that we are 
providing that market predictability and safety?
    Mr. Behnam. Congressman, thanks for the question. What I 
have seen and observed--and I made this briefly--this note in 
my opening statement--it is interesting to look back 20 years, 
30 years, and how some technological changes move traders off 
of floors and onto desks across the country and the globe 
trading electronically. And then we had different variations of 
trading techniques that used high-frequency trading, and now we 
are certainly moving towards artificial intelligence and 
programmable trading, which I am sure has been around for 
years.
    But then what we are seeing also is structures changing. 
And I mentioned this in my statement where the traditional--the 
Commodity Exchange Act is built around unique structures, 
right, an introducing broker, associated person, a futures 
commission merchant, an exchange, a DCM, a clearinghouse, a 
DCO. And we are seeing that compressed, and we are seeing it 
compressed because of technology. This was an issue we had to 
deal with FTX a couple years ago, and we had the hearing where 
they wanted to do non-intermediated leveraged trading, huge 
amounts of risk and something we had to think about.
    But ultimately, and as I have said to this Committee 
before, we are going to continue to see these new market 
structures and models be presented to the Commission. And I 
have said this, that the statute doesn't contemplate these 
things clearly, both from the benefit side and the risk side, 
because every time you take out one of those layers, whether it 
is the FCM, the introducing broker, the associated person, the 
exchange itself if you have a direct clearing model, you are 
taking away some benefit. You are reducing friction, so you 
might have a quicker executed trade, but if you are taking away 
an FCM, you are taking away disclosures, customer segregation, 
other components.
    So as I look to the future, and I would hope you as chair 
of the Subcommittee think into the future, we want to preserve 
our preeminence from a markets perspective. We are seeing 
changes in the market structure, and we have to be very 
deliberate collectively about what we want to see in the 
future. And I am not suggesting this is what we want. I am just 
suggesting that the statute doesn't contemplate it. So we are 
seeing a number of new applications saying we want to do it 
this way; CFTC, approve us. And we are being very cautious. We 
are being very deliberative. But there are enough gaps in the 
statute where it is not clear that we have to do things the 
old-fashioned way, so to speak.
    Mr. Johnson. Thank you, sir. One more quick comment, Mr. 
Chairman. As we move toward Fiscal Year 2025 appropriations, I 
will have, as one of my factors for consideration for each 
agency, whether or not they have returned to the office in a 
way that best serves the American people. And I would just ask 
my colleagues to be willing to do the same.
    With that, I yield back.
    The Chairman. The gentleman yields.
    I am now pleased to recognize the gentlelady from 
Connecticut, Congresswoman Hayes, for 5 minutes.
    Mrs. Hayes. Thank you. Thank you, Chairman Behnam, for 
being here today. And I apologize for being in and out. I 
promise, it is not you, it is me. We have multiple hearings 
going on, so please excuse me.
    The Commodity Futures Trading Commission is tasked with 
overseeing futures and swap markets, in addition to the 
emerging digital asset market. Going after fraud and penalizing 
bad actors is a crucial part of keeping markets stable and 
protecting the financial well-being of Americans. The Office of 
Customer Education and Outreach at the CFTC is responsible for 
identifying fraud trends, producing educational content, and 
public engagement on a range of issues. Administrative costs 
for the OCEO are funded by the Customer Protection Fund, which 
receives money from CFTC's enforcement actions. The Customer 
Protection Fund can only receive additional funds if its 
balance falls below $100 million, and must also grant awards 
through the whistleblower program.
    My question for you today, Chairman Behnam, is how much 
money from the customer protection funds goes to the 
whistleblower program and the OCEO respectively?
    Mr. Behnam. Congresswoman, thank you for the question. An 
extremely important program, one that has been extremely 
successful over the years since Dodd-Frank and I think has 
served customers and Americans quite well. The budget is 
relatively small compared to the number you just stated, the 
$100 million. The legislative language from 2008 
unintentionally sort of crafted a little bit of a loophole, 
which we are trying to fix. And I know Congress has been vocal 
and sort of active in trying to fix it. But ultimately, it is 
just a couple million dollars that we are using for a number of 
staff which we are growing up. We have also just appointed a 
new OCEO director, which we are very proud of and very excited 
about. So this has been a priority of mine to build out that 
office as much as possible, increase that budget because it 
does come from the Customer Protection Fund, and ultimately, 
provide as much education and awareness to Americans across the 
board.
    There are some legal limitations to what we can do with the 
fund and how we use it. We can't give legal advice, obviously, 
but we want to just get as much information out about the risks 
of our markets and some of these scams that folks are seeing on 
the internet and other digital means.
    Mrs. Hayes. Yes, thank you. Trust me, I am from 
Connecticut, and every time I run into Senator Dodd, this is 
the conversation. In 2020, the Government Accountability Office 
found that in the event the Consumer Protection Fund has 
insufficient funds to cover the whistleblower program or the 
OCEO, staff must be furloughed until it can be sufficiently 
replenished. This would mean that CFTC's efforts like recent 
advisories on online romance fraud and artificial intelligence 
scams would not move forward.
    In your testimony, you pointed out the need for a 
legislative fix to address permitted uses of the Customer 
Protection Fund by the Office of Customer Education and 
Outreach. Can you tell us, how are education outreach funds 
limited by current law? And what specific changes would you 
recommend that Congress enact to improve the work of the Office 
of Customer Education and Outreach? And what would your agency 
be able to accomplish with greater flexibility over the 
Customer Protection Fund?
    Mr. Behnam. Thanks, Congresswoman. Certainly, the fix, 
which you mentioned, is the number one priority because we have 
had--it is the success of the program which has been its 
Achilles heel, which is great to say, but also painful because 
we, over the past couple years, have issued such large awards 
to whistleblowers that it has immediately drained the fund 
before it could be replenished with new enforcement fees. So we 
would just need to make a small fix to ensure that there is 
always money there so, as you pointed out, no staff are 
furloughed, going forward.
    And you also point out a very important--a second point 
about the limitations of who we can go out to and how we can 
use these funds to provide advisories, to provide guidance, and 
to provide information to customers. We have been working with 
your Committee staff to make some very discrete technical 
changes to the statute so that it could expand the scope of who 
we can talk to and how we can use the funds in a broader, more 
comprehensive way. I think it is going to benefit everyone.
    And, as you know, as you mentioned earlier, we are just 
seeing so many different venues for information to get out to 
consumers internationally, domestically, and it is unfortunate, 
whether it is crypto or traditional markets, a scam is a scam, 
and the scammers are out there, and they continue to use 
digital and other means to steal money.
    Mrs. Hayes. Well, thank you. And I appreciate your 
testimony today. And I think another important point to make is 
that even the most well-meaning legislation, when we find out 
that there are unintended consequences of that legislation, we 
have a responsibility to come back to the table and work 
together to close those loopholes and fix those things so that 
we are doing the best that we can for the Americans that we 
represent.
    So again, thank you for your testimony today, and I yield 
back.
    The Chairman. The gentlelady yields back. I am now pleased 
to recognize gentleman from Missouri, Mr. Alford, for 5 
minutes.
    Mr. Alford. Thank you, Mr. Chairman. How are you doing?
    Mr. Behnam. I am fine. Thank you.
    Mr. Alford. You holding up all right? You are almost done.
    Mr. Behnam. Just fine.
    Mr. Alford. I am Mark Alford. I am from Missouri, just 
south of Kansas City. I hate to beat a dead horse, but I am 
going to talk about showing up at work. I just left--I am on 
Small Business as well, and we were talking with two members of 
the GAO there about this very issue. One of the first things I 
did, Mr. Chairman, when I came here--and I am new to Congress--
I wanted to visit the agencies that we had oversight over, not 
to go in there and stir up trouble or cause trouble. I wanted 
to meet people. I want to see what they--I wanted to feel the 
dynamics of what they were doing so when they come to testify, 
we have a relationship, and we can work together for the 
American people because I feel like that is very important. I 
don't care what party you are from. We have to work together 
for the American people.
    I was denied, our staff, repeatedly denied from entering 
the USDA, which has 2 million square feet, just a beautiful 
building down there. I can't get in. We were denied getting in 
the Small Business Administration. I have been to the Pentagon. 
I am on the Armed Services Committee. I have heard stories of 
others being denied entry to the Veterans Administration, and 
yet we have oversight of these agencies.
    So we filed the Congressional Access and Bureaucratic 
Offices Act, the CABO, to force these administrators to let us 
in the building. After we filed that, we finally got into the 
Small Business Administration. It is very discouraging because 
I have heard some of your testimony in between running around 
here. I know that you want to get the workers back to work. How 
many days a week are you actually at the office?
    Mr. Behnam. So I travel a bit, and I live in Baltimore, but 
I do come into the office, I would say, 3 to 4 days a week 
minimum, and then sometimes it is 5.
    Mr. Alford. But if you are in town you are at your desk, 
right?
    Mr. Behnam. Yes.
    Mr. Alford. Why? Why? Why is it important to come in to see 
the people you lead or work with?
    Mr. Behnam. Well, one, I feel a sense of responsibility to 
the lead and set an example. But, two, some of my team is 
behind me. I have about six people on my direct team. I have a 
leadership team of 15 people. And just a quick anecdote, 10 
seconds, 15 seconds, one of my directors, we periodically chat 
on the phone, whatever is most convenient. But she came into my 
office a few weeks ago, and we had our weekly 30 minute 
meeting. And we talked business, we talked about issues, but we 
also just caught up on personal matters----
    Mr. Alford. You can't do that over the phone----
    Mr. Behnam. You can't do that over the phone.
    Mr. Alford.--over Zoom----
    Mr. Behnam. That was a different experience for me that I 
had felt in 4 years.
    Mr. Alford. GSA just worked out a new lease in Kansas City 
for a building there in Crown Center. Have you been there? Are 
you familiar with that for your offices?
    Mr. Behnam. And I am not familiar yet.
    Mr. Alford. Okay.
    Mr. Behnam. Yes.
    Mr. Alford. My understanding is there is a lease that has 
already been worked out or being worked out for more office 
space in Kansas City.
    Mr. Behnam. In Kansas City, yes----
    Mr. Alford. Correct.
    Mr. Behnam.--for us?
    Mr. Alford. Yes.
    Mr. Behnam. We have been in that space for a couple of 
years at this point.
    Mr. Alford. So this is a lease renewal. Do you know how 
many square feet are there?
    Mr. Behnam. In the Kansas City space? I could check, but 
what I do know is we have reduced our footprint by about 50 
percent from our previous space. So we have been in that 
space----
    Mr. Alford. Is that because people are phoning in to go to 
work or is that----
    Mr. Behnam. No, there is a little bit of a history to this, 
but we were independent--we were leasing independently from 
private, commercial landowners or commercial property owners. 
And then over the course of the past, I would say, 10 years, 
there has been a transition to GSA space. And transitioning to 
GSA space has a number of requirements in terms of square 
footage per employee, and that ultimately reduced our footprint 
by 50 percent.
    Mr. Alford. Right. But bottom line is, I would think you 
would agree, it sounds like you do, we have to get Federal 
workers back in the office. It is going to lead to greater 
productivity for the American people. You would not believe how 
many calls we get a day in our Congressional office from people 
desperate to get money back, to get services from the Federal 
Government, but people aren't picking up the phones. People are 
not helping our constituents in the 4th Congressional District.
    And look, I don't mind our staff helping. We helped over 
800 people so far since we have been in office and have helped 
return more than $1 million that are rightfully due to 
taxpayers, but they shouldn't have to be coming to us. They 
need to be calling the agencies. And I appreciate your 
willingness to do something about it. Thank you for being here, 
sir.
    Mr. Behnam. Thank you.
    Mr. Alford. With that, I yield back.
    The Chairman. The gentleman yields back.
    I am now pleased to recognize gentleman from North 
Carolina, Mr. Davis, for 5 minutes.
    Mr. Davis of North Carolina. Thank you. Mr. Chairman, thank 
you for being with us today and coming to share.
    My first question, how is the CFTC utilizing tools and 
strategies to identify and prevent potential price manipulation 
in the futures markets and particularly concerning agricultural 
commodities to protect farmers and agriculture investors?
    Mr. Behnam. Congressman, thanks for the question. It really 
is core to what we do at the agency. We work closely with the 
exchanges. We have a regulatory structure that has been built 
out over decades based on the statute, the law that Congress 
has written to ensure that contracts, whether agricultural or 
energy or otherwise, are free from fraud and manipulation.
    We have a very well-built-out surveillance team and 
surveillance experts, market experts that are constantly 
monitoring markets and movements of markets. We are analyzing 
anomalous trading activity. We are looking at data that we 
collect. We work closely with our SRO, the National Futures 
Association and, like I said, the exchanges to ensure markets 
are functioning as intended and that supply and demand 
discovery is happening as it should.
    Mr. Davis of North Carolina. And can you discuss the 
effects of Russian sanctions and how conflicts in the Middle 
East and Ukraine are having on U.S. commodity prices, 
especially agriculture ones?
    Mr. Behnam. Congressman, thank you. It has been an 
interesting period obviously over the past couple years 
observing some of the changes in commodity markets. I would say 
first to your point about sanctions, we work closely with 
Treasury going back to 2022 and the initial invasion such that 
we were identifying any individuals or organizations that were 
on the sanctions list, and we took appropriate steps to ensure 
that their market access was eliminated prior to the sanctions 
coming in and as they did.
    In terms of market prices, I would say the market responded 
to the anticipation of an invasion by Russia against Ukraine 
with huge price spikes across the agricultural complex and the 
energy complex, so natural gas, oil, and then most notably 
wheat, but also soybeans, and corn. Ultimately, I would say 
production from North America and also South America and some 
of the access that was permitted through the Black Sea, 
allowing Ukraine to export a number of commodity products, 
really did not have as much of an impact as we anticipated. 
Prices have come down pretty significantly from their highs 
across all complexes. And we have seen relative stability. Same 
with the Red Sea issues. We saw some minor bumps in prices, 
most notably across the energy complex, less the agricultural 
complex.
    But I would say a statistic, which I am sure you have read, 
the U.S. is producing over 13 million barrels of oil a day, so 
a lot of the concerns that might have existed a few decades 
ago, not as much because the concentration and production has 
been spread out across the globe. And certainly the U.S. has a 
level of energy independence which allows these prices across 
the energy complex to be relatively stable. We have seen a huge 
dip in natural gas because the weather has been a bit warmer, 
and also production remains at relatively all-time highs.
    Mr. Davis of North Carolina. And, Mr. Chairman, as a 
sponsor of the CFTC Agricultural Advisory Committee, which is a 
vehicle to get input from the agriculture community on the 
market issues and concerns, how can the Commission's 
Agricultural Advisory Committee be used as a vehicle to hear 
and address the concerns in particular of local rule farming 
communities, especially like eastern North Carolina?
    Mr. Behnam. Congressman, thanks for the question. It is a 
great privilege to sponsor that Committee and one that I take 
very seriously, I have been engaged with for a number of years. 
And ultimately, it is the ability--not unlike you going back to 
your home district and talking to constituents, it is my 
ability to talk to producers, to talk to some trade 
organizations and representatives across the country and see 
what they are feeling and see what they are seeing in markets 
and also some of the challenges that they are facing in terms 
of production, whether it is livestock, or whether it is corn 
and soybeans, wheat, or other physical commodities.
    And from those engagements, we had three meetings last 
year, some hybrid, some in D.C., we are going to meet again in 
Kansas City next month, it is the consistent engagement which 
allows us and me personally as sponsor to reflect on what they 
are seeing and what we could be doing to better regulate 
markets, but also to better facilitate access to markets for 
them and ensuring that they feel that they have fair access to 
markets at a cost-effective way.
    I say this often, the history--we are entering the 50th 
anniversary of the CFTC this year and next, and we should all 
remember very carefully that CFTC was a part of USDA. And we 
were reauthorized just like the farm bill every 5 years, and we 
are just one toolkit in a toolbox, just like a commodity 
program or conservation or crop insurance. And it is one of the 
big responsibilities I feel to make sure that futures markets 
remain accessible, fairly priced, and fair and free from fraud 
and manipulation so farmers and ranchers can use them to manage 
risk.
    Mr. Davis of North Carolina. Thank you. Mr. Chairman, I 
yield back.
    The Chairman. I thank the gentleman. I now recognize the 
gentleman from New York, Mr. Langworthy, for 5 minutes.
    Mr. Langworthy. Thank you very much, Mr. Chairman.
    Chairman Behnam, as you know, global commodity markets play 
a pivotal role in risk management strategies of both our 
agricultural and energy sectors. My district in western New 
York and the southern tier of New York along the Pennsylvania 
line produces a diverse array of agricultural products, 
including maple syrup, grapes, and dairy. Specifically within 
our dairy industry, they are reliant on the well-functioning 
agricultural derivative markets that the CFTC regulates to 
hedge the commercial risks inherent to dairy production, 
processing, and marketing.
    As crucial as it is that the Commission focuses on emerging 
issues and new technologies such as digital assets and 
cybersecurity, I just want to emphasize the importance of your 
work in ensuring the integrity of the more traditional 
commodity markets our agricultural producers and processors 
rely on for risk management purposes as they form the bedrock 
for these economic activities.
    And with that, Chairman Behnam, as you may have seen, the 
crypto market cap recently surpassed $2.5 trillion. And while 
this milestone has been great for some, the U.S. continues to 
cede more jobs and leadership in this sector. And in fact, many 
market participants say that the lack of regulatory framework 
in the U.S. is driving these developers overseas. How can we 
reverse this trend in Congress? And what can the CFTC do 
alongside other agencies to ensure that the U.S. retains a 
high-quality workforce in this innovative and emerging sector?
    Mr. Behnam. Thanks, Congressman. To your first point, I 
just want to emphasize and make sure that you understand our 
traditional markets are the number one priority for me and for 
the agency, whether it is dairy or grains or energy products. 
We understand these markets well. We have for a number of 
decades, and it continues to be a priority, despite, I think--
to the second part of your question, a lot of news these days 
about the CFTC is more around digital assets, but we can walk 
and chew gum at the same time. We do quite well, and we are 
always happy to help you and your constituents around dairy or 
other commodity markets.
    On the latter question, I think the number one thing that 
we can do--it is something I have said for a number of years, I 
have said it earlier today--we need to move on legislation to 
fill gaps. I focus very much on the regulatory side. Obviously, 
you have a responsibility to your constituents in the industry 
as it relates to innovation and moving the industry forward. I 
have heard anecdotally the stories that you recited around 
business going offshore because there is a lack of clarity in 
the U.S., and there is really no demand or desire to have this 
technology rooted here in the U.S. Regardless of my opinion on 
that--and I just don't think that is necessarily my 
responsibility as chair of the agency--I think regulation and 
clear regulation is a component of that.
    In order to run a business, whether you are running a dairy 
or a startup that has VC capital, you need regulatory certainty 
at the state level and the Federal level. And certainly, I 
think there is some ambiguity and uncertainty around rules, 
laws, and regulations, putting aside desire, and what impact 
some may or may not have on how these businesses should run.
    And with that, some, in fact, do go overseas because there 
has been a number of jurisdictions--and I can say this with 
certainty, having been in this role as chair for 3 years now--
that when I first started this job in January of 2021, there 
were a number of jurisdictions in Europe and Asia, in the 
Middle East that really were not very necessarily far along in 
terms of rulemaking or policy around digital assets. That has 
changed. That has changed quite significantly in 3 years. And I 
can say, Europe, the UK, the Middle East, Asia, if they have 
not already finalized regulatory structures or policies, they 
are near that. So I do think it is important as the U.S. that 
we move forward on policy to ensure that certainty for market 
participants.
    Mr. Langworthy. Thank you. I understand that the CFTC is 
seeing a significant increase in the interest in the 
disintermediated clearing where a market participant no longer 
has to use the services of a futures commission merchant to 
trade on an exchange or have that trade cleared in a 
clearinghouse. Could you explain the traditional brokerage 
exchange clearing model and alternatives being considered by 
the industry? And could you also share your perspectives on 
these novel approaches and whether the agency will address them 
via rulemaking?
    Mr. Behnam. Thanks, Congressman. So traditionally--and I 
think this is a part and sort of a product of technology in the 
history of markets being physically present on a trading floor 
where you had a commercial end-user, say, a dairy producer in 
western New York who phoned in an order to the Chicago Board of 
Trade that had to go through a clearing broker, an executing 
broker, which then was transacted on an exchange and then 
cleared at a clearinghouse. That was sort of the trade cycle 
historically, and by and large, it still is the trade cycle. So 
much of it is technological at this point, as opposed to having 
floor traders.
    Over the past 15 or 20 years, we have seen an emergence of 
a direct clearing model where you remove that broker phase. We 
have had a number of direct clearing models approved going back 
10 or 15 years, but we have seen a little bit of a kick up in 
that in the past, I would say, 2 to 4 years. And I think this 
is really a product of technology where you can look at that 
trade cycle--the broker, the exchange, the clearinghouse--as 
points of friction where if you can remove one of the points of 
friction, you have more direct, quicker execution of the trade. 
That could be the perceived benefit. The perceived risk is that 
broker, that layer provides protections. It provides 
protections for customers. It provides disclosures for 
customers. It is in fact a barrier that provides market 
integrity.
    So as we continue to see these applications for non-
intermediation or direct clearing, I think it is important 
collectively, both as this Committee and the agency, to think 
very hard and deliberately about the models, whether or not, 
quite frankly, we want to see them emerge as a new market 
structure, but if in fact they continue to emerge, what are 
those benefits from the traditional historical model, and can 
we extract those in the newer models that have these fewer 
barriers?
    There is potentially a way. I feel like when we do these 
models at the agency, we are very deliberate, we are very 
intentional, we are very cautious, but we also want to preserve 
all of these benefits and components that have made our markets 
the strongest and customer money and customer protections the 
most important in the world.
    Mr. Langworthy. Thank you very much.
    The Chairman. The gentleman's time has expired.
    I am now pleased to recognize gentleman from Florida, Mr. 
Soto, for 5 minutes.
    Mr. Soto. Thank you, Mr. Chairman.
    Chairman Behnam, thank you for being here. I know it has 
been a long day for you, and we are very grateful for your work 
to help continue to have stabilization of commodities and 
investments.
    Lowering food prices, or at least stabilizing them, is a 
key priority for our Committee as we go through with the farm 
bill. We saw during the pandemic supply chains were rattled, 
and then Ukraine war affected everything from wheat to 
fertilizer and others. How can you as CFTC Chairman and with 
policies that you all work with ensure that commodity 
investments are helping play a role to stabilize and perhaps 
even grant more efficiencies to help stabilize and/or lower 
food prices?
    Mr. Behnam. Congressman, thanks for the question. This goes 
to what I was saying earlier, that we have to collectively 
ensure that futures markets remain vibrant, healthy, and 
liquid. And that means we have to potentially lower the cost of 
entry, not compromising on protections and regulatory 
structures, but ensuring that the ecosystem is healthy. I 
mentioned earlier that we have seen a significant reduction in 
clearing members over the past 20 years. That is never good. 
Concentration in large banking institutions creates risk, but 
it also eliminates access for some small producers, energy or 
agricultural in Florida or across the country.
    So we need that diverse pool of market participants so that 
the ecosystem is healthy and that farmers and ranchers can feel 
that futures markets are accessible, that they are fair, that 
they are reflective of price discovery, essentially supply and 
demand, and that when they enter thinking about a soybean and 
corn farmer, that they enter planting season just around this 
time of year, that they can hedge on the Chicago Board of Trade 
and know that that hedge will be held through the season and 
harvest, and whatever risks come between now and then in the 
cash market, whether it is weather, geopolitics, or trade, that 
hedge is going to protect that instability by giving them the 
price they need so that they can maintain their mortgage, their 
equipment, their seed, their feed, and everything else that 
goes into operating a large production facility.
    Mr. Soto. So our commodities exchange continues to allow 
for more stability and long-term planning for our growers, our 
ranchers, our farmers, very key. We welcome a continued 
partnership with this Committee to continue to address 
stability and lowering food prices where we are able to.
    Turning to the FIT Act, I know we had some great 
discussions. I appreciate you being generous with your time 
meeting with me. How critical is it to your mission should the 
Congress pass the FIT Act and provide you all as the primary 
regulator of cryptocurrency for the $120 million in funding to 
allow you to be able to do this job?
    Mr. Behnam. Thanks, Congressman. It is critical in order 
for us to appropriately, as intended by this Committee, to 
implement that bill, having the resources to hire up where 
appropriate and where needed, but also to build the hardware 
and the software infrastructure that needs to essentially 
develop the foundation of a regulatory framework is critical.
    This is a whole new market. I have mentioned this in my 
statement. Forty-nine percent of our enforcement docket last 
year was crypto-related, and I said this. It is a staggering 
statistic that a market we don't directly regulate is taking up 
half of our enforcement docket. And it is not just the Division 
of Enforcement resources that are consumed. We need the experts 
from the different divisions to build a case.
    So we are continuing to see the growth of the market. We 
are obviously seeing a bit of a surge in price and a renewed 
optimism by retail investors, which can be a very cautionary 
tale about crypto. And I think it really validates what work 
this Committee has done over the past couple of years, that we 
need a regulatory structure. This is not about legitimizing the 
technology. This is about protecting Americans and protecting 
investors. Whether or not they want to invest in it in the 
future is their choice, but the fact of the matter is the 
technology is here, and we need to protect investors and 
protect the American economy.
    Mr. Soto. Sure. In central Florida, we are seeing folks 
utilize cryptocurrency for remittances. It has helped stabilize 
certain economies when the fiat has collapsed like in Venezuela 
and Ukraine. And also we do a lot of international transactions 
because a lot of folks come to our world-class theme park. So 
this is something we are following closely. And, the fact that 
you spent--having spent almost 50 percent of your budget when 
the commodities market is such a more mature, larger market, 
tells me--it screams to Congress needing to act on this to 
finally establish jurisdiction and rules of the road. So we 
welcome that continued partnership, Chairman Behnam, and thank 
you for being here today.
    And I yield back.
    The Chairman. The gentleman yields back.
    I now recognize the gentleman from North Carolina, Mr. 
Rouzer for 5 minutes.
    Mr. Rouzer. Thank you, Mr. Chairman. Chairman Behnam, thank 
you so much for being here.
    Based on the CFTC's January request for comment on the use 
of artificial intelligence in CFTC-regulated markets, the 
Commission recognizes the need, obviously, to proactively 
explore current and potential uses and risks of AI 
technologies. Rapid development and new platforms and 
technologies can expose our financial systems to vulnerability 
and bad actors that want to weaponize them. The U.S. is the 
proving ground of these new technologies, but rapid adoption 
could result in extreme market changes.
    In the commodity space, this obviously presents a challenge 
to the industries that lean on the CFTC to create a regulatory 
environment that seeks to maintain stability and prices and 
market conditions. Personally, I believe it is imperative that 
we bring regulators and the regulated entities utilizing these 
technologies together to develop a sound regulatory framework 
going forward.
    Last year, the United Kingdom's Financial Conduct Authority 
permanently launched the Digital Sandbox, a testing environment 
to allow firms to test their products on protected data assets 
while removing market risk.
    So my question is, could the CFTC pursue something similar 
to develop innovative ways to combat illicit activity by 
partnering with the private-sector to better understand the 
benefits and risks of AI, protecting the market, and harnessing 
their experience, just your general thoughts on that?
    Mr. Behnam. Congressman, thanks for the question, extremely 
important. I would say a few things. By nature of issuing the 
request for information, we are trying to engage, right? We are 
trying to collect information before we act. I personally as 
chair am not predetermining any conclusions about what role AI 
may or may not have in our markets, but it clearly is an issue 
we have to address and attack aggressively so that we get ahead 
of it, whether it is on the risk side or the opportunity side.
    We have an Office of Technology Innovation, which has been 
evolving over a number of years. It was first started as 
LabCFTC. It is now the OTI. And we staff it with individuals 
who are both intellectually curious, and willing to engage with 
the industry and learn what is happening in the sort of 
financial market ecosystem so that we can be better prepared 
from a regulatory or policy perspective.
    So we are doing what we can with what we have. The sandbox 
issue you raise that the UK has done, something that I know my 
predecessors have thought about, I have thought about, there 
are legal limitations to us being able to provide a sandbox 
environment for stakeholders. So if that is a priority of 
yours, you might want to consider it legislatively. But we do 
have limitations legally to provide a sandbox where, 
essentially, as you know, you would be protected from certain 
regulatory actions. But we are seeing a lot of change because 
of technology, and we are doing what we can with what we have 
both legally and personnel-wise to make sure we are engaging as 
much as possible and getting ahead of this very rapidly moving 
curve.
    Mr. Rouzer. Yes, I would love to get those legal 
impediments, if your team can provide that list to give us some 
guidance on that so we could explore.\1\
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    \1\ Editor's note: the information referred to is located on p. 62.
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    One other quick item, I am also interested in knowing your 
general view regarding the legality of election event contracts 
under the CEA and Commission regulations. Do you believe that 
all election event contracts constitute gaming and are 
therefore prohibited from being listed on the exchange? What is 
your general view on that?
    Mr. Behnam. Thanks, Congressman. So, as you know, we have a 
number of litigation matters that are active right now so I 
want to be careful with what I say. But this is an issue that 
derives from section 5 of our statute where you have a 
prohibition on contracts that involve gaming and anything that 
is against state or Federal law and against the public 
interest, among other things. So it has been the Commission's 
position most recently, which I know is contrary to some in 
this sort of industry, that a political election contract or 
event contract is against both the provisions against gaming 
and state law specifically.
    But because of this disagreement, and I think some 
confusion, not on my end, but just general confusion from the 
stakeholder community, I decided a few years ago to further 
define and clarify the existing rules that are derived from the 
law so that there is, to the extent we can provide, 100 percent 
certainty that political event contracts do fly sort of in the 
face or against the Commodity Exchange Act.
    But we will continue to work with stakeholders as much as 
we can. I have said this before, and this is something this 
Committee should know, we have fraud and manipulation authority 
in underlying cash markets. That is corn, that is natural gas, 
that is oil, that is gold. In this case, if we have election 
contracts, if there is fraud or manipulation or allegations of 
fraud or manipulation that could impact a listed CFTC contract, 
that de facto makes the CFTC an election cop. And I don't 
think--but certainly clarify if I am wrong--that is the intent 
of Congress for our mission. And it certainly would pull us in 
a lot of different directions, given some of the integrity 
issues that have been raised recently around elections.
    Mr. Rouzer. Thank you, Mr. Chairman. My time has expired. I 
yield back.
    The Chairman. The gentleman yields back.
    I am now pleased to recognize the gentleman from Texas, Mr. 
Casar, for 5 minutes of questions.
    Mr. Casar. Thank you. Chairman, thanks for joining us 
today.
    Today, I want to ask you about the Digital Assets and 
Blockchain Technology Subcommittee report that came out from 
the CFTC's advisory committee in January. As I understand it, 
they were tackling the questions of DeFi and that you had a 
diverse group put the report together, crypto firms, venture 
capital firms, academics, blockchain analytic firms, other 
folks, so on. Do you have a general sense of that report? Does 
that sound like the----
    Mr. Behnam. Yes, I have a general sense of what the report 
is and its findings, yes.
    Mr. Casar. Thank you, Mr. Chairman. And I appreciate you 
putting that report together. And that subcommittee found--and 
I am quoting from it--that nothing is, quote, ``completely 
decentralized or centralized in DeFi,'' that, quote, ``this 
creates a real challenge in defining business and technology 
models that would make systems sufficiently decentralized.'' 
The report found and names five different dimensions of 
decentralization to be considered, six different technological 
dimensions of decentralization. They created a matrix to try to 
figure out what--how to really determine that something is 
truly decentralized. It is a pretty complex set of findings.
    But kind of the summary at the end of the day here was that 
there is no single dimension or technology that will serve to 
make a project or an enterprise decentralized and that there is 
a great deal still to learn about these technologies and how to 
determine if something's decentralized or not. Does that 
generally check out with you?
    Mr. Behnam. Yes, 100 percent.
    Mr. Casar. So my concern is that around the FIT Act, which 
has, of course, come out of this Committee, is making its way 
through Congress, it doesn't directly tackle DeFi, but the 
whole bill hinges on the question of decentralized governance 
and decentralized networks. And my concern--and I am interested 
in which concerns you share with me, which ones you may not--is 
that we may be premature with passing this bill if this agency 
report, which I appreciate you all putting together, has these 
real concerns, that we may not yet be ready to define what is 
truly decentralized and not.
    And so do you have concerns about the amount of work that 
it will take your agency to implement the FIT Act, given those 
challenges defining decentralization? Do you have concerns that 
these questions haven't been developed enough yet and there is 
still so much to learn that we might just be handing you a 
bill? I don't want to be setting you up to fail, and even more 
importantly, I don't want to be setting up the American people 
to potentially suffer financially if we don't regulate this 
right.
    Mr. Behnam. Yes, Congressman, thanks. It is an important 
question. I would say, one, on the report you are mentioning, 
it is an advisory committee largely made up--and you said 
this--of practitioners, some academics, public interest, and I 
am just going to get a little sort of wonky on the technical 
side. It was a subcommittee, so it is not technically before 
the Commission yet as a set of recommendations. The whole 
technology committee would have to approve it in order for it 
to officially come to the Commission. And there were a number--
or at least one dissenting opinion, so I think there are some 
things to think about, about what were the pros and cons of the 
report.
    Regarding the FIT bill and your point about its 
prematurity--and I appreciate that--the DeFi conversation is 
quite complex. We have brought a number of enforcement cases, 
which I think have raised policy concerns from folks outside of 
the CFTC and even some inside. We had some dissenting opinions, 
which is fine. But structurally, I do think regardless of the 
level of decentralization, there are very clear rules--and that 
they have been developed and mature over a number of years 
within the Commodity Exchange Act--about what conduct is 
permissible, not permissible. And if you do offer a derivatives 
contract to a customer, you have to register or have to comply 
with the rules. So it is definitely not what we have 
historically been used to, but I think the principles still 
apply, and that is what we are trying to do at the agency.
    Mr. Casar. And just when you mentioned historically, you 
mentioned just recently--and I want to get the number right--
that about half--was it half your budget or half your 
enforcement budget is going to these cases now?
    Mr. Behnam. So half of our enforcement docket, so out of 96 
cases in Fiscal Year 2023, 47 cases or 49 percent of our 
enforcement docket was crypto-related or digital asset-related.
    Mr. Casar. And I guess just because I am short on time, 
just my concern is if it is already half of your docket, and 
then we are to hand you this whole industry to regulate 
potentially with fewer resources than you have asked for, in an 
area where this subcommittee's report is saying we are having a 
lot of trouble even defining what is decentralized, I worry 
that that is going to lead to lots of problems. You have an 
industry that in just the last 3 years has lost $2 trillion on 
its market cap. That is 60 percent that it has lost. It is 
really volatile. And so I worry about that when we want you--we 
really need to be protecting farmers and ranchers and dealing 
with oil and wheat. And this other industry where some of these 
experts are saying we still can't even really define what 
decentralized is, I worry about setting the CFTC up or the 
American people up for failure here. That is my concern.
    Mr. Behnam. Congressman, I appreciate that point, and I 
think we should always walk cautiously, whether it is 
legislatively or administratively. But my observations over the 
past 7 years and the enforcement cases we brought, I appreciate 
your point of view on the size of the enforcement docket being 
one where we are not focusing. As I said to Mr. Langworthy, our 
number one priority is always traditional commodity markets. 
But to me--and, yes, the market cap dropped from $3 trillion in 
2021 down to less than $1 trillion a year ago, and now it is 
back up over $2.5 trillion. To me, that just demonstrates there 
is real persistent adoption and demand from Americans to invest 
in this asset. It is unregulated. That has been proven across 
the U.S. regulatory scheme. And I think every minute that goes 
by is a new investor, a new retail participant who is 
potentially going to lose money. And I think we need to act 
quickly. If we need to subsequently act on DeFi or other areas, 
that is fine, but we need to act. It is consuming a huge amount 
of our resources because there is so much fraud out there in 
the public space.
    The Chairman. The gentleman's time has expired.
    I now recognize Mr. Feenstra for 5 minutes of questions.
    Mr. Feenstra. Thank you, Mr. Chairman. Thank you for this 
hearing. I also want to thank Commissioner Behnam for being 
here today.
    My district is home to some of the best soil in the world, 
literally. Just recently, just a few miles from my home, we had 
per acre sell for about $30,000, which is very significant. On 
the ground, small challenges and conservation practices can 
result in huge carbon benefits, and you guys are a part of 
that. In December, the CFTC issued proposed guidance about 
listing the voluntary carbon credits on CFTC-regulated 
exchanges. You justify this authority to issue proposed 
guidance under CFTC's anti-fraud and anti-manipulation 
authority. When you start thinking about that carbon market and 
where it is going to go, where it is today from $10 billion to 
probably $30 billion, obviously, my farmers are very involved, 
and it adds value to their farmland.
    So Mr. Behnam, what is CFTC doing to ensure that farmers 
and landowners are being protected from fraud and manipulation 
of this voluntary carbon credit market?
    Mr. Behnam. Congressman, thanks for your question. And I 
appreciate your recognition from your constituents. I worked 
personally very closely, and my team did, with the ag community 
as we crafted this guidance, and we wanted their feedback. We 
wanted to see what they were observing, what they were being 
offered. And I think there is a bit of a hesitation right now 
because they don't quite feel confident that there is a level 
of integrity in the market where they are willing to execute on 
some conservation practice or change their traditional 
practices for farming to sort of engage in this carbon market.
    We have, as I said earlier, listed futures contracts and 
voluntary carbon credits. As with any commodity, if we have a 
listed futures contract on a CFTC exchange, we have an interest 
in the health of the underlying market, which is to your point 
about the fraud and manipulation authority. So the guidance 
really is an effort to clarify expected diligence that the 
registered exchanges would use when they list these voluntary 
carbon credit contracts because ultimately, the listed CFTC 
contracts are referencing an underlying registry or some other 
cash market, voluntary carbon credit registry. And we want to 
make sure that the exchange uses appropriate diligence when it 
references these underlying exchanges. And ultimately, that is 
going to protect your farmers and others across the country as 
they start to engage in this marketplace.
    Mr. Feenstra. And that is very good information. I fully 
agree with where you are heading and where you are going with 
this. The question is, how do we get this out to our landowners 
and to our producers? Are you collaborating with USDA at all, 
or can you collaborate with USDA and try to get this 
information out? A lot of my producers, as you noted, are very 
hesitant to go down these rabbit holes, go down the path of 
better conservation, so forth. Can you extrapolate on that just 
a little bit?
    Mr. Behnam. So I can tell you that over the course of 2 
years leading up to the issuance of the guidance in December of 
2023, we held two convenings at the CFTC. USDA was a 
participant, among other regulators. We have been in close 
contact with the Secretary's office, Under Secretaries around 
conservation and those that are engaged in the voluntary carbon 
credit space. I know that they have some matters and some sort 
of vision they have around the voluntary or the carbon market 
generally. And I have been working closely with Farm Bureau 
councils and farmer cooperatives, Corn Growers Association, and 
others to make sure that we are as much engaged with them and 
seeing what they are observing so that we can essentially, I 
would say, produce a guidance document that is appropriate and 
that is calibrated to what the marketplace is and ultimately 
provide that protection for them that they are demanding.
    Mr. Feenstra. Good. Well, I thank you for that. And I just 
think this is such an added value for our farming community as 
we move forward in the next decade. I appreciate what you are 
doing. But again, this information that you have needs to get 
out.
    Mr. Behnam. Yes.
    Mr. Feenstra. And please continue to work with USDA on this 
progress. Thank you, and I yield back.
    Mr. Behnam. Thanks.
    The Chairman. The gentleman yields back.
    I am now pleased to recognize the Forestry Subcommittee 
Chairman, Mr. LaMalfa, for 5 minutes of questions.
    Mr. LaMalfa. Thank you, Mr. Chairman.
    My regrets of having dueling committees here, so I missed a 
good portion of today's, so I hope none of my comments or 
questions are too duplicative. But thank you, Chairman Behnam.
    Just a couple questions I wanted to ask on how CFTC is 
pushing for new markets and carbon credits and in rare earth 
minerals, but usually, a regulator waits for markets to develop 
before setting standards for it. That is unless the law, made 
by Congress, tells regulators to first set the standards. But 
in this case, Congress has not done so with carbon credits or 
rare earths. So do you think it is right for the CFTC to be 
getting out ahead for these new markets without Congressional 
approval or direction? Do you think the agency is justified in 
basically twisting the current law to do its own initiative?
    Mr. Behnam. Congressman, thanks for the question. As I said 
to Mr. Feenstra just earlier, we do in fact on the carbon 
credit side--and I will address the rare earth side as well--on 
the carbon credit side, we do have listed futures contracts on 
voluntary carbon credits already on several of our exchanges. 
And we are seeing increased demand by CFTC customers to see 
these contracts offer products.
    Mr. LaMalfa. What is the nature of the carbon credits?
    Mr. Behnam. Well, I can say that on at least two exchanges, 
we have voluntary carbon futures contracts that reference an 
underlying registry that issues the credits themselves. So 
based on the price of the credit from the underlying registry, 
the futures contract is using that that price reference to 
price itself.
    Mr. LaMalfa. Understood. I just wondered what more 
directly--does the type of credit have to be generated in an 
agricultural situation, or what is the actual carbon where the 
rubber meets the road? Where is that credit?
    Mr. Behnam. There are a number--so I can--I think I know 
for sure that one of the contracts references a weighted 
average of several registries, which includes nature-based 
credits, which would be to your point, carbon sequestration 
through some sort of conservation practice or forestry plan or 
whatnot.
    Mr. LaMalfa. So soil tilling or, as mentioned, forestry, 
cutting trees in a particular way?
    Mr. Behnam. Yes.
    Mr. LaMalfa. All right. So what is the target goal for 
carbon? I mean, what number are you trying to in tons or--what 
is the baseline? What percent of the atmosphere is carbon 
dioxide to begin with?
    Mr. Behnam. So my intent specifically with the guidance and 
our efforts in this space is not to set the methodology or not 
to set the amount of carbon that is pulled from the atmosphere. 
I am simply trying to put out a document that would ask the 
exchanges which are registered and regulated by the CFTC, who 
list the carbon credit derivatives contracts, to use 
appropriate diligence when they reference underlying registries 
so that in fact, just say, for example, ABC registry which 
issues credit, say a nature-based credit, which is used off of 
a conservation practice, if they are selling a credit saying we 
are sequestering 1,000 tons of carbon, we want to ensure that 
credit is credible and that it actually sequesters the amount 
of carbon that that registry is saying it does.
    Mr. LaMalfa. Right. And that is sometimes very hard to 
find. I am glad you have oversight on that.
    Let me shift gears here quickly with my remaining time. 
CFTC proposed a rule that requires certain derivatives to 
establish what is called an operational resilience framework, 
right? So you highlighted how you were working with domestic 
regulators to ensure that ORF requirements are not duplicative. 
Have you had similar conversations with foreign regulators? And 
then how are they approaching these types of challenges?
    Mr. Behnam. Congressman, we are very engaged certainly in 
the foreign forums with other regulators across the globe. But 
I would say more importantly, we are very engaged with domestic 
regulators, both market regulators and the banking regulators. 
There are frequent instances where our registrants are also 
registered with other U.S. regulators, and you could have 
scenarios where there is duplication of regulations. Around 
cybersecurity, I certainly wouldn't want one of my swap dealers 
or futures commission merchants, which is also a bank 
prudentially regulated by the Fed, the OCC, FDIC, to have to 
comply with two different sets of standards around cyber.
    So our intent in this rule, which is a proposal phase, is 
to ensure efficiency and compliance, but also being mindful of 
the unique nature of derivatives markets so that if there are 
any holes or gaps that a banking regulator might impose on a 
holding company, we are filling that gap, but not creating 
duplicative regulations that the bank regulators might have for 
the holding company.
    Mr. LaMalfa. Okay. All right. I have to yield back, but 
maybe in some further comments, is there a substituted 
compliance for other entities that might have a similar issue 
in their home? But I will yield for now. Maybe you can touch on 
that in a following comment. Thank you.
    Mr. Behnam. Thanks.
    The Chairman. The gentleman yields back.
    Now I am now pleased to recognize the gentlelady from 
Florida, Congresswoman Cammack, for 5 minutes.
    Mrs. Cammack. Thank you, Mr. Chairman. And I appreciate you 
being with us today. No easy discussions happening in this 
room.
    So with that, I will just jump right into it and dispense 
with comments.
    Chairman Behnam, decentralized finance--and I know I have 
heard some of my colleagues here today talk about this, and 
again, I don't want to get into the weeds too much, but DeFi, 
it is a growing component of the digital asset ecosystem, and 
it has been receiving a lot of attention. So can you please 
share with us any ongoing or planned rulemaking workstreams at 
the agency regarding this issue?
    Mr. Behnam. Congresswoman, thanks for the question. We are 
certainly engaged with the market, the stakeholders I mentioned 
earlier. We have an Office of Technology Innovation. We have 
several advisory committees, and some of them look into this 
space and convene members of the technology community. And we 
are looking at how we can engage, we can learn, and to ensure 
that our rules essentially reflect where the technology is.
    I would say though that DeFi presents a lot of issues. We 
have brought a number of enforcement cases where there have 
been individuals offering derivatives products, but they don't 
necessarily have a centralized traditional model of a broker, 
an exchange or a company.
    Mrs. Cammack. Right.
    Mr. Behnam. It is an automated sort of trading platform. 
The best way to think about it is you have a group of 
individuals who program an automated trading platform, and it 
just sort of self-executes on its own without any human 
intervention after the start, so to speak. That doesn't change 
the fact that this protocol or this program is offering 
derivatives contracts to customers, often or at least on 
occasion that we brought an enforcement action, people are 
losing money or there is fraud or manipulation or they are not 
registering with the CFTC as required by the law. And despite 
the fact that there is no centralized group or there is an 
individual who is the CEO or board of directors or 
headquarters, the fact of the matter is, as courts have 
determined in litigation that we have faced, DeFi can have the 
same or similar characteristics as a traditional company or 
entity such that we could bring a case.
    Mrs. Cammack. Right.
    Mr. Behnam. So tricky questions, I think it requires a lot 
less legislative thought, but we are doing our best to work 
through these issues, engage. But ultimately, I would hesitate 
to say that we should stand back and not protect customers 
because the law is not crystal clear, a decades-old law, about 
what decentralized finance is.
    Mrs. Cammack. And I appreciate that but I also am very wary 
of over-regulation and government having a heavy hand, which 
tends to stamp out innovation and opportunity. So I would love 
to see more engagement and forward-facing engagement from some 
of the industry partners.
    But I want to shift a little bit, talking about blockchain 
and how that that is really a huge part of this conversation. 
With the evolving landscape on digital assets and DeFi, what 
regulatory challenges specifically do you foresee in overseeing 
blockchain-based financial products and services? And 
specifically, what steps is the Commission taking--I know we 
talked about this just a little bit, but I want you to talk on 
the blockchain element specifically to ensure investor 
protection.
    Mr. Behnam. Yes, so blockchain has been really interesting 
to observe because I have had a number of demonstrations by 
large financial institutions or trade associations in town 
which have demonstrated how blockchain is being used by some of 
these traditional large financial institutions on settlement, 
on payments, on custody, and really just creating, in their 
view, a more efficient payment system from a customer 
perspective or from a financial wholesale perspective.
    In some respects, our core principles, which we have a 
principles-based regulatory structure, is very helpful because 
you can almost fit a lot of different technologies into a 
principles-based regulatory structure. It is about compliance 
and being free from fraud and manipulation, having a proper 
governance structure, making sure you have system safeguards, 
all things that would apply if you were on a trading floor or 
if you had a blockchain. So we are engaging with the industry. 
We are trying to learn what they are doing. I don't think 
adoption has been so deep at this point that we necessarily 
have to jump ahead and write rules. I think, in part, our 
principles-based regulation is adequate, but there could be 
components of blockchain that would require policy, either a 
rule, advisory, or guidance, and we certainly want to see and 
observe what is going on in the industry so whatever we do, to 
your point, doesn't get ahead.
    Mrs. Cammack. Well, and I will say, especially given the 
fact that we don't want enforcement to become the mechanism by 
which this gets rolled out we want legislative solutions so 
that it is actually done correctly.
    Mr. Behnam. Yes.
    Mrs. Cammack. But given that the derivatives market is 
largely overseas--and I know I am over my time, but I will just 
leave us with this. Given the international nature of commodity 
markets and global proliferation of blockchain technologies, is 
there any cross-border cooperation or efforts underway on this?
    Mr. Behnam. Yes, we work closely--so I am the Vice Chairman 
of IOSCO, which is a multilateral organization across all 
securities regulators in the globe. We participate with the 
Financial Stability Board. I have frequent conversations with 
fellow regulators in Europe, Asia, the Middle East. So we are 
observing what others are doing and trying, to your point, to 
draw comparable rules and regulations so there is a little bit 
of a seamless entry and exit across borders because, as you 
point out, we are in a global financial system, and to have 
different regulations and rules creates barriers. Arbitrage 
opportunities, which are risk, but ultimately prohibits these 
businesses from doing a lot of the work that they hope to do.
    Mrs. Cammack. I appreciate you being here. Thank you. My 
time has expired. Mr. Chairman, I yield. Thank you.
    The Chairman. The gentlelady yields back now.
    I am now pleased to recognize the gentleman from Texas, Mr. 
Jackson, for 5 minutes.
    Mr. Jackson of Texas. Thank you, Mr. Chairman. I would like 
to yield my time to the chair.
    The Chairman. Much appreciated. Thank you, Mr. Jackson.
    Mr. Chairman, can you talk about the difference between 
CeFi and DeFi actors when it comes to regulation, and quite 
specifically, the application of FIT 21 as it is proposed?
    Mr. Behnam. Mr. Chairman, thank you for the question. This 
is really the crux of the issue with CeFi versus DeFi. In CeFi, 
you have more ascertainable participants. This is what we are 
traditionally oriented with in a trade cycle or in a financial 
ecosystem. DeFi, you don't have those identifiable partners 
which could result in a registration, it could result in an 
enforcement action, or in any number of other things.
    But ultimately, what we have done historically--and this is 
not, many years, this is just a few years--as it relates to 
potentially regulatory requirements or enforcement actions, is 
focused on the conduct and what exactly is being offered and 
how it is interfacing with customers and investors. And 
ultimately, if we see a DeFi product that is offering 
derivatives contracts, as I was saying earlier, we have to do 
what we can to identify who, if anyone, or the association 
itself, which is a sort of a legal term of art, is providing 
the derivative services outside of compliance of CFTC 
registration. And that is who and where we have sort of steered 
our attention.
    In terms of the FIT bill, I do think it takes many 
important steps to address these issues. As Mr. Casar was 
saying, they are complicated. We are seeing a lot of variation 
in how we should address these issues. And I think it will take 
time. But ultimately, I am very much encouraged by what the FIT 
bill aspires to do and what you are trying to accomplish, Mr. 
Chairman, in terms of both regulating and filling these gaps, 
but also thinking forward about some of these new technologies 
and how they fit into the existing Commodity Exchange Act.
    The Chairman. Well, thank you for that. I think our goal is 
to make sure that we provide the guidelines and tools for you 
to do that so digital commodities are regulated by clarity, 
and, quite frankly, transparency, direction, guidance, versus 
what we have seen in the past perhaps by another agency, which 
is regulation by punishment.
    I want to touch on, in February, the CFTC proposed a rule 
that would establish minimum fitness standards and conflicts-
of-interest rules, among other things, for derivative 
exchanges. Can you elaborate on what this rule requires? And 
why is it necessary?
    Mr. Behnam. Mr. Chairman, this was a rule, conflicts of 
interest around SEFs and DCMs. Swap execution facilities and 
designated contract markets essentially are exchanges. When I 
first started as Chairman back in 2021, I convened my division 
directors, my leadership team. I said, let's start identifying 
areas that we need to write rules. This came out of the 
Division of Market Oversight. It is actually about a decade-old 
requirement going back to Dodd-Frank around conflicts of 
interest to some extent, and then it just remained without a 
final rule.
    So over the course of 2 years, as you know, rules take time 
to produce. They are long documents. There is legal analysis. 
There is economic analysis, among other things. So the timing 
came that we were able to produce the rule and propose it at 
this point last month. I would say--and there was some dissent 
or discussion about whether or not it went far enough, 
especially in the conflicts-of-interest space. I have said this 
publicly multiple times. Despite that initial conversation I 
had back in January, February of 2021, when I first took over 
as acting and then ultimately permanent chair, a lot has 
changed. We have seen the emergence of vertically integrated 
registrants and applications. We have seen decentralized or 
non-intermediated in some respects applications. And I think 
this raises, as I said in my opening statement, a number of 
very unique and novel questions around conflicts of interest.
    So what I did to address that particular issue, separate 
from the rulemaking you address, is we put out a request for 
comment. We asked the public to give us feedback on conflicts 
of interest around affiliations so that if you have a holding 
company that owns the exchange, that owns the broker, that owns 
the clearinghouse, what potential conflicts exist if you have a 
single owner of all three parts of this trade cycle? We got 
great comments back. And as I have said publicly, we are 
looking towards proposing a rule on conflicts of interest 
around affiliations later this year.
    It can be discrete and unique from what we did last month, 
but it doesn't necessarily undermine what we are going to do. I 
thought what we did last month was tremendously important. It 
is going to bring integrity and safety to markets, but it is 
only one step. We are going to take more steps. We can do 
multiple things at once, and we are going to address issues as 
they continue to evolve and present themselves to us.
    The Chairman. Just a couple quick follow-ups to that. What 
powers does the Commission have to engage with a registered 
market participant regarding a transfer of ownership of a 
registered entity?
    Mr. Behnam. So it is a good question, Mr. Chairman. We 
actually legally do not have authority to prohibit, to stop, or 
to influence a merger, acquisition, or any sort of combination 
of two entities. The authority we have is to ensure that if 
there is a merger or an acquisition of two entities, one of 
which is in compliance or registered with the CFTC, that the 
new combined entity remains in compliance with the Commodity 
Exchange Act. So if you had entity A and B and entity B was a 
CFTC-registered FCM, entity A bought entity B, the new entity 
would have to be in compliance with CFTC rules or regulations. 
If it was not, that is the authority or that is where we could 
step in and either require compliance or deregister the entity. 
We cannot impose ourselves on an M&A activity or a merger/
acquisition just because we have feelings about concentration 
or antitrust issues. Obviously, other agencies, criminal and 
civil, deal with those issues, but certainly something I think 
the Committee may want to think about going forward, not 
advocating for it, per se, but an issue that has arisen, and I 
just shared with you the limited powers we have around 
compliance.
    The Chairman. And it may be the same answer, but I am 
curious in terms about potentially problematic vertical 
integration situations where there appears to be potential 
conflicts of interest with respect to the related operation of 
a registered entity and one of its affiliates, for example, FTX 
crypto exchange and its affiliate Alameda Research that traded 
on the exchange.
    Mr. Behnam. Yes, Mr. Chairman, extremely important 
question, one we are dealing with actively to my point about 
the request for comment and this possible rule 6 months down 
the road. I would say, as I stated in my opening statement, 
these are, in some respects, very new issues because we are 
seeing an increase in the number of applicants and registrants 
who want to see these vertically integrated stacks. Another 
issue is we have existing entities who are registered with the 
CFTC who have a vertically integrated sort of structure where 
you have a broker, you have an exchange, and you have a 
clearinghouse. We have dug into the legal analysis and the 
legal direction that the Commodity Exchange Act might afford, 
and I will share with you very clearly, there is nothing in the 
Commodity Exchange Act which would allow us to prohibit or 
prevent an entity from combining all of these--an organization 
from combining all of these entities into a single parent. What 
we can do is apply our conflicts-of-interests core principle 
and other core principles to ensure that the affiliated 
entities are sufficiently walled off, whether through 
personnel, technology, boards of directors, leadership, 
financial resources, but we can't necessarily prohibit one 
holding company from owning multiple.
    It is an interesting policy question. It is a product of 
technology, competition, and I think we should continue to 
collectively think about it because it really goes to the heart 
of market structure and whether or not we want to see this type 
of entity continue to grow and be adopted in our space because 
there are a number of policy, risk, and innovation questions 
that ultimately arise when you have these vertically integrated 
stacks.
    The Chairman. Very good. Well, thank you.
    I am now pleased to recognize for 5 minutes for questioning 
the gentleman from Altoona, Iowa, Mr. Nunn.
    Mr. Nunn. Good Altoona is across America. Thank you, Mr. 
Chairman, both in Iowa and in your home state.
    Chairman Behnam, thank you very much for the work that the 
CFTC and your team has done in this area. We are unique in the 
sense I get to sit on both the Agriculture Committee here, as 
well as the Financial Services Committee across the way here, a 
lot of exciting overlap, but also, I think everyone from my 
farmers with a bushel of corn to my small business owners with 
the desire to be pioneers in the digital asset space are 
looking for guidance. And CFTC has been an open place for 
innovation and stabilization to really take root, and so I want 
to compliment you, first of all, on the work that you guys have 
done there.
    I also recognize that you have a large portfolio. So we 
have received some feedback from a number of stakeholders 
regarding some downstream impacts of Basel III and its proposal 
on the derivative markets and ultimately the end-user. In a 
number of ways this has been a challenge. In fact, working with 
the Chairman here, we have called out some real flaws that we 
see and emphasize the negative impacts that this proposal would 
have on the agricultural community specifically. So, Chairman 
Thompson, what I would like to do is submit this letter for the 
record with the folks who have signed on with us.
    The Chairman. Without objection.
    [The letter referred to is located on p. 59.]
    Mr. Nunn. So first, Chairman Behnam, the futures commission 
merchants, or FCMs, provide farmers with access to critical 
parts of the market. The FCM consolidation is occurring at 
alarming rates. I know you have seen this chart. My farmers 
have certainly seen this chart. Folks not just inside Iowa but 
across the country are facing this, which further decreases our 
growers' ability to access markets. Talk to us a little bit 
about how Basel will exacerbate this issue.
    Mr. Behnam. Congressman, thanks. And I will just sort of 
caveat that this could be a significant issue. As you point 
out, this chart resonates very much with us. I said earlier 
this morning that we have seen a significant decrease in a 
number of FCMs over the past 20 years from 177 to just 64. And 
at the same time, we have seen a huge growth in customer-
segregated money being held by fewer FCMs from $88 billion to 
$\1/2\ trillion over 20 years, so huge decrease in FCMs, huge 
growth in the amount of money being held by fewer FCMs.
    Ultimately, with historically a low interest rate 
environment and a more competitive landscape, FCM numbers have 
reduced over time. Obviously, the interest rate environment is 
changing, but I don't necessarily think that is going to change 
the dynamic of new FCMs coming into place. There are huge 
economies-of-scales and barriers to entry, and we sort of live 
with what we have. My happiness or my content would be at a 
minimum staying in this range. I don't want to see this 
continued pattern of reduction of FCMs.
    Ultimately, as you would imagine with any business on the 
sort of P&L side or balance sheet side, if there are more 
charges, more costs, it is going to create more impediments, 
possibly being passed through, through end-users, farmers, 
ranchers, energy producers. I think the larger policy issue, 
one that I have spoken with members of the Federal Board about, 
my staff with them as well, and other Prudential Regulators is 
we have to think about the balancing act of incentivizing and 
disincentivizing clearing. Clearing is a core component of the 
G20 reforms in 2009 and the Dodd-Frank Act. We know that it 
mutualizes risk, it reduces risk, it is a risk-reducing 
feature.
    Mr. Nunn. Right. I would agree.
    Mr. Behnam. The SEC has just finalized a rule on clearing 
treasuries. We mandated clearing swaps, building off of 
clearing futures, which has been a component of the futures 
market for decades. Point being is we all agree clearing is a 
positive thing. It is a good thing for market risk, for market 
stability. We want to make sure any new prudential rules--I 
speak very confidently that capital is a core component of 
financial regulation and good financial regulation, but it has 
to be calibrated appropriately so we are incentivizing clearing 
and not disincentivizing because ultimately, that is going to 
reduce risk.
    Mr. Nunn. Mr. Chairman, same page. I appreciate your 
leadership on it. In the sake of time you have answered a 
number of these things. I would just encourage you to continue 
to work with your partners, particularly on the Fed, to 
emphasize how important that is as well.
    Mr. Behnam. Understood.
    Mr. Nunn. I want to switch very quickly, I am proud to 
support FIT 21. We have talked a lot about that today. It is an 
area that continues to be just a growth opportunity. Prometheum 
recently announced its intention to custody Ether. I am 
concerned that the SEC will use this as an opportunity to 
circumvent Congress and even the CFTC in this space to further 
confuse participants who are already in the field. So I know I 
have asked you this before, but, given the reports, do you 
still believe Ether falls into that commodity area where CFTC 
can really allow digital assets like this to take root and be 
successful?
    Mr. Behnam. Yes.
    Mr. Nunn. With a follow-up then, until FIT 21 becomes law, 
what can the CFTC do to continue to bring clarity to this? I 
know I have 3 seconds left. Shoot.
    Mr. Behnam. Well, ultimately, it goes down to the contracts 
that are listed on an exchange. We don't do this without 
analysis, legal analysis, policy analysis, so as the Bitcoin 
futures contracts were listed in 2017 and then the Ether 
futures contracts were listed in 2020, we worked closely with 
fellow regulators, but we also do the analysis internally about 
the underlying asset, whether it is a physical commodity, 
whether it is interest rate, currency, or credit product or a 
digital asset. We do the analysis under the Commodity Exchange 
Act. We work with the exchanges, and we ensure that what they 
are listing above all else is a commodity.
    Mr. Nunn. Please continue that until FIT 21 becomes law, 
and then let's collectively work not only bipartisan on this, 
but with our private-sector and our agencies across the board.
    Thank you, Mr. Chairman, for the grace. I yield back the 
remainder of my time.
    The Chairman. The gentleman yields back.
    As we prepare to close here, I will offer just a closing 
statement. Chairman Behnam, on behalf of myself, Ranking Member 
Scott, and quite frankly all our Members, thank you again for 
joining us today. And thank you for your leadership, strong 
leadership, collaborative leadership, and we are very 
appreciative.
    Our discussion covered a wide range of important topics 
today, and thank you for your thoughts on bank capital 
standards and the impact that they would have to our farmers 
and energy producers and other end-users. It is so important 
that we get these right. Do not be shy about engaging with 
other financial regulators on the problems that you have 
identified. We also appreciate your commitment to the future, 
both in your advocacy of sound digital asset rules and the 
Commission's focus on emerging issues.
    And finally, you heard today the Members of this Committee 
are serious about Federal employees across the entire Executive 
Branch returning to the office in person on regular schedules. 
In-person work fosters better communications, promotes greater 
accountability, and builds deeper relationships. I can attest 
to that with our Committee when we are in person versus the 
days that we were trying to do this virtually. There is just no 
comparison, that synergy that comes from that proximity. And so 
COVID is over, and America needs to get back to work, so please 
keep us apprised of the CFTC's plan for staff to return in 
person to the office.
    You, your fellow Commissioners, and the Commission staff 
continue to serve a critical role protecting the public, and we 
look forward to working with you to ensure the Commission has 
the tools it needs to promote the integrity, resilience, and 
vibrancy of the U.S. derivatives market. So thank you so much 
for today.
    Under the Rules of the Committee, the record of today's 
hearing will remain open for 10 calendar days to receive 
additional materials and supplementary written responses from 
the witness to any question posed by a Member.
    This hearing of the Committee on Agriculture is adjourned.
    [Whereupon, at 12:33 p.m., the Committee was adjourned.]
    [Material submitted for inclusion in the record follows:]
Submitted Articles by Hon. Dusty Johnson, a Representative in Congress 
                           from South Dakota
                               Article 1
                               
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[https://www.cnbc.com/2023/09/11/90percent-of-companies-say-theyll-
return-to-the-office-by-the-end-of-2024.html]
90% of companies say they'll return to the office by the end of 2024--
        but the 5-day commute is `dead,' experts say
Published Mon, Sep 11 2023 10:00 AM EDT

Morgan Smith @THEWORDSMITHM \1\
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    \1\ https://twitter.com/thewordsmithm.
    
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          Mint Images Rf D Getty Images.

    The debate over whether or not to return to the office is far from 
settled--and yet, the push to get employees back to the office is 
getting more aggressive.
    Goldman Sachs \2\ wants employees in 5 days a week. Google \3\ is 
factoring employees' in-office attendance into their performance 
reviews.
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    \2\ https://www.cnbc.com/2023/08/23/jim-cramers-top-10-things-to-
watch-in-the-stock-market-wednesday.html.
    \3\ https://www.cnbc.com/2023/06/13/google-rto-crackdown-gets-
backlash-check-my-work-not-my-badge.html.
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    A whopping 90% of companies plan to implement return-to-office 
policies by the end of 2024, according to an Aug. report from Resume 
Builder,\4\ which surveyed 1,000 company leaders. Nearly 30% say their 
company will threaten to fire employees who don't comply with in-office 
requirements.
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    \4\ https://www.resumebuilder.com/90-of-companies-will-return-to-
office-by-the-end-of-2024/.
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    Only 2% of business leaders said their company never plans to 
require employees to work in person.
    The renewed push to end remote work comes as more CEOs openly 
acknowledge \5\ their disdain for the model, arguing that productivity, 
collaboration and employee engagement all suffer without the office.
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    \5\ https://www.cnbc.com/2023/03/30/more-companies-could-increase-
rto-requirements-soon.html.
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    ``It's easier for executives to hold on to the old notion that 
people are really working if they can see them down the hall,'' says 
Dan Kaplan, a senior client partner at Korn Ferry. ``It's almost too 
hard for some leaders to comprehend a world where that option doesn't 
exist, or to consider a radical new approach.''
    Even though more companies have introduced stricter in-office 
requirements for employees, office occupancy has remained relatively 
unchanged from the past year.
    During the first week of September, the average occupancy rate in 
offices in the top ten cities in the U.S. was 47.3% of pre-pandemic 
levels, compared to 44% this time last year, according to data from 
Kastle Systems.\6\
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    \6\ https://www.kastle.com/safety-wellness/getting-america-back-to-
work/.
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Why return to the office at all?
    Companies are reluctant to give up their 9-to-5 in-person schedules 
for ``more emotional than intellectual reasons,'' says Kaplan.
    ``The message I hear from executives is, `We never intended for the 
world to change this dramatically and the office to just go away,' '' 
he says. ``Then, there's the popular argument that people are less 
connected to their company and to their peers without the office, which 
is bad news for employee engagement and retention.''
    In a 2022 Korn Ferry survey \7\ of 15,000 global executives, \2/3\ 
agreed that corporate culture accounts for more than 30% of their 
company's market value. Many leaders, the report notes, believe that a 
strong culture can only be established and maintained ``if everyone 
is--at least some of the time--occupying the same workplace.''
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    \7\ https://www.kornferry.com/insights/briefings-magazine/issue-59/
back-to-work.
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    CEOs also justify their stance with the belief that workers are 
more productive in the office. Amazon's Andy Jassy, for example, told 
employees \8\ that ``it's easier to learn, model, practice and 
strengthen our culture when we're in the office together most of the 
time and surrounded by colleagues.''
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    \8\ https://www.aboutamazon.com/news/company-news/andy-jassy-
update-on-amazon-return-to-office.
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    Yet research has failed to draw definitive conclusions about remote 
workers' productivity. In the U.S., employee productivity rose by 4.4% 
in 2020 and 2.2% in 2021, before falling in 2022, according to the 
Bureau of Labor Statistics.\9\ In 2023, however, labor productivity 
rose 3.7% during the second quarter, and is up 1.3% compared to this 
time last year.
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    \9\ https://www.bls.gov/news.release/pdf/prod2.pdf.
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    ``The individual free-for-all work policy doesn't work,'' says 
Brian Elliott, an executive advisor on flexibility and the founder of 
the research consortium Future Forum. ``There really is some benefit to 
getting people together on a regular basis to drive relationship-
building, mentorship and collaboration.''
    Per Resume Builder, the ``vast majority'' of business leaders say 
they have seen an improvement in revenue, productivity and employee 
retention since returning to the office.
`Five days a week in the office is dead'
    Even as large firms on Wall Street and in Silicon Valley consider a 
full return to in-person work, workplace experts agree that most 
organizations will stick with the post-pandemic norm of spending 2 to 3 
days per week in the office.
    ``I think the concept of spending 5 days a week in the office is 
dead,'' says Elliott. ``That top-down, one-size-fits-all approach can 
lead to a lot of resentment among workers.''
    With that kind of mandate, ``organizations are risking a real break 
of trust with their employees,'' says Susan Vroman, a lecturer in 
management at Bentley University.
    Employees overwhelmingly prefer hybrid work: About 68% of full-time 
workers support a hybrid work schedule, working at least one day a week 
remotely and the other days in an office, a recent Bankrate survey \10\ 
of over 2,000 adults in the U.S. found.
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    \10\ https://www.bankrate.com/personal-finance/hybrid-remote-and-4-
day-workweek-survey/#things-to-remember.
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    Whether a company is increasing its in-office requirements, or 
introducing them for the first time, ``transparency is key,'' Vroman 
adds. ``Especially for companies who said employees could work wherever 
they wanted to, how do you convince them that going back to the office 
is the right thing to do?''
    The only industries Kaplan expects to continue to push for a full 
return to the office are tech, financial services and retail, as 
leaders in those fields tend to spend more \11\ on commercial real 
estate and are ``the most adamant'' that remote work can pose security 
concerns.\12\
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    \11\ https://therealdeal.com/new-york/2023/01/19/murdochs-6th-ave-
deal-tops-manhattans-most-valuable-office-leases-of-2022/.
    \12\ https://www.cnbc.com/2023/03/17/svb-listed-remote-work-as-a-
business-risk-before-collapse-its-a-convenient-excuse-experts-say.html.
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    Other companies, Vroman says, will opt for a more structured hybrid 
work arrangement, requiring employees to come in on certain days of the 
week rather than allowing them to choose the number of days they work 
remotely, which can lead to ``people being on Zoom all day surrounded 
by empty desks.''
    Offering a flexible, hybrid model is also a smart recruiting 
tactic, Elliott adds. ``The job market might have softened to some 
degree, but there's always competition for top talent,'' he says. 
``People still want flexibility at work, and they're ready to walk if 
they don't get it.''
                               Article 2

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[https://www.shrm.org/topics-tools/news/employee-relations/ceos-
predict-end-of-remote-work]
CEOs Predict End of Remote Work
October 17, 2023 D Kylie Ora Lobell

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    The pandemic ushered in a new era of work. Many workplaces went 
fully remote, with some employers giving up their office space 
altogether. In the post-pandemic era, a number of workplaces are hybrid 
and have no plans to get back to full-time, in-office work. According 
to the Pew Research Center, 35 percent of workers with jobs that can be 
done remotely are working from home full time,\1\ and 41 percent of 
those with positions that can be remote are working a hybrid schedule.
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    \1\ https://www.pewresearch.org/short-reads/2023/03/30/about-a-
third-of-us-workers-who-can-work-from-home-do-so-all-the-time/.
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    However, now that COVID-19 is better managed, employers are 
attempting to bring workers back into the office, with some--like Zoom 
and Meta \2\--requiring in-person work at least a few days per week. 
Additionally, new research from KPMG's Global CEO Outlook showed that 
63 percent of CEOs predict a full return to in-office work \3\ by the 
end of 2026, while only seven percent believe that full-time remote 
work will continue in the long term.
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    \2\ https://www.shrm.org/ResourcesAndTools/hr-topics/benefits/
Pages/As-Summer-Ends-Workers-Head-Back-to-the-Office.aspx.
    \3\ https://finance.yahoo.com/news/most-bosses-think-ll-back-
112925073.html.
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    Following in the footsteps of Zoom and Meta are companies across 
the U.S., which are trying to bring workers back into the office at 
least part of the time.
    Here's what they're doing to convince workers to come back, as well 
as their reasons for advocating in-office work.
They're Encouraging In-Office Work for Gatherings
    In a time when 90 percent of office workers said they don't wish to 
return to the old ways of working \4\--and some are even threatening to 
walk away from a job if they have to go into the office full time-
employers are treading lightly.
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    \4\ https://www.gallup.com/workplace/512006/office-workers-quietly-
changing.aspx.
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    Sara Murdock, director of people and culture at architectural firm 
Steinberg Hart, which has offices in California, Texas and New York 
City, said her company allows for remote work among its 140 employees 
and requests in-person attendance for specific types of gatherings.
    ``We encourage people to be in the office for major meetings, 
training and group collaborations,'' she said. ``In other words, [we 
want them] to be physically present during times that we are 
interacting with one another or in interactive learning mode, not just 
working on our computers.''
They're Looking at the Impact on Productivity
    Amanda Webster, the chief operating officer of Fund&Grow, a U.S.-
based lending program in Florida with 55 employees, said the company 
went remote during the pandemic but it wasn't a positive change.
    ``It had a negative impact on employee morale and their ability to 
separate work and home,'' she said. ``Employee morale was low due to 
feeling overwhelmed with work/life balance.''
    Now, after seeing the effects of work from home, Webster only 
allows remote work if there is a medical accommodation needed or if 
it's approved in advance.
    ``Being in the office allows us to be the most efficient,'' she 
said. ``Our employees enjoy the camaraderie of being in the office, 
with the support of management and having the technology needed to be 
successful.''
    At Relay Payments, a 150-employee company in Atlanta, Chief People 
Officer Amy Zimmerman requires employees to work in the office a few 
days a week because it's proven to be better for business.
    ``We are a rapidly growing fintech that's disrupting much larger, 
established businesses,'' she said. ``Our competitive advantage is 
speed, and we feel it's important to be in the office 3 days a week to 
collaborate, problem-solve in real time, connect, and to help onboard 
new team members since we're on a hiring spree.''
They're Offering Commuting Stipends
    Some employees who got used to working at home don't want to have 
to commute and pay high fuel or transportation costs to get to work 
again. In response to this, Steve Feiner, managing editor of Tech Jive 
and CEO of ABF Group in Silicon Valley, is providing commuting stipends 
to his 300 employees.
    ``[We] offer stipends for those who choose to commute, ensuring 
they aren't burdened by additional costs,'' he said.
    Since Feiner is in charge of a tech company, physical presence in 
the office isn't always required.
    ``However, for brainstorming sessions, collaborative projects and 
certain team-building activities, face-to-face interactions can be 
invaluable,'' he said. ``The pandemic accelerated a trend we were 
already observing: the rise of remote work facilitated by technology.''
They're Focusing on Relationship Building
    One of the biggest upsides of in-person work is the ability to 
cultivate relationships--something that could get lost on a Zoom call 
or Slack message.
    Zimmerman makes days in the office special for workers, using them 
to focus on building bonds between employees.
    ``We cater lunch and host activities like our running club and 
taking walks together to ensure we're building relationships with one 
another,'' she said. ``On days when we're remote, we utilize our 
internal messaging platforms to make sure we're still honoring our 
culture by collaborating and engaging with each other.''
They're Balancing Business and Employee Needs
    Overall, companies are taking a balanced look at the situation: 
Even if they want employees in the office full time, they aren't 
demanding it. Instead, they're working hand in hand with employees to 
figure out the best solution moving forward.
    ``I'd suggest that more leaders do a deep dive into what, 
precisely, helps their teams do phenomenal work over time,'' Murdock 
said. ``Engage employee listening, and really get to know the ins and 
outs of human motivation.''
    While a majority of CEOs may believe that full-time in-person work 
is going to return, Feiner has a different perspective: The nature of 
work has changed, and companies have to change to keep up with it.
    ``The future of work is flexible,'' he said. ``With advancements in 
technology, especially in the realm of communication and collaboration 
tools, we have an opportunity to redefine traditional work structures. 
It's essential to stay adaptable and prioritize both business needs and 
employee well-being.''

          Kylie Ora Lobell is a freelance writer based in Los Angeles.
                                 ______
                                 
  Submitted Letter by Hon. Zachary Nunn, a Representative in Congress 
                               from Iowa
January 19, 2024

  Hon. Michael S. Barr,
  Vice Chairman for Supervision,
  Board of Governors of the Federal Reserve System,
  Washington, D.C.;

  Hon. Martin J. Gruenberg,
  Chairman,
  Federal Deposit Insurance Corporation,
  Washington, D.C.;

  Mr. Michael J. Hsu,
  Acting Comptroller of the Currency,
  Office of the Comptroller of the Currency,
  Washington, D.C.

    Dear Vice Chair Barr, Chairman Gruenberg, and Acting Comptroller 
Hsu:

    Futures and derivatives markets provide critical tools to manage 
risk for farmers, ranchers, grain and food processors, energy 
producers, and other important commercial end-users. We have concerns, 
however, that the GSIB Surcharge Proposal and the Basel III Endgame 
Proposal (the proposals) will generate disincentives for prudent risk 
management strategies and drive up the cost of hedging for end-users. 
Ultimately, consumers who are already facing elevated prices from 
record levels of inflation will pay the price at the grocery store and 
the gas station.
    On the heels of inflation rates not seen in over 40 years, 
Americans are facing record high costs in grocery stores, at gas 
stations, and in their energy bills. Futures and derivatives markets 
play a stabilizing role for prices, helping to insulate consumers and 
businesses from market instability while involving minimal risk for 
end-users. For this reason, many nonfinancial firms that use 
derivatives for traditional hedging purposes were exempt from a number 
of regulations in the Dodd-Frank Act that would have made it more 
expensive for them to manage their risk. Former Senate Banking, 
Housing, and Urban Affairs Chairman Dodd, along with former Senate 
Agriculture, Nutrition, and Forestry Chairman Lincoln, highlighted the 
importance of preserving these tools in the Dodd-Frank Act. 
``Regulators, namely the Commodity Futures Trading Commission (CFTC), 
the Securities and Exchange Commission (SEC), and the prudential 
regulators, must not make hedging so costly it becomes prohibitively 
expensive for end-users to manage their risks.'' \1\
---------------------------------------------------------------------------
    \1\ See letter from Senators Dodd and Lincoln to Chairman Frank and 
Peterson, dated June 30, 2010. https://www.wsj.com/public/resources/
documents/dodd-lincoln-letter070110.pdf.
---------------------------------------------------------------------------
    As policymakers and stakeholders review the proposals, we remain 
concerned that the proposals ignore Congressional intent to keep 
critical risk management tools accessible and low-cost.
    When farmers, ranchers, or other end-users enter into futures or 
other centrally-cleared derivatives contracts to mitigate the risk they 
face from fluctuating commodity prices, they generally initiate the 
trade through a Futures Commission Merchant (FCM) registered with the 
CFTC. FCMs provide market access to their clients through memberships 
at regulated derivatives exchanges and clearinghouses, and the vast 
majority of FCMs today are banks that will be subject to the proposals. 
Increasing regulatory capital charges for banks that provide end-users 
with access to these hedging markets and risk management tools is a 
misguided approach.
    For another key hedging tool, uncleared swaps, the proposals would 
represent a massive increase in the cost of trading these instruments. 
The banking entities who facilitate these transactions as swap dealers 
allocate capital on a business line basis, and as a result, 
disproportionate capital requirements for a certain business line or 
trading desk may cause banks to decrease their offerings of these risk-
reducing tools. As a result, liquidity in these markets could decrease 
dramatically, and the costs of hedging for end-users would be driven 
even higher.
    The Basel III Proposal's public listing requirement would make it 
more expensive for privately owned investment-grade companies to hedge 
against risk, despite the lack of any empirical link between a public 
listing and creditworthiness. In addition, the new capital requirements 
for ``Credit Valuation Adjustment'' or ``CVA'' Risk on derivative 
transactions could further penalize end-users. The new CVA requirements 
are most severe for derivative transactions with end-users.
    The GSIB Surcharge Proposal and Basel III Endgame Proposal 
substantially exceed the Basel III framework and go significantly 
further than what is being implemented in other jurisdictions, such as 
Europe. This will inevitably put end-users seeking to hedge and manage 
risk on an uneven playing field with competitors in other 
jurisdictions.
    In turn, we respectfully ask that you respond to the following 
questions by February 16, 2024.

   Have you conducted any economic analysis about these 
        disparities? Please provide your analysis with regard to the 
        international consistency of the U.S. proposals with other 
        major jurisdictions, and, in particular, how the U.S. and EU 
        jurisdictions treat end-users under the respective proposals.

   As you were developing these proposals, how was the end-user 
        impact of increased capital charges for hedging and risk 
        management tools factored into your decision-making? Have you 
        produced any economic analysis about the impacts these 
        proposals will have on end-users?

   How would increased FCM consolidation create more stability 
        in the derivatives marketplace?

    The impact of these bank capital proposals will have a direct 
effect on the economy and our constituents. It is vital to approach any 
proposal regarding increased capital requirements, particularly 
increased capital requirements for hedging and risk management tools, 
with careful consideration and input from industry as well as a 
comprehensive cost-benefit analysis.
    With rising economic and geopolitical risks, now is not the time to 
increase costs for farmers' cooperatives, energy producers, and food 
processors seeking to responsibly hedge against instability.
            Sincerely,
            
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Hon. Zachary Nunn,                                Hon. Jerry Moran,
Member of Congress                                United States Senator
 

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Hon. Andy Barr,          Hon. John Boozman,       Hon. Glenn
                                                   Thompson,\2\
\1\ Chairman, House
 Committee on
 Agriculture.
Member of Congress       United States Senator    Member of Congress
 

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Hon. J. French Hill,     Hon. John Thune,         Hon. Kevin Cramer,
Member of Congress       United States Senator    United States Senator
 

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Hon. Blaine              Hon. Thom Tillis,        Hon. Frank D. Lucas,
 Luetkemeyer,            United States Senator    Member of Congress
Member of Congress
 

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Hon. Roger Marshall,     Hon. Wiley Nickel,       Hon. Dusty Johnson,
United States Senator    Member of Congress       Member of Congress
 

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Hon. Austin Scott,       Hon. Scott Fitzgerald,   Hon. John W. Rose,
Member of Congress       Member of Congress       Member of Congress
 

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Hon. Roger Williams,     Hon. James R. Baird,     Hon. Cynthia M.
                                                   Lummis,
Member of Congress       Member of Congress       United States Senator
 

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Hon. Bill Hagerty,       Hon. Mike Flood,         Hon. Donald G. Davis,
United States Senator    Member of Congress       Member of Congress
 

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Hon. John S. Duarte,     Hon. Tommy Tuberville,   Hon. Mike Braun,
Member of Congress       United States Senator    United States Senator
 

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Hon. Bryan Steil,        Hon. Cindy Hyde-Smith,   Hon. Erin Houchin,
Member of Congress       United States Senator    Member of Congress
 

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Hon. Monica De La Cruz,  Hon. Daniel Meuser,      Hon. Alexander X.
                         Member of Congress        Mooney,
Member of Congress                                Member of Congress
 

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Hon. Katie Boyd Britt
United States Senator
 

CC:

Federal Reserve Board Chair Jerome Powell
Federal Reserve Board Vice Chair Phillip Jefferson
Federal Reserve Board Governor Michelle Bowman
Federal Reserve Board Governor Christopher Waller
Federal Reserve Board Governor Lisa Cook
Federal Reserve Board Governor Adriana Kugler
Commodity Futures Trading Commission Chair Rostin Behnam
Federal Deposit Insurance Corporation Vice Chairman Travis Hill
Federal Deposit Insurance Corporation Director Jonathan McKernan
Federal Deposit Insurance Corporation Director Rohit Chopra
                                 ______
                                 
   Supplementary Material Submitted by Hon. Rostin Behnam, Chairman, 
                  Commodity Futures Trading Commission
Insert 1
          Mr. Behnam. . . .
          So we are doing what we can with what we have. The sandbox 
        issue you raise that the UK has done, something that I know my 
        predecessors have thought about, I have thought about, there 
        are legal limitations to us being able to provide a sandbox 
        environment for stakeholders. So if that is a priority of 
        yours, you might want to consider it legislatively. But we do 
        have limitations legally to provide a sandbox where, 
        essentially, as you know, you would be protected from certain 
        regulatory actions. But we are seeing a lot of change because 
        of technology, and we are doing what we can with what we have 
        both legally and personnel-wise to make sure we are engaging as 
        much as possible and getting ahead of this very rapidly moving 
        curve.
          Mr. Rouzer. Yes, I would love to get those legal impediments, 
        if your team can provide that list to give us some guidance on 
        that so we could explore.

    While my predecessors requested additional authorities related to 
testing new financial technology applications, I believe the agency has 
what it needs at this time to address the changing landscape of our 
markets. We have moved past the stage of digital assets as a research 
project. Our core policy divisions are currently working with digital 
asset firms that have set up legally-compliant CFTC-regulated entities, 
and our enforcement division has brought numerous cases against non-
compliant firms. Under the Commodities Exchange Act, we cannot grant 
blanket exemptions to digital asset firms that do not comply with our 
regulatory requirements, and we are not requesting legislative 
authority to do so.
    We continue our efforts to understand the nature of digital assets 
and the role that innovation can play in our markets. The agency's 
Office of Technology Innovation works to incorporate innovation and 
technology into our regulatory oversight and mission critical functions 
by supporting each operating division as well as the Commission's 
participation in domestic and international engagements. OTI's 
structure gives the CFTC greater flexibility to serve internal and 
external stakeholders in their efforts to grow expertise and address 
head on the challenges and opportunities presented through advancements 
in technology. Through the work of OTI and our operating divisions, we 
have developed a deep understanding of this novel market and the 
underlying innovations that fuel the market.
    In my mind, the most important issue facing Congress related to 
digital assets is to ensure that there is an imposition of regulatory 
requirements focused on ensuring certain core principles are met to 
protect consumers and the broader financial system. And, I am 
encouraged by the bipartisan and bicameral support for legislation that 
acknowledges the need for additional regulation of the digital asset 
spot markets.
Insert 2
          Ms. Adams. . . . So how does diversity and leadership at DCMs 
        compare with the leadership of other publicly traded entities 
        regulated by the CFTC that operate under the Commodity Exchange 
        Act core principles?
          Mr. Behnam. Congresswoman, I would probably have to look at 
        the specific number of DCMs, the designated contract markets, 
        and the other participants and identify the diversity of their 
        boards. It is not something I necessarily look at regularly, 
        but I am happy to look at that and work with your office to get 
        you some statistics, again, ensuring that that core principle 
        is complied with from Dodd-Frank.

    As you noted, the Dodd-Frank Act added a new core principle for 
publicly-traded DCMs, Diversity of Board of Directors for futures 
exchanges (DCMs). Although many DCMs are subsidiaries of publicly-
traded companies, none of the DCMs are themselves publicly-traded 
companies. For example, the four CME Group DCMs (CME, CBOT, NYMEX and 
COMEX) are subsidiaries of CME Group, Inc., the publicly-traded 
company. Since DCM Core Principle 22 does not currently apply to any 
DCMs, we do not collect this information.
    To follow this question further--as you know, unlike our peer 
Federal financial regulators, CFTC's Office of Minority & Women 
Inclusion (OMWI) is not statutorily authorized under Section 342 of the 
Dodd-Frank Act. Barring that statutory authorization, the CFTC does not 
have the statutory authority specified under Section 342(2)(c) of the 
Dodd-Frank Act to collect and assess the diversity policies and 
practices of entities regulated by the CFTC.
    Under my direction as Chairman, the CFTC hired its first ever Chief 
Diversity Officer (CDO) who oversees the agency's Office of Minority 
and Women Inclusion (OMWI). And, on April 18th the CFTC released its 
first DEIA Strategic Plan. Among other things, the Plan will aim to 
further develop our workforce. Current efforts through our OMWI include 
establishing partnerships and recruiting at minority serving 
institutions and rural colleges and universities, engaging urban and 
rural communities and related professional associations, and planning a 
robust mass media campaign to enhance our outreach efforts. I am eager 
to see the CFTC's OMWI statutorily authorized, similar to other Federal 
financial regulators.
                                 ______
                                 
                          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. Chairman Behnam, I know that the Commission has 
recently signed new leases for space in New York, Chicago, and Kansas 
City, and it in the process of relocating your Washington, D.C. 
headquarters. How does the Commission currently determine its space 
needs?
    Answer. The CFTC works with GSA on all leasing matters. As part of 
the leasing acquisition process GSA conducts a thorough needs 
assessment and applies its experience in facilities planning to 
determine an agency's space requirements. GSA then packages its 
analysis and uses it as the basis for its solicitation to prospective 
landlords.

    Question 1a. I understand that many of the Commission staff are 
currently not coming into the office regularly and the union is 
fighting to make 100% telework a permanent option for all staff in the 
next union contract. If that is accurate, who is using the office space 
that the Commission is leasing and who do you expect will be using 
under a 100% telework model?
    Answer. Since January 1st more than 50% of CFTC staff have entered 
the office. My office is in the building 3 to 5 days a week, the 
division directors are in the office 3 days a week, and Supervisors and 
Executives currently are in twice a week. The CFTC remains in 
negotiations with NTEU for returning all staff to the office. The 
CFTC's current lease for its D.C. location ends on September 30, 2025. 
A new location has been found and will reduce the CFTC's D.C. footprint 
by approximately 50%.

    Question 1b. Mr. Chairman, as you finalize your return-to-work 
plans, how are you making certain that the Commission is not wasting 
money on unused or rarely used space, both in your existing leases and 
in your upcoming lease in Washington, D.C.?
    Answer. The CFTC, through GSA, has recently identified office space 
in DC to relocate its headquarters to at the conclusion of the current 
lease that expires September 30, 2025. The new facility will reduce the 
CFTC's footprint by approximately 50% and will lead to a significant 
annual savings compared to the current headquarters lease. The regional 
leases are also relatively new and based on a similar needs assessment 
conducted by GSA that reduced our footprint. Though not expected, the 
CFTC is able to exit its regional leases should the future work 
environment shift our space needs dramatically.

    Question 2. Chairman Behnam, as you know, the Pathways Program is 
designed to provide training and mentoring to students at the start of 
their career and to provide them with an understanding of the CFTC and 
its culture.
    I am concerned about the ability for the Commission to provide that 
training and mentorship, as well as to develop an effective, high 
performing corporate culture, transmit institutional knowledge, and 
promote teamwork, in an environment where most staff does not interact 
in person day to day.
    Do you share concerns about the sustainability of the culture and 
institutional knowledge at the CFTC if staff interactions are limited 
to Zoom calls and other scheduled interactions? How does remote work 
impact the participants in the Pathways Program if the overwhelming 
majority of staff works from home?
    Answer. I believe that being in the office and interacting in 
person is an important component of building and maintaining a good 
culture. That said, it is also important to acknowledge that great work 
can be, and is being, done while teleworking. Finding the right balance 
is the key. Towards that effort, I have established in-office 
requirements for managers and executives. For employees, while I have 
encouraged agency staff to be in the office, we are in currently in 
negotiations with the union regarding in-office requirements.
    Regarding the Pathways Program, we recently expanded our early 
career program to include the Pathways Recent Graduates Program. For 
all those in the program, we designed the program to ensure that they 
would benefit from a hybrid workplace by including in-office 
requirements. Also, their in-office schedule is set up so they align to 
when their manager is also in the office. To help them better 
understand CFTC's culture and to make other connections within the 
agency, each participant also has been assigned a mentor. We believe 
these efforts as well as our revamped new employee orientation program 
are contributing to early career program participants understanding of 
CFTC's culture and being effective employees.

    Question 3. Chairman Behnam, there have been a few recent CFTC 
enforcement actions against Decentralized Finance (DeFi) entities. The 
DeFi community has complained that those actions were taken without 
notice to DeFi entities that their activity (e.g., merely creating an 
online trading platform) could be considered a violation of the 
Commodity Exchange Act and Regulations. Could you please tell me 
whether the CFTC plans on publishing guidance regarding potential 
liability for DeFi activities to ensure that DeFi entities are made 
aware of their responsibilities?
    Answer. Over the past few years, the Commission has brought 
multiple actions against DeFi platforms to enforce the legal 
requirements that apply to all platforms, whether centralized or 
decentralized, that offer derivative products to the public. The CFTC's 
actions did not find that DeFi technology was per se violative of the 
CEA or illegal but rather that DeFi platforms are not exempt from our 
regulations.
    The legal requirements that apply to derivative platforms are 
established under the Commodity Exchange Act and have been in place for 
decades. Market participants are well aware of these rules.
    The Commission has no current plans to issue guidance specific to 
DeFi. We will continue to work to ensure that digital asset 
transactions that should be conducted on regulated derivatives 
platforms are in fact conducted on those platforms.

    Question 4. Chairman Behnam, last year, the Commission lost its 
long-serving Inspector General. It has been over 6 months without a 
permanent replacement. What is the process for naming a permanent IG 
and do you have a timeframe for when that will happen?
    Answer. On April 10, 2024 the CFTC announced Christopher L. Skinner 
as the newly appointed Inspector General for the agency. CFTC Appoints 
Christopher Skinner as Inspector General D CFTC.\1\ *
---------------------------------------------------------------------------
    \1\ https://www.cftc.gov/PressRoom/PressReleases/8890-24.
    * Editor's note: references annotated with  are retained in 
Committee file.

    Question 5. Chairman Behnam, I worry that we are not utilizing our 
best efforts to secure our information from those that may seek to 
disrupt our financial markets. Could you please detail the agency's 
efforts to ensure that it and its systemically important market 
participants are employing the strongest protections available against 
cyber threats?
    Answer. The CFTC is the primary market regulator for the designated 
contract markets (``DCMs''), swap execution facilities (``SEFs''), 
derivatives clearing organizations (``DCOs''), and swap data 
repositories (``SDRs'') owned by CME Group, Inc. (``CME Group'') and 
those owned by Intercontinental Exchange, Inc. (``ICE''). CME Group and 
ICE are the two largest providers of derivatives trading and clearing 
in the United States.
    In July 2012, the Financial Stability Oversight Council (``FSOC'') 
determined that the Chicago Mercantile Exchange, Inc. (``CME''), a 
subsidiary of CME Group, and ICE Clear Credit LLC (``ICC''), a 
subsidiary of ICE, are systemically important financial market 
utilities (``FMUs'') under Title VIII of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act. The designations were based on 
FSOC's determination that failure or disruption of the FMU's operations 
could create or increase the risk of significant liquidity or credit 
problems spreading among financial institutions or markets and thereby 
threaten the stability of the U.S. financial system.
    The CFTC has an established system safeguards and cybersecurity 
regulatory framework. The framework covers all subsidiaries of CME 
Group, and all subsidiaries of ICE that are registered with the CFTC, 
including a number of DCMs, SEFs, DCOs, and SDRs. At both CME Group and 
ICE, the DCMs, SEFs, DCOs, and SDRs share a common program of system 
safeguards risk analysis and oversight for their automated systems.
    Based on statutory and regulatory requirements, the CFTC oversight 
framework requires each DCM, SEF, DCO, and SDR registered with the CFTC 
to have a program of risk analysis and oversight to identify and 
minimize sources of operational risk through the development of 
appropriate controls and procedures, and the development of automated 
systems that are reliable, secure, and have adequate scalable capacity. 
These entities must have emergency procedures, backup facilities, and a 
plan for disaster recovery that allows for the timely recovery and 
resumption of operations. The entities must periodically test such 
procedures to ensure continuity of operations. The program of system 
safeguards risk analysis and oversight must follow generally accepted 
standards and best practices for each required element of the program. 
In addition, the program must address seven categories of system 
safeguards risk analysis and oversight, including: (1) system 
safeguards risk management and governance; (2) information security; 
(3) business continuity and disaster recovery planning and resources; 
(4) capacity and performance planning; (5) systems operations; (6) 
systems development and quality assurance; and (7) physical security 
and environmental controls.
    CFTC regulations also require various types of system safeguards 
and cybersecurity testing, including (1) vulnerability testing; (2) 
external and internal penetration testing; (3) identification of key 
controls and testing of all controls; (4) development and testing of a 
security incident response plan; and (5) completion and annual updating 
of an enterprise technology risk assessment.

    Question 6. Chairman Behnam, in February, the CFTC issued a no-
action relief letter (NAL) that allows registered swap dealers to not 
provide otherwise required information to a swap counterparty if: (1) 
the counterparty agrees they don't need the information; and (2) the 
information is otherwise easily available to the counterparty. Could 
you please elaborate on the NAL and explain why this relief was given?
    Answer. CFTC staff letter 24-02 was issued as part of the CFTC's 
support for the industry-wide transition from use of the LIBOR interest 
rate benchmark in CFTC-regulated derivatives to the risk-free-rate 
benchmark, SOFR, chosen by the Alternative Reference Rate Committee 
(ARRC) sponsored by the Federal Reserve Bank of New York.
    Importantly, the no-action letter only applies to a swap dealer's 
disclosure of a ``pre-trade mid-market mark'' for certain interest rate 
swaps referencing SOFR, and does not apply to any other disclosure 
required by CFTC rules (i.e., disclosure of swap risks and 
characteristics, disclosure of conflicts of interest, etc.). The no-
action letter does not apply to the ``daily mark'' disclosure 
requirement, which is a requirement that a daily mid-market mark for a 
swap be provided by a swap dealer to a counterparty each business day 
after execution (or, if a cleared swap, provided by a DCO to the 
counterparty each business day).
    The no-action letter is a replacement for an existing no-action 
position issued in 2012 for certain interest rate swaps referencing 
LIBOR. It responds to a request from the ARRC as part of the ARRC-led 
transition from LIBOR to SOFR. The no-action letter applies only to 
SOFR swaps that are required to be cleared and are thus the most 
widely-traded, most liquid interest rate swaps in the market. Pre-trade 
prices for such SOFR swaps are widely available from public sources and 
thus, requiring a swap dealer to also provide a pre-trade mid-market 
price for such swaps is redundant and only causes possible delay in 
execution.

    Question 6a. Do you have any concerns that granting this relief may 
increase systemic risk in the marketplace or impose greater risk on the 
counterparties to these trades?
    Answer. No. Again, the no-action letter applies only to a swap 
dealer's disclosure of a pre-trade mid-market mark and does not apply 
to any other disclosure required by CFTC rules, such as disclosure of 
risks and characteristics of swaps and disclosure of conflicts of 
interest of the swap dealer, etc. No-action letter 24-02 is a 
replacement for a letter originally issued in 2012 for LIBOR swaps. 
Thus, the no-action position has been in effect for the most widely 
traded interest rate swaps for 14 years and CFTC Staff is unaware of 
any increase in systemic risk or imposition of greater risk on 
counterparties to these trades during the last 14 years.

    Question 7. Chairman Behnam, in December, the CFTC proposed a rule 
that would protect clearing member funds held by clearinghouses. Could 
you please elaborate on what this rule does and why it is necessary?
    Answer. Currently clearing members and participants, including 
natural persons who clear directly at non-intermediated DCOs, do not 
receive the same protections for their funds as those provided under 
the CEA for the funds of customers of FCM clearing members. The 
Commission has attempted to provide some measure of protection in some 
cases through conditions to a DCO's order of registration, but given 
that five of the 16 DCOs now registered with the Commission provide 
non-intermediated clearing, it was long past time for the Commission to 
promulgate rules to thoroughly protect participant funds held by DCOs.
    As you indicated in your question, the proposed rule will provide 
protections for participants' funds. These protections are practically 
identical to those provided to FCM customer funds and include: 
segregation of participant funds from the DCO's own funds; requiring 
that participant funds be held in a depository that expressly 
acknowledges the funds belong to participants and must remain 
segregated from the DCO's own funds; limiting the ability of DCOs to 
invest participant funds; and requiring the DCOs to conduct daily 
accounting and reconciliation between the amounts held in their 
accounts and the amounts owed to participants.
    In addition, the rule encourages the holding of customer and 
participant funds at central banks by proposing requirements specific 
to obtaining written acknowledgements from central banks holding such 
funds. As compared to commercial banks, central banks present lower 
credit and liquidity risk. The proposal allows a DCO to hold customer 
and participant funds at certain central banks with only a simple 
written acknowledgment (in contrast to the previously adopted template 
acknowledgment letter) the central bank was informed the funds 
deposited are customer or participant funds and an agreement to respond 
to requests from Commission staff for information about the account(s) 
holding the funds.

    Question 8. Chairman Behnam, in June 2023, the CFTC finalized a 
rule that required clearinghouses to establish and listen to ``risk 
management committees'' made up of their clearing members. Could you 
please describe the relationship between a clearinghouse and its 
clearing members and why this rule was undertaken?
    Answer. The clearing members of a clearinghouse (which is also 
called a derivative clearing organization, or ``DCO'') perform a 
variety of risk management functions to support the financial integrity 
of the DCO. Significantly, at most DCOs, clearing members contribute to 
a default fund that helps ensure that the DCO is able to meet its 
financial obligations to a DCO's participants even if a given clearing 
member were to become insolvent or otherwise default on its obligations 
to the DCO. In this way, default losses at a DCO may be mutualized 
across its clearing members, who therefore have a significant stake in 
the DCO's financial integrity. The CFTC's recent rule, which was based 
on recommendations from a subcommittee of the CFTC's Market Risk 
Advisory Committee that includes representatives from DCOs, clearing 
members, and end-users, requires DCOs to consult with risk management 
committees that include clearing member representation prior to making 
certain significant risk decisions. This helps DCOs take advantage of 
clearing members' risk management expertise and strong interest in the 
DCO's risk management, in order to promote the safety and efficiency of 
the DCO and the stability of the broader financial system.

    Question 9. Chairman Behnam, in December, the CFTC proposed a rule 
that would require certain derivatives market intermediaries to 
establish Operational Resilience Frameworks (ORF).
    In your testimony, you highlighted how you have highlighted how you 
are working with domestic regulators to ensure that the ORF 
requirements are not duplicative. Have you had similar conversations 
with foreign regulators? How are they approaching these same 
challenges? Will you be providing substituted compliance or other 
relief for entities which face similar requirements in their home 
jurisdiction?
    Answer. Under my leadership, the agency has placed renewed focus on 
cybersecurity and related risks to identify new ways to expand and 
enhance our oversight in this area. To that end, in December 2023, the 
Commission issued a proposed rulemaking that would require futures 
commission merchants and swap dealers, which play crucial roles as 
intermediaries in the derivatives markets, to develop an Operational 
Resilience Framework. This framework would include enhanced 
requirements relating to not only information and technology security 
but to risks posed by third-party relationships and how to keep 
operating in the face of emergencies or other significant disruptions 
affecting the continuity of operations. The draft rule also included 
proposed guidance relating to the management of risks stemming from 
third-party relationships. Staff are now busy reviewing the comments on 
this rulemaking, and we hope to be able to finalize the rule this fall.
Questions Submitted by Hon. Frank D. Lucas, a Representative in 
        Congress from Oklahoma
    Question 1. Under the current CFTC margin rules, eligible 
collateral for initial margin includes government related money market 
funds (MMFs). These MMFs are allowed as eligible collateral under CFTC 
and other regulatory regimes' noncleared margin rules, but the CFTC has 
restrictions that could increase operational risk and jeopardize U.S. 
firms' competitiveness. Currently, the CFTC does not permit the use of 
MMFs issued in another jurisdiction without restrictions or MMFs that 
transfer assets through securities lending and repurchase agreements 
(``repos''). The CFTC has proposed amendments--suggested by the CFTC's 
Global Markets Advisory Committee--to its margin rules that would 
expand the use of these MMFs.
    Chairman Behnam, I was pleased to see your 2023 notice of proposed 
rulemaking expanding the use of money market funds (MMFs) as eligible 
collateral. It is my understanding that MMFs are a key element of 
managing liquidity and collateral, particularly during times of market 
volatility. Can you provide a timeline for finalization of this 
proposal?
    Answer. Staff is continuing to review the comments received in 
response to the Commission's NPRM regarding uncleared margin. 
Commenters raised some operational concerns with respect to 
implementation of certain aspects of the proposal that require careful 
staff consideration. In light of this, it is challenging to provide an 
estimate for possible finalization at this point.

    Question 2. Chairman Behnam, data protection issues have been a 
concern for many years. There has been concern from market participants 
about the recent MOU between the CFTC and SEC as it relates to Form PF.
    What steps have been taken to ensure the best possible transfer of 
sensitive proprietary data between agencies, and does the CFTC's 
analysis identify any risks for market participants?
    Answer. The Dodd-Frank Wall Street Reform and Consumer Protection 
Act of 2010 mandated that the SEC and the CFTC, in consultation with 
the FSOC, jointly promulgate rules governing the form and substance of 
reports required by investment advisers to private funds to be filed 
with the SEC, and with the CFTC for those that are dually-registered 
with both Commissions.\2\ Form PF provides the Commissions and FSOC 
with important information about the basic operations and strategies of 
private funds and has helped establish a baseline picture of the 
private fund industry for use in assessing systemic risk. The 
Commission also expects to use Form PF data to inform its regulatory 
programs, including examinations, investigations and investor 
protection efforts.
---------------------------------------------------------------------------
    \2\ Public Law 111-203, 124 Stat. 1376 (2010).
---------------------------------------------------------------------------
    Form PF data from both CFTC registrants and non-CFTC registrants is 
expected to assist the Commission in providing effective oversight of 
CFTC registrants and to protect the financial integrity of derivatives 
markets. Form PF provides information from filers reflecting creditor 
and counterparty exposures (including central clearing counterparties 
or ``CCPs''), financing arrangements, and activities in cross-market 
transactions. Understanding counterparty exposures allows the 
Commission to assess who may be impacted by losses due to a reporting 
fund's failure, and which reporting funds may be impacted by a 
counterparty's failure. Form PF data, reported by non-CFTC registrants 
with such financing exposures to CFTC registrants, therefore informs 
the Commission of the risks to CFTC registrants such as Swap Dealers 
and Derivatives Clearing Organizations (DCOs).
    With respect to the protection of Form PF data, the Commission 
respects its statutory obligations not to reveal information that would 
disclose the transaction, positions, or trade secrets of customers. 
Moreover, the MOU between the SEC and CFTC specifies minimum procedural 
and data security requirements for receipt of the data. Many of these 
guidelines are Federal requirements that the CFTC meets or exceeds in 
regular practice.

    Question 3. The CFTC regulates markets with a global impact. Will 
you commit to allowing U.S. customer access in foreign markets when 
necessary?
    Answer. Yes, I am committed to allowing U.S. customer access in 
foreign markets to the extent permitted by U.S. law. The Commodity 
Exchange Act (CEA) has long allowed U.S. customer access to foreign 
markets. For nearly 40 years, pursuant to the CFTC's Part 30 rules, 
U.S. customers have been permitted to trade foreign futures listed on 
any foreign board of trade, either through an FCM registered with the 
Commission that has opened an omnibus account with a foreign broker or 
directly through a foreign broker that the Commission has exempted from 
registration as an FCM pursuant to CFTC rule 30.10. As outlined in 
Appendix A to Part 30, a foreign regulator or foreign board of trade 
seeking relief under rule 30.10 must demonstrate that it provides a 
comparable system of regulation for foreign firms engaging in the 
activities of an FCM with respect to U.S. persons, and enter into an 
information-sharing arrangement with the Commission.
    In addition, pursuant to Part 48 of the CFTC's rules, foreign 
boards of trade have been permitted to provide U.S. customers with 
direct access to their markets so long as such trades are cleared 
through a registered FCM or a foreign broker exempted from FCM 
registration pursuant CFTC rule 30.10.
    A list of the foreign boards of trade accessible to U.S. customers 
pursuant to Part 48 is available here: https://www.cftc.gov/
IndustryOversight/IndustryFilings/ForeignBoardsofTrade
    A list of foreign markets that have obtained a 30.10 exemption is 
available here: https://www.cftc.gov/IndustryOversight/IndustryFilings/
ForeignPart30Exemptions
    With respect to swaps clearing, the Commission permits a foreign 
clearinghouse to register with the Commission as a derivative clearing 
organization (DCO) and clear for U.S. customers if the clearinghouse 
can meet the DCO core principles set forth in the CEA and the 
applicable CFTC rules, which are the same requirements for U.S. DCOs. 
Under CFTC Rule 39.51, a foreign clearinghouse may be able to comply 
with the DCO core principles through compliance with its home country 
regulatory regime, as an alternative to CFTC rules.

    Question 4. Compliance for the new block trade and cap size 
reporting obligations is required beginning July 1, 2024. Commissioners 
Mersinger and Pham noted in a joint release,\3\ more time is needed to 
study the market impact of these reporting obligations. Additionally, 
just last month, the CFTC's Global Markets Advisory Committee (GMAC) 
recommended \4\ ``extending the compliance date for the post-initial 
block and cap sizes for all asset classes to at least December 4, 
2024,'' giving the Commission time to engage ``with market participants 
in discussions and analysis to ensure the post-initial block and cap 
sizes are appropriately tailored.'' Given the upcoming deadline, could 
you please provide an update from the CFTC on the recommendations put 
forward by GMAC and the Commission's intentions moving forward on this 
topic?
---------------------------------------------------------------------------
    \3\ https:/www.cftc.gov/PressRoom/SpeechesTestimony/
mersingerphamstatement101823.
    \4\ https://www.cftc.gov/PressRoom/PressReleases/8860-24.
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    Answer. Commission staff published revised post-initial appropriate 
minimum block sizes and extended the timeline for implementation on May 
23, 2024.\5\ The revised block sizes take into consideration the data 
improvements contemplated by the Commission's 2020 Swaps Data 
Rulemakings.\6\ The Commission does not intend for the publication of 
the revised block sizes to be associated with any formal notice and 
public comment period.\7\ The Commission expended significant time and 
resources in analyzing data and responding to public comments received 
during the comment period associated with the 2020 Swaps Data 
Rulemakings. The compliance date for the revised block sizes has been 
extended to October 7, 2024. The Commission plans to continue to engage 
with market participants informally and monitor the liquidity of its 
jurisdictional markets.
---------------------------------------------------------------------------
    \5\ Staff Letter 24-06 (https://www.cftc.gov/csl/23-15/download). 
CFTC Staff Announces Updated Part 43 Block and Cap Sizes and Further 
Extends No-Action Letter Regarding the Block and Cap Implementation 
Timeline D CFTC (https://www.cftc.gov/PressRoom/PressReleases/8913-
24).
    \6\ The revised block sizes were calculated in accordance with 
Commission regulation 43.6(g), which requires use of a 67 percent 
notional amount calculation. The revised block sizes were calculated 
based on a 1 year window of reliable swap transaction and pricing data 
transmitted to Swap Data Repositories (SDRs) between December 1, 2021 
and November 30, 2022. The SDR that receives the vast majority of swap 
transaction and pricing data reports had already implemented several 
key aspects of the Commission's 2020 Swaps Data Rulemakings prior to 
December 1, 2021.
    \7\ The Commission's regulations require the Commission to update 
the block sizes on its website at least once each calendar year, but 
modify the block swap categories and block calculation methodology 
through rulemaking. The Commission therefore does not intend for the 
publication of the revised block sizes to be associated with a formal 
notice and comment period, as the Commission noted its concern during 
the 2020 Swaps Data Rulemakings that opening the results of applying 
the block methodologies to data would suggest the methodologies are 
open to public comment annually, when opening the rules for public 
comment each year would be an inefficient use of Commission resources.
---------------------------------------------------------------------------
    As you know, the Commodity Exchange Act (CEA) directs the 
Commission to provide for both real-time public swaps reporting and 
appropriate block sizes. The Commission concluded in both 2013 and 2020 
that a 67 percent notional amount block size calculation, applied to 
the most liquid categories of products in certain swap asset classes, 
strikes an appropriate balance between the benefits of transparency and 
any potential costs to market participants. The Commission continues to 
believe that transparency will increase liquidity, improve market 
integrity and price discovery, while reducing information asymmetries 
enjoyed by market makers. The currently effective block sizes, which 
were calculated using a 50 percent notional amount calculation and 
intended as an initial step towards a phase-in of thresholds determined 
using a 67 percent notional amount calculation, have not changed in a 
decade. The Commission is cognizant that the currently effective block 
thresholds result in less transparency than the Commission has 
previously determined is appropriate to effectuate its CEA 
responsibilities.
Question Submitted by Hon. Dusty Johnson, a Representative in Congress 
        from South Dakota
    Question. Chairman Behnam, data protection issues have been a 
concern for many years. I commend the CFTC for setting up the Division 
of Data to prioritize these issues. However, I am concerned about the 
recent memorandum of understanding that you entered into with the SEC 
granting the CFTC unrestricted access to all data submitted to the SEC 
by all Form PF filers, including data submitted to the SEC by non-CFTC 
registrants.
    According to the CFTC and SEC's joint final rule for Form PF, 
``Form PF elicits non-public information about private funds and their 
trading strategies, the public disclosure of which could adversely 
affect the funds and their investors.'' It is unclear why the CFTC 
should be granted access to Form PF data for non-CFTC registrants. 
Moreover, I am concerned about the protection of sensitive Form PF data 
as it shared between the agencies.
    Could you please tell me why the CFTC needs to access non-CFTC 
registrant information and what the CFTC is doing to mitigate the risks 
associated with sharing highly confidential information?
    Answer. The Dodd-Frank Wall Street Reform and Consumer Protection 
Act of 2010 mandated that the SEC and the CFTC, in consultation with 
the FSOC, jointly promulgate rules governing the form and substance of 
reports required by investment advisers to private funds to be filed 
with the SEC, and with the CFTC for those that are dually-registered 
with both Commissions.\8\ Form PF provides the Commissions and FSOC 
with important information about the basic operations and strategies of 
private funds and has helped establish a baseline picture of the 
private fund industry for use in assessing systemic risk. The 
Commission also expects to use Form PF data to inform its regulatory 
programs, including examinations, investigations and investor 
protection efforts.
---------------------------------------------------------------------------
    \8\ Public Law 111-203, 124 Stat. 1376 (2010).
---------------------------------------------------------------------------
    Form PF data from both CFTC registrants and non-CFTC registrants is 
expected to assist the Commission in providing effective oversight of 
CFTC registrants and to protect the financial integrity of derivatives 
markets. Form PF provides information from filers reflecting creditor 
and counterparty exposures (including central clearing counterparties 
or ``CCPs''), financing arrangements, and activities in cross-market 
transactions. Understanding counterparty exposures allows the 
Commission to assess who may be impacted by losses due to a reporting 
fund's failure, and which reporting funds may be impacted by a 
counterparty's failure. Form PF data, reported by non-CFTC registrants 
with such financing exposures to CFTC registrants, therefore informs 
the Commission of the risks to CFTC registrants such as Swap Dealers 
and Derivatives Clearing Organizations (DCOs).
    With respect to the protection of Form PF data, the Commission 
respects its statutory obligations not to reveal information that would 
disclose the transaction, positions, or trade secrets of customers. 
Moreover, the MOU between the SEC and CFTC specifies procedural and 
data security requirements for receipt of the data. Many of these 
guidelines are Federal requirements that the CFTC meets or exceeds in 
regular practice.
Questions Submitted by Hon. John W. Rose, a Representative in Congress 
        from Tennessee
    Question 1. Chairman Behnam, to ensure the continued security of 
sensitive data, I'd like to inquire about potential incidents of 
accidental disclosure or misuse of confidential CFTC data by employees 
working remotely. Can you please specify if any such incidents have 
occurred? If so, please list the details regarding the nature of the 
incidents, including the date range and type of data involved, as well 
as the measures taken by the CFTC to address them.
    Answer. I cannot specify instances in which employees working 
remotely accidentally disclosed or misused confidential CFTC data. I 
can say, however, that there have been instances where media outlets 
have reported on confidential CFTC information. It is not clear if the 
source was a CFTC employee, or if it was a CFTC employee whether they 
were working remotely. There is no indication that the information 
reported was trade position or regulatory reporting data, but rather 
other sensitive information. To address this situation, I have sent out 
a number of emails reminding employees about the importance of keeping 
confidential information confidential. As noted in these emails, the 
leaking of any confidential CFTC information ultimately undermines the 
public's trust in us to fulfill our mission.
    Also, please know that the CFTC Security Operations Center (SOC) 
has adequate security controls in place to allow us to monitor the CFTC 
network and detect abnormal and malicious activities from inside and 
outside the network. For example, we monitor and get alerts on many 
things on the network, including but not limited to new account 
creation, privilege account creation, and downloading and emailing of 
large amounts of data. We do not allow USB thumb drives and USB drives 
to be connected to our devices. Additionally, we block access to social 
media, we monitor for CFTC emails sent to personal emails and we do not 
allow the creation of email forwarding rules.

    Question 2. Chairman Behnam, if the pending bank capital proposals 
are implemented without major reforms this will require banks to 
increase the costs of client clearing services and likely reduce the 
clearing capacity they can provide clients. Or some banks may be forced 
to completely exit the client clearing business which would cut off 
access to certain derivatives markets for end-users. Non-bank futures 
commission merchants can provide access to derivatives markets as well, 
and may have capacity to take on some additional clients, but do they 
have the capacity to replace a GSIB bank that offers client clearing 
services?
    Answer. It is important to emphasize that the efficient and 
effective operation of the cleared derivatives markets relies on FCMs 
to bring customers, including end-users, to the futures and cleared 
swaps market, and to clear transactions on behalf of customers. FCMs 
provide the infrastructure by which customers access the markets and 
they also process customer margin payments to and from derivatives 
clearing organizations (DCOs). DCOs and the clearing system also rely 
on certain market intermediaries, in particular FCMs that are clearing 
members, to be willing and able to participate in risk sharing 
arrangements, both on ``sunny days,'' (e.g., guaranteeing clients' 
financial performance to the DCO, contributing to DCO default resource 
waterfalls) and on ``stormy days'' (e.g., porting a defaulting FCM's 
customer position to a financially sound FCM.) The strength of the 
system depends on, but goes beyond, the strength of each participant 
considered individually. CFTC has been concerned the proposed capital 
increases attributable to client clearing could:

   Reduce the number of firms that offer client clearing (a 
        number that has already been on a steep decline, from 100 as of 
        January 2004 to 47 as of February 2024). There is a heavy 
        concentration of customer funds with FCMs that are part of U.S. 
        or foreign banking organizations. With respect to futures 
        customers, the top five FCMs are bank FCMs and they hold 55 
        percent of total customer funds required to be segregated. With 
        respect to cleared swaps transactions, only bank FCMs clear for 
        customers and the top five FCMs hold 75 percent of total 
        cleared swaps customer funds required to be segregated;

   Make remaining clearing firms more selective, pushing out 
        clients other than those that generate significant revenue 
        through high levels of trading or other activities (such as 
        securities trading), and refusing to serve new clients who do 
        not meet that standard;

   Reduce willingness of the remaining client-clearing firms to 
        take on client positions of failing firms (thus making bank 
        clearing firms more likely to be considered ``too big to 
        fail''); and

   Even for clients that maintain access, increase costs to an 
        extent that would disincentivize cleared versus non-cleared 
        derivatives.

    This would not be a question of whether non-bank clearing firms 
could replace bank or bank-affiliated clearing firms, as the effects of 
reducing options and competition would affect the entire ecosystem. 
Moreover, it is possible that reduced availability of clearing services 
may flow downhill--that is, non-bank clearing firms, having limited 
capital to meet CFTC's and DCO's risk-margin-based minimum capital 
requirements, might free up the capacity to accept more profitable 
clients transferring from bank-affiliated clearing firms by displacing 
some of their existing customers, including smaller business clients. 
Should client clearing be reduced, the outcome could, paradoxically, be 
an increase in system complexity, opacity, interconnectedness and lower 
resilience.

    Question 3. Chairman Behnam, could you please tell me about any 
conversations that have taken place between the Commission and the SEC 
regarding Prometheum's plans?
    Answer. The CFTC has ongoing discussions with the SEC about topics 
of mutual interest, and as part of these discussions we have talked 
about Prometheum's plans and the status of Ethereum. As I have said 
previously, I believe Ethereum is a commodity. There have been listed 
futures on Ethereum on CFTC-regulated markets going back to 2020. And 
the CFTC has brought cases against institutions or organizations that 
are trading Ethereum in an illegal manner, including against Binance.

    Question 3a. Have you had any conversations with SEC Chairman 
Gensler regarding whether Ether is a commodity or a security?
    Answer. Chairman Gensler and I have spoken about the classification 
of Ether. I have stated clearly that I believe Ethereum is a commodity 
and that there have been listed futures on that digital asset on CFTC-
regulated markets dating back to 2020. Our enforcement docket and the 
case the agency brought against Binance reinforces that decision.

    Question 4. Chairman Behnam, the Commission has been migrating its 
data and analytics capabilities to the cloud. Is this process complete 
yet? What efficiencies or capabilities does a move to the cloud 
provide?
    Answer. The Commission has now concluded a multi-year project to 
transition its legacy data environment to the cloud. All of the 
Commission's systems and data are currently in the cloud. However, the 
Commission continues to leverage its prior cloud investments to 
modernize its analytics capabilities and expand the Commission's use of 
advanced analytics tools, such as artificial intelligence, in the cloud 
environment. Transitioning the Commission's legacy data environment to 
the cloud provides for many efficiencies and capabilities. Primary 
among these efficiencies and capabilities are a reduction in 
administrative maintenance costs, access to more modern analytical 
tools, and the ability to meaningfully analyze certain market data for 
the first time.
    The Commission collects and maintains a wide range of data to 
support its mission of fostering open, transparent, competitive, and 
financially sound markets. Over time, the expansion of electronic and 
automated trading in markets overseen by the Commission has led to the 
Commission ingesting and managing over 15 billion records per day. Some 
of these data sets reflecting certain market activity, such as orders 
submitted to designated contract markets, were so large that it was 
challenging to meaningfully process and analyze those data sets in the 
Commission's legacy on-premise data environment. For these extremely 
large data sets, the transition to a cloud environment enabled the 
Commission to access the data storage and processing capabilities 
necessary to more efficiently and more meaningfully analyze data 
representing certain market activity.

    Question 4a. Chairman Behnam, with a move to the cloud, the CFTC is 
now exposed to the same sort of vendor risk that many market 
participants are exposed to. What steps is the Commission taking to 
ensure that its incredibly sensitive market data is never exposed to 
the public or misused internally?
    Answer. The Commission takes its responsibility to secure data as a 
fundamental tenant of our operational philosophy, and has a robust 
program designed to address threats to our security posture. Security 
of the Commission's cloud environment is protected as mandated in 
FEDRAMP directives. The Commission has a continuous monitoring program 
established on the cloud environment to ensure that our environment 
remains compliant with the latest security requirements. We also have 
implemented security controls which limit connections between our main 
analytical data environment and the outside internet. The result of 
these controls is that assets on our data environment are not 
discoverable from the outside internet. Additionally, the Commission is 
actively working to implement a Data Loss Prevention program in our 
environment as required in EO 14028 to protect against the threat of 
internal misuse.
Questions Submitted by Hon. David Scott, a Representative in Congress 
        from Georgia
    Question 1. In its October 2022 Report on Digital Asset Financial 
Stability Risks and Regulation, the Financial Stability Oversight 
Council (FSOC) recommended that agencies (including the CFTC) conduct a 
full analysis of the impact of vertical integration on conflicts of 
interest, market volatility, and whether that type of market structure 
should be accommodated. However, the Commission moved forward with a 
proposed rule regarding clearing member funds at clearing houses even 
though the proposal promotes a type of vertical integration by 
facilitating a direct-to-retail clearing market structure by placing 
futures commission merchant (FCM) responsibilities inside the DCO.

   Has the Commission conducted this FSOC recommended analysis, 
        and if so what were the results and why wasn't it included or 
        referenced in the proposed rule?

   If the Commission has not conducted this analysis, why did 
        you put this proposal before the Commission without completing 
        the analysis first?

   Does the CFTC disagree with the FSOC's 2022 October Report's 
        recommendation or is it just ignoring it?

    Answer. The FSOC report recommended an assessment as to whether 
vertically integrated market structures can or should be accommodated 
under existing laws and regulations. At the time FSOC issued its report 
in October 2022, the CFTC had approved five DCOs for non-intermediated 
clearing: North American Derivatives Exchange in 2004; Natural Gas 
Exchange in 2008; Cantor Clearinghouse in 2010; LedgerX in 2017; and 
Eris Clearing in 2019. In other words, non-intermediated clearing has 
been permitted for 20 years and is not a new market structure.
    Because participants--including natural persons who may be 
considered retail--at non-intermediated DCOs are not customers of FCMs, 
their funds do not receive the same protection provided for the funds 
of customers of FCM clearing members under the CEA. Thus far the 
Commission has attempted to provide some measure of protection through 
conditions to each DCO's order of registration, but given that five of 
the 16 DCOs now registered with the Commission provide non-
intermediated clearing, it was long past time for the Commission to 
promulgate rules to thoroughly protect participant funds held by DCOs. 
It would be irresponsible for the Commission to further delay those 
necessary protections.

    Question 2. The Commission moved forward with last December's 
proposed rule regarding clearing member funds at clearinghouses or DCOs 
(derivative clearing organizations) without addressing issues and 
questions about anti-money laundering (AML), know-your-customer (KYC) 
standards, and countering terrorist financing (CTF). These are 
important requirements which are currently applicable to futures 
commission merchants (FCMs) but do not yet apply to clearinghouses or 
DCOs (derivative clearing organizations) under the proposed rule. I 
know the Commission is currently reviewing its authority to apply such 
AML, KYC, and CTF standards on clearinghouses.

   Do you believe it is appropriate to finalize this proposed 
        rule and expand direct clearing for retail customers without 
        having these standards in place at DCOs.

   Will you commit to not finalize this rule unless AMC, KYC, 
        and CTF protocols are either already in place or apply 
        currently with the final rule?

    Answer. I agree that AML, KYC, and CTF are important issues, and 
CFTC staff continues to analyze the Commission's authority to apply 
AML, KYC, and CTF requirements to DCOs. But AML, KYC, and CTF are 
separate and distinct issues from the protection of participant funds. 
In the case of AML requirements, the statutory framework requires the 
aid of FinCEN to designate DCOs as financial institutions, and staff 
have been in contact with FinCEN staff and have requested that aid.\9\
---------------------------------------------------------------------------
    \9\ 31 U.S.C.  5312(a)(2) defines the set of ``financial 
institutions'' that are subject to AML requirements in a manner that 
does not include DCOs. Paragraph (a)(2)(Y), however, allows Treasury to 
include, by regulation, additional businesses that perform similar 
functions as financial institutions.
---------------------------------------------------------------------------
    Permitting DCOs that engage in direct clearing of fully 
collateralized contracts (with no leverage, extension of credit, or 
potential for margin calls) for retail participants to pursue margined 
clearing (with potential for margin calls, or liquidation if those are 
not met) also raises important issues which staff are considering, but 
this issue is also distinct from the protection of participant funds 
held by DCOs.

    Question 3. Currently, future commission merchants (FCMs) are 
required to hold customer funds at a bank, trust or a CFTC-regulated 
entity. That requirement is absent for member funds held by a 
clearinghouse and is not added in the recently proposed rule regarding 
clearing member funds at clearing houses. In its current form, the 
proposed rule would allow clearinghouses to place the funds anywhere, 
even an affiliate. Given the experience with FTX, do you think the rule 
should be amended to impose a similar requirement on clearinghouses 
directly holding ``member'' funds as FCMs have when holding customer 
funds? Why or why not?
    Answer. I also agree it is important that both FCM customer funds, 
and direct participant funds, be held in depositories where the funds 
will be safe. Currently, the CEA and CFTC regulations only require that 
FCM customer funds be held in a bank or trust company, which I believe 
is insufficient in light of recent bank failures (i.e., Silvergate 
Bank) or the potentially limited assurances of safety that certain 
trust companies may provide. I have directed staff to consider 
standards for banks and trust companies acting as depositories for FCM 
customer funds and direct participant funds. In the meantime, CFTC 
staff use DCO Core Principle F in the CEA, which requires DCOs to 
establish procedures to protect and ensure the safety of member and 
participant funds, as a means to require that DCOs use safe 
depositories--being a bank or trust company alone does not suffice.
    All of these issues--protection of participant funds, AML, KYC, and 
CFT, as well as which depositories should be considered sufficiently 
safe--are important. The latter two sets of issues are complex, and 
resolving them will take time. I cannot, in good conscience, allow 
participant funds to remain insufficiently protected while these other 
issues are sorted out, which is why I intend to proceed with finalizing 
the rule.

                                  [all]