MIL-OSI USA: Keynote Address of CFTC Chairman Rostin Behnam at the Piper Sandler Global Exchange and Trading Conference, New York, NY

Recommended Sponsor - Buy Original Artwork Directly from the Artist

Source: US Commodity Futures Trading Commission

Good afternoon, and thank you, Patrick, for the invitation to join you today.  Last week, as a follow-on to IOSCO’s annual meeting in Athens, Greece, I had the opportunity to speak at the Hellenic Republic Capital Commission Conference.  My remarks largely focused on the role of financial markets in funding and supporting the transition to a lower-carbon economy.[1] 

Before I shared some details regarding the Commodity Futures Trading Commission’s (CFTC) role with respect to voluntary carbon credits, I led with some remarks on the historical significance of the Greek philosopher Thales.  His weather forecasting and business savvy in the sixth century B.C.E. demonstrated foundational use of what we today call the futures markets: encompassing price discovery, risk management through hedging, and the impacts of weather and climate on regional economies.[2] 

The tale of Thales highlights the power of markets as drivers and conduits of transition, adaptation, and innovation.  The manner in which financial markets assess, price, and manage risk, provide capital and liquidity, and choose which products to offer, underwrite, and invest in, can do a great deal to help other sectors and industries. 

Market stress events of the last several years have tested the U.S. derivatives market, and record volatility and volume applied extreme pressure to its infrastructure.  Commission staff actively monitored compliance by registrants, holding all accountable to maintaining compliance with regulatory standards and expectations, and providing measured flexibility when warranted.  The fact that the derivatives markets performed very well over the past several years is a testament to a market structure that integrates both post-financial crisis reforms with decades-old foundational elements globally recognized and admired for strength, resilience, and efficiency.

Despite this resiliency, and real-time proof that derivatives markets and the rules governing them are sound, there is never a moment to rest.  The CFTC, acting individually and through our participation in several global multi-lateral groups like IOSCO continues to actively engage to ensure our regulations are fit for purpose in areas like clearing, cybersecurity, conflicts of interest, and fintech, to name a few.  Markets and technology evolve in perpetuity, and we must too, as necessary.

In this current era, many of our issues wrestle with transition.  Acknowledging that the industry is outgrowing some of its more antiquated features, and demanding greater latitude to fully mature, we need appropriate and thoughtful regulation to ensure continued confidence and accountability in the derivatives markets. 

The Rules of Summer…and Fall

With all this serving as my guidepost, in early 2023, I outlined a Commission agenda for 2023-2024 to consider and vote on roughly 30 regulatory and policy matters in addition to any outstanding proposals from the prior year.[3]  This agenda was developed based on the needs of the agency and stakeholder engagement, and was published for all to see and to comment.[4]  I bucketed the agenda into themes: enhancing risk management and resilience; strengthening customer protections; promoting efficiency and innovation; improving reporting and data policy; addressing duplicative regulatory requirements, and amplifying international comity. 

I am pleased to share that we have already progressed through most of that agenda.  Since January 2023, the Commission has voted to approve ten final rules; publish 16 proposed rules and two proposed orders for comment; issue an order designating the unique product identifier and product classification system; issue separate orders designating a SEF (swap execution facility), a DCM (designated contract market), and a DCO (derivatives clearing organization); and issue proposed guidance regarding the listing of voluntary carbon credit derivative contracts.  In addition, the Commission considered the issuance of 21 staff no-action and other letters in addition to CFTC staff requests for comment on the use of artificial intelligence in CFTC-regulated markets and the impact of affiliations of certain CFTC-regulated entities.  The Commission will spend the next five months largely focused on finalizing around a dozen rules and orders and considering a handful of additional proposals currently in drafting.  

In the upcoming weeks, we anticipate considering final orders addressing capital and financial reporting comparability for CFTC-registered swap dealers (SDs) organized and domiciled in Mexico, Japan, the European Union, and the United Kingdom.[5]  

Later this summer, the Commission will consider finalizing much needed updates to Commission Regulation 4.7 to address potential gaps in customer protections.[6]  During the summer, we also plan to consider final rules amending Part 40 of the Commission regulations, establishing requirements and procedures for submitting rules and products, listing products for trading, and accepting products for clearing.[7]  Part 40 has not been amended comprehensively since 2011, and this ambitious proposal should clarify and streamline many key components of the Commission’s rules.  

Before Labor Day, we anticipate considering final amendments to Part 48 to enhance responsible access to U.S. markets through foreign boards of trade.[8]  

Around the same time, the Commission will also consider final rules addressing Regulation 1.25, which governs the safeguarding and investment by FCMs (futures commission merchants) and DCOs of funds held for the benefit of customers engaging in futures, foreign futures, and cleared swaps.  Autumn should also bring closure on the long anticipated operational resilience proposal unanimously approved by the Commission last December.[9]  If approved by the Commission, the final rule would require certain registrants to establish, document, implement, and maintain an Operational Resilience Framework, and would require them to have 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.[10] 

On the clearing side, among the proposals that should be finalized this fall are amendments to the Part 39 rules to address the protection of clearing member funds held by DCOs.[11]  The Commission will likely consider a final rule to, among other things, codify a conditional no-action position for FCMs treating separate accounts of the same beneficial owner separately for purposes of margin requirements.[12]  Other proposals in the DCO space that we anticipate considering as a Commission are final rules to amend the requirements related to recovery and orderly wind-down and resolution planning for DCOs that have been designated as systemically important (SIDCOs) as well as other specified DCOs.”[13] 

Regarding data, the Commission will consider a final rule to amend the Commission’s regulations regarding real-time public reporting and swap data reporting and recordkeeping.[14]  This final rule aims to promote international harmonization and market resilience, while ensuring that the CFTC continues to receive accurate, complete, and high-quality data on swap transactions. 

There are always new issues to tackle and some issues that are not so new, but should have been addressed much earlier.  And, we must continuously evaluate how are rules remain fit for purpose.  Maintaining this perpetual cycle supports mutual goals of further strengthening the resilience of the derivatives markets while promoting the interests of all Americans. 

Covering all the Bases: Enforcement 

The CFTC’s enforcement division continues to set a global standard.  A review of the filings for FY 2024 demonstrates a similar benchmark.  While digital asset related cases are rightfully demanding significant attention,[15] the Division of Enforcement (DOE) is ensuring that we take necessary action in all of our directly regulated markets and in the retail fraud space involving precious metals and forex (foreign exchange).  We are also building even stronger networks and partnerships through cooperative enforcement efforts with other civil and criminal agencies domestically and internationally.  

DOE’s efforts in FY 2024 follow off a very busy year in FY 2023 – one where we filed a record setting number of digital asset cases among 96 enforcement actions resulting in over $4.3 billion in penalties, restitution, and disgorgement.  Our guiding focus in everything we do on the enforcement front is customer protection – whether we are bringing cases for fraud, manipulation, spoofing, disruptive trading, or failures to comply with regulatory requirements, our goal is to protect market participants.  That is true when there are failures to follow the law in our traditional markets, and when there are failures in newer arenas like the digital asset markets.  

In producing this strong track record, DOE staff works tirelessly to protect customers and bring wrongdoers to justice—we have a zero-tolerance policy when it comes to manipulative, deceptive, or downright negligent and willful behaviors that undermine market integrity.  And they are aggressive, but fair, performing with the highest level of professionalism and integrity.  An appropriately aggressive enforcement program will occasionally lose a case or a motion.  That is how an adversarial litigation system works.  We bring cases based upon existing law as applied to a specific set of facts.  Those decisions are always made with thoughtfulness, fairness, honesty, and respect for the judicial process.  The resulting interpretations have not only provided an effective means of protecting customers and market integrity for decades, but have proven an effective means of uncovering and addressing some of the regulatory gaps presented by market evolution and technological innovation.  

As always, I could go on.  But I will pause here and simply acknowledge my sincere belief that the CFTC has earned its reputation as a proven leader in the civil enforcement space, including digital assets.  I commend DOE staff for their daily excellence in performing the hard and essential work of protecting customers, and all other agency staff for their consistently impressive and dogged commitment to ensuring the integrity of our markets.  


I appreciate the opportunity to join you today and share my thoughts on CFTC markets generally, and a stock take of the agency’s current agenda as we move through the summer months and towards the second half of the year.  

Thank you.