MINUTES OF THE JULY 10, 2023 MEETING OF THE 

U.S. COMMODITY FUTURES TRADING COMMISSION'S 

MARKET RISK ADVISORY COMMITTEE 

The Market Risk Advisory Committee ("MRAC") convened for a virtual public meeting 

on Monday, July 10, 2023, at 10:08 a.m. The meeting consisted of five sections. The first section 

addressed issues related to central counterparty ("CCP") risk and governance. The second 

section discussed ongoing work on market structure. 1 The third section addressed the transition 

away from London Inter-Bank Offered ("LIBOR") rate. The fourth section, on the future of 

finance, considered salient issues pertaining to the crypto markets. The fifth section, on climaterelated market risk, offered perspectives on the development and regulation of carbon markets. 

MRAC Members in Attendance 

Alicia Crighton, Chair ofthe Board of Directors, Futures Industry Association ("FIA") 

Robert Allen, President and Global Head ofFenics Rates, FMX Futures Exchange, LP 

Ann Battle, Senior Counsel, Market Transitions & Head of Benchmark Reform, International 

Swaps and Derivatives Association ("ISDA'') 

Stephen Berger, Managing Director, Global Head of Government & Regulatory Policy, Citadel 

LLC 

Richard Berner, Clinical Professor of Management Practice in the Department of Finance and 

Co-Director of the Stern Volatility and Risk Institute (Special Government Employee) 

Alessandro Cocco, Vice President and Head of Financial Markets Group, Federal Reserve Bank 

of Chicago 

Biswarup Chatterjee, Managing Director and Head oflnnovation for the Global Markets 

Division, Citigroup 

Neil Constable, Head of Quantitative Research and Investments, Fidelity 

Ed Dasso, Senior Vice President, Market Regulation, National Futures Association 

Gina-Gail Fletcher, Professor ofLaw at Duke University School ofLaw (Special Government 

Employee) 

Graham Harper, Head of Policy and Market Structure at DRW, FIA Principal Traders Group 

Lindsay Hopkins, Chief Corporate Counsel, MGEX Clearing, Minneapolis Grain Exchange, 

LLC 

David Horner, Chief Risk Officer, LCH Ltd, London Stock Exchange Group 

Annette Hunter, Senior Vice-President and Director of Accounting Operations, Federal Home 

Loan Bank of Atlanta 

Eileen Kiely, Managing Director, BlackRock 

Elisabeth Kirby, Managing Director and Head of Market Structure, Tradeweb Markets 

Derek Kleinbauer, President, Bloomberg SEF LLC 

Ernie Kohnke, General Counsel Vitol, Commodity Market Council 

Jonathan Levin, Co-founder, Chainalysis 

Chip Lowry, Advisor, Foreign Exchange Professionals Association ("FXPA") 

1 The order ofthe presentations was modified from the published agenda, with the market 

structure presentation preceding the Interest Rate Benchmark Reform presentation at the virtual 

meeting. 
Purvi Maniar, Deputy General Counsel, FalconX Bravo Inc. 

Craig Messinger, Vice Chairman, Virtu Financial, Inc. 

Ashwini Panse, Head of Risk Oversight for ICE Clear Netherlands, and Chief Risk Officer for 

the North American Clearinghouses, Intercontinental Exchange, Inc. 

Andrew Park, Senior Policy Analyst, Americans for Financial Reform 

Jessica Renier, Managing Director, Digital Finance, Institute oflnternational Finance 

Mamie Rosenberg, Managing Director, Global Head of Central Counterparty Credit Risk and 

Strategy, JPMorgan Chase & Co. 

Tyson Slocum, Director, Public Citizen Energy Program 

Kristin Smith, Chief Executive Officer, Blockchain Association 

Kevin Werback, Liem Sioe Liong/First Pacific Company Professor and Chair of the Department 

of Legal Studies & Business Ethics, The Wharton School (Special Government 

Employee) 

CFTC Commissioners and Staff in Attendance 

Chairman Kristin N. Johnson, MRAC Sponsor and Commissioner 

Christy Goldsmith Romero, Commissioner 

Summer K. Mersinger, Commissioner 

Caroline D. Pham, Commissioner 

Bruce Fekrat, Chief Counsel to Commissioner Johnson and MRAC Designated Federal Officer 

("DFO") 

Marilee Dahlman, Special Counsel, Division of Market Oversight, MRAC Alternate Designated 

Federal Officer ("ADFO") 

Invited Speakers in Attendance 

Jason Allegrante, Chief Legal and Compliance Officer, Fireblocks 

Chen Arad, Chief External Affairs Officer, Solidus Labs 

Chris Edmonds, Chief Development Officer, Intercontinental Exchange, Inc. 

Peter Malyshev, Partner, Cadwalader, Wickersham & Taft LLP; Adjunct Professor, Georgetown 

University Law Center and George Washington University Law School 

Rebecca Rettig, Chief Policy Officer, Polygon Labs 

Steven Schwarcz, Stanely A. Star Distinguished Professor of Law, Duke University Law School 

Dimitrij Senko, Member of the Executive Board and Chief Risk Officer of Eurex Clearing 

Yesha Yadav, Associate Dean and Milton R. Underwood Chair and Professor ofLaw, Vanderbilt 

University Law School 

I. Opening Remarks 

Ms. Dahlman called the meeting to order. Commissioner Johnson, Sponsor ofthe 

MRAC, provided opening remarks, recognizing Ms. Crighton, the MRAC Chair, Mr. Fekrat, 

the DFO, and Ms. Dahlman, the ADFO, for their hard work in organizing the meeting. She 

also thanked other Commission staff. members of the MRAC and the subcommittees for their 

commitment and service. Commissioner Johnson then summarized the meeting agenda which 

would discuss the latest efforts of its subcommittees. Specifically, the CCP Risk and 

Governance Subcommittee will present its work on margin and collateral guidelines, recovery 

and resolution, and technology and operational risk. The Market Structure Subcommittee will 

2 
discuss its work on block implementation rules, U.S. Treasury market reform, concentration 

and capacity in FCM markets, and post-trade risk reduction. The Interest Rate Benchmark 

Reform ("IRBR") Subcommittee will give an overview on the transition away from LIBOR. 

Then a panel of experts will discuss the conflicts of interest that may arise when firms employ 

centralized or decentralized infrastructure in the digital asset and traditional finance markets. 

Lastly, another panel of experts will discuss trends in environmental commodity markets, 

both voluntary and compliance, as well as jurisdictional challenges that arise in the context of 

regulating markets for underlying carbon offsets. 

Next, Commissioner Goldsmith Romero talked about the importance of regulators 

being nimble in assessing market risks, both traditional and emerging, citing the recent 

failures of Silicon Valley Bank, Silvergate Bank, and Signature Bank as examples of how 

traditional and emerging risks can interact. She also mentioned the Federal Reserve Board 

Vice-Chair Michael Barr's recent testimony, in which he called for regulators to expand their 

understanding of banking in light of changing technologies and emerging risks. 

Commissioner Goldsmith Romero concluded by saying she was interested in hearing from 

MRAC members about how they have been nimble in their assessment of both traditional and 

emerging risks, and how the Commission could be nimble in its risk assessment and in 

promoting risk resilience. 

Commissioner Mersinger followed by commending Commissioner Johnson's decision to 

continue drawing from the experience ofthe MRAC subcommittees. She supported the forwardlooking creation ofthe Future of Finance Subcommittee and was pleased to see Mr. Slocum, 

Director of Public Citizen's Energy Program, as speaker on the Climate-Related Market Risk 

Roundtable. She praised Mr. Slocum as an instrumental member ofthe Energy and 

Environmental Markets Advisory Committee ("EEMAC") which she sponsors. 

Lastly, Commissioner Pham thanked Commissioner Johnson, Ms. Dahlman, and all 

attendees for their time and dedication. She noted that the MRAC has looked to the Global 

Markets Advisory Committee ("GMAC") for guidance, and she encouraged the MRAC to 

leverage the considerable resources of its members to address pressing issues relating to market 

risks. Finally, she commended the MRAC's role in IRBR results and looked forward to hearing 

updates on the LIBOR transition. 

Ms. Dahlman then proceeded with the roll call and turned the meeting over to Chair 

Crighton. Ms. Crighton then gave an overview of the MRAC subcommittees. She indicated that 

the CCP Risk and Governance and the Market Structure Subcommittees, with leadership roles 

already in place, have started working on their respective workstreams. She said while the 

Climate-Related Market Risk and the Future of Finance Subcommittees were still finalizing their 

membership and leadership roles. an MRAC meeting was in the works for late September. She 

then introduced Mr. Cocco, Mr. Edmonds, and Mr. Senko--the CCP Risk Subcommittee CoChairs and presenters. 

II. Presentation 1: CCP Risk and Governance Subcommittee 

Mr. Cocco said the CCP Risk Subcommittee leadership sought diversity by assembling a 

team of experts from a wide range of sectors, including end users, FCMs, CCPs, regulators, and 

3 
academia. He also listed the names of members who had been confirmed and their corresponding 

sectors, indicating the subcommittee would soon have a fully complementary roster of its 

members. He then turned the presentation over to Mr. Edmonds. 

Mr. Edmonds said the CCP Risk Subcommittee was working on three workstreams: ( l) 

margin and collateral, (2) resolution and recovery, and (3) technology and operations. He said 

Mr. Senko is chairing the margin and collateral workstream, Mr. Cocco is chairing the resolution 

and recovery workstream, and he is also chairing the technology and operations workstream. He 

said that all the workstreams had met and drawn up an initial list of topics for consideration, and 

that they would meet monthly to provide progress rep011s leading into the next full MRAC 

meeting in the fall of 2023. 

Mr. Senko then presented the slide on the margin and collateral workstream priorities, 

which have been designed to improve the safety and efficiency of the derivatives markets by 

considering a variety of topics, namely (1) the transparency of initial margin, (2) the margin 

period ofrisk, and (3) the responsiveness of margin models. The workstream also explored the 

use of back-testing approaches to assess the effectiveness of margin models, and volatility 

controls to reduce the risk of market disruptions. 

Mr. Cocco continued with the resolution and recovery workstream, which aimed to 

improve the resilience of CCPs to financial stress. This workstream would examine the CFTC's 

proposed rulemaking on DCO recovery and orderly wind-down plans to identify any gaps or 

areas for improvement. In addition, it would also review other recovery and resolution models 

from national and international perspectives to identify best practices and oppo11unities for rule 

harmonization. 

Mr. Edmonds indicated the technology and operations workstream was designed to 

maintain the safety and soundness of the derivatives markets by identifying the risks and 

oppo11unities posed by third and fourth parties, and making recommendations on how to mitigate 

those risks. In addition, the workstream would also examine the use of cloud teclmologies, and 

make recommendations on how to ensure that these technologies were used in a safe and secure 

manner. Finally, the workstream would also consider the use oflegal entity identifiers, and make 

recommendations as to whether these identifiers should be mandated by CFTC regulation. 

The floor was then open for discussion. Ms. Rosenberg, representing JPMorgan, 

commended Commissioner Johnson and Ms. Crighton for re-establishing the CCP Risk and 

Governance Subcommittee. She said that the focus areas of the workstreams are highly relevant, 

considering the ongoing work on CCP resolution as well as the challenges that the industry has 

faced in recent times. She specifically welcomed the priorities of Mr. Senko's margin and 

collateral workstream, which sought to address margin procyclicality and improve disclosure on 

margin models to market participants. She said however these were unfinished businesses from 

the prior work undertaken by the subcommittee in 2020 and 2021, and that it was important for 

the workstream to revisit and update the work already accomplished. 

As there were no other commenters regarding the CCP Risk and Governance Section, the 

meeting moved toward the second presentation on market structure. 

4 
II. Presentation 2: Market Structure Subcommittee 

Mr. Chatterjee, the Co-Chair of the Market Structure Subcommittee, gave an update on 

the four workstreams pertaining to (1) Block trade thresholds for SEF markets; (2) FCM capacity 

for cleared products; (3) Proposed changes to Treasury bond-related markets; and (4) Post-trade 

risk reduction services ("PTRR"). He stated that the block trade thresholds workstream will 

analyze the impact of the new block thresholds and cap sizes that are set to affect MAT swaps on 

December 4. The FCM capacity workstream will analyze the barriers to entry for FCMs and how 

these barriers could be addressed. The Treasury market workstream will analyze the implications 

of the SEC's proposed rules that would require members of a clearing agency to clear all U.S. 

Treasury trades. The PTRR workstream will analyze the implications of a potential CFTC 

exception to clearing and trading requirements for PTRR services. Mr. Chatterjee also indicated 

that the subcommittee would have open lines of communication with other CFTC subcommittees 

to ensure that they all address unique aspects ofthese critical issues. 

There were no comments after Mr. Chatterjee's discussion. 

III. Presentation 3: Interest Rate Benchmark Reform - LIBOR Transition 

Ms. Battle gave a historical overview, stating that the IRBR Subcommittee was formed 

by Commission Chair Behnam in 2018 (when he was a commissioner and the MRAC sponsor) 

to ensure a smooth transition to SOFR in the U.S. derivatives markets. The subcommittee had 

had a number of successes, including, (1) the SOFR First recommendations, which led to a sharp 

increase in the use of SOFR in derivatives contracts; (2) the CCP discounting transition exercise, 

which helped CCPs move to SOFR discounting and price alignment; and (3) the subcommittee's 

disclosure guidelines and products user guide, formulated by Tom Wipf, Ms. Battle's Co-Chair 

on the IRBR Subcommittee, were instrumental in the successful transition away from U.S. dollar 

LIBOR. 

Commissioner Johnson thanked Ms. Battle and Mr. Wipf for their leadership on the 

IRBR Subcommittee. She also acknowledged the support of Commission staff and other 

stakeholders in the successful transition away from LIBOR to SOFR, praising the transition as a 

"crowning achievement" and a "case study for successful public/private partnership." 

IV. The Future of Finance Roundtable 

Ms. Crighton introduced Mr. Cocco (moderator), Ms. Retting, Ms. Yadav, Mr. Schwarcz, 

Mr. Allegrante, and Mr. Arad as speakers for the first roundtable on the Future of Finance. Ms. 

Crighton indicated the roundtable would have 25 minutes of presentation, followed by 15 

minutes of open discussion on the role of digital assets, decentralized finance ("DeFi"), central 

bank digital currencies ("CBDCs"), and the potential risks and benefits ofthese new 

technologies. 

Mr. Cocco thanked Chair Crighton and Commissioner Johnson for sponsoring the 

committee and CFTC staff for their support. He said while the digital assets economy is still in 

its early stages, it has the potential to make markets more efficient and accessible, although this 

also comes with ce11ain risks. He asked the speakers to discuss lessons learned from derivatives 

5 
markets that could be applied to digital assets, such as rules for custody, segregation of assets, 

disclosures, anti-manipulation, and conflicts of interest. He also asked the speakers to discuss 

how the non-intennediated structure and vertical integration in digital assets markets could affect 

regulation. 

Ms. Rettig discussed the two paths that policymakers can adopt in regulating the crypto 

asset markets: (1) using existing laws and rules to regulate crypto asset trading platforms, or (2) 

codifying the crypto asset markets' existing structures into law. She argued that the second path 

is more likely to be successful because it would allow policymakers to tailor the laws and 

regulations to the specific characteristics of the crypto asset markets. She acknowledged that not 

all crypto asset trading platforms are the same and that some of the failures in 2022 were not a 

reflection of the underlying technology. In addition, Ms. Rettig pointed out that there are 

different types of ve1tical integration, such as exchanges that also operate as trading firms, and 

that policymakers need to be careful not to regulate all types of vertical integration in the same 

way. 

Next. Ms. Yadav discussed the recent collapse of the cryptocurrency exchange FTX and 

the implications for vertical integration in the crypto markets. She noted that FTX was a highly 

centralized exchange that offered a variety of services, including customer onboarding, clearing 

and settlement, custody, and market making. This vertical integration allowed FTX to offer a 

seamless trading experience for its customers, but it also created risks, such as conflicts of 

interest and the potential for a single point of failure. 

Ms. Y adav then argued that the crypto markets are different from traditional financial 

markets in a number of ways, which makes it difficult to apply traditional regulatory approaches 

to crypto. For example, crypto markets are often 24/7 and operate without the same level of 

regulation as traditional markets. Additionally, the underlying assets in crypto markets are often 

illiquid and difficult to value. Given the unique challenges posed by the crypto markets, Ms. 

Y adav suggested that regulators should take a more dynamic approach to risk management. She 

argued that regulators should not silo risks by function, but instead consider the risks posed by 

the entire crypto ecosystem. She also suggested that regulators should focus on governance and 

corporate oversight, as these are key areas where conflicts of interest can arise. 

While Ms. Yadav agreed with Ms. Rettig that the issues of vertical integration and 

consumer protection in the crypto markets are complex and will take time to address, she argued 

that there is an urgent need for reform and proposed three immediate milestones to provide 

safety and security to consumers, such as the establishment of: (1) custodial rules; (2) disclosure 

rules: and (3) SROs, i.e., regulators should work with exchanges to establish SROs that can 

develop and enforce standards for consumer protection and market integrity. SROs could also 

play a role in educating the public about the risks of investing in crypto assets. Ms. Yadav 

concluded by thanking Commissioner Johnson for her leadership on this issue and for convening 

this meeting. She said that it is important to have open and frank discussions about the 

challenges facing the crypto markets in order to develop effective solutions. 

Mr. Schwarcz then discussed the advantages and disadvantages of ve1tical integration in 

the crypto markets. The advantages of ve1tical integration include potential informational and 

6 
service efficiencies, as well as limiting the "whom to regulate'' problem in DeFi. The 

disadvantages, however, are more profound, as vertical integration can lead to concentration of 

power and cause systemic disruptions. Mr. Schwarcz gave the example of a bad vertical 

integration in the residential mortgage-backed securities ("RMBS") markets at the time of the 

global financial crisis, with Countrywide originating risky mortgage loans in order to maximize 

profits and reduce losses. Citing also the examples of Enron and insurance companies with 

wholly-owned reinsurers, he opined that companies tend to assume more reckless behavior when 

they have control over multiple aspects of the industry. However, he believed vertical integration 

would diminish over time as information about the crypto industry becomes more widely 

available, and one way to mitigate the risks of vertical integration would be to require greater 

disclosure and transparency from crypto firms. Lastly, Mr. Schwarcz suggested that another 

possible solution to vertical integration is to employ the "ring-fencing" approach taken by state 

public utility commissions (''PUCs"), where firms involved in providing critical services would 

try to reduce their vulnerabilities on a targeted basis. He also mentioned commingling risk and 

asset run issue - where a custodian who loses a lot of money would want to withdraw their assets 

- the same issue as in the bank deposit context. He suggested having some sort of limited 

government guarantee to which the custodians would pay an insurance fee as a solution. 

Mr. Allegrante was the next speaker. He discussed the attributes of Fireblocks, a software 

company that provides self-custodial digital asset management solutions and has over 1,500 

customers globally. including large financial institutions and retail Fortune 500 companies. He 

believes self-custody - where customers manage their own digital assets rather than entrusting 

them to a third-party custodian - can reduce lack of transparency. concentration risk, and offer 

benefits for market regulators and retail customers, such as the ability to use information 

generated by the on-chain movement of assets. and the possibility of asset segregation at the 

block-chain level. However, he also acknowledged that there are risks associated with selfcustody, such as flawed implementation of technology or negligent or willful mismanagement, 

and indicated that Fireblocks is actively engaged with global policymakers to develop custodial 

standards that would help to mitigate these risks. Mr. Allegrante also urged the MRAC to 

continue its engagement with the crypto industry on these imp01tant topics. 

Mr. Arad was the last speaker. He began by discussing the challenges posed by the crypto 

market structure to market integrity, noting that the decentralization of the crypto ecosystem 

makes it easier for market participants to operate across multiple stages of the value chain, which 

can facilitate market manipulation. He then provided an exan1ple of insider trading on 

decentralized exchanges ("DEXes''). He found that 56% of the ERC-20 tokens listed on major 

centralized crypto platforms since the beginning of 2021 were accompanied by evidence of 

insider trading-like behavior on DEXes. In most cases, a wallet or group of wallets had bought 

the token on a DEX in the days before it was listed on the centralized exchange, then sold the 

token within hours ofthe news about the listing once the price increased. Mr. Arad concluded by 

noting that the unique market structure of crypto also holds the key to addressing these 

challenges, explaining that the transparency of blockchain-based assets allows regulators and 

platforms to detect insider trading without any external need. He also said that standards and 

rules can be developed to help prevent insider trading. Overall, Mr. Arad's testimony highlighted 

the challenges posed by the crypto market structure to market integrity, but also the potential for 

the crypto ecosystem to address these challenges. 

7 
Mr. Cocco then opened the floor for comments. Mr. Bemer suggested four principles that 

the crypto industry can borrow from traditional finance ("TradFi") to improve its governance, 

namely, (1) agreement on shared codes of conduct and best practices; (2) high standards for 

transparency; (3) constructive industry regulatory engagement; and (4) global coordination 

among standard setters. 

Mr. Werback then asked the speakers for their thoughts on the significance of DeFi and 

decentralized applications from a risk management standpoint. He noted that DeFi is more 

transparent and rules-based than traditional financial markets, which could make it harder for 

market participants to engage in risky or manipulative behavior. He however acknowledged that 

it is more difficult to apply traditional regulatory obligations to DeFi. 

Ms. Rettig responded by defining DeFi as a software-based system that allows users to 

engage in economic transactions in a self-directed manner where there is no custody and no 

centralized intem1ediary otherwise controlling or having an impact on user assets. She then 

identified three aspects of decentralization that could mitigate the risks associated with DeFi: ( 1) 

technological decentralization - this refers to whether the code for the protocol is an open source 

and available for public scrutiny; (2) administrative decentralization - this refers to whether there 

are more than one entity that control the protocol, which would make it more difficult for 

hackers to take control of the protocol or to manipulate the prices of assets on the protocol; and 

(3) customer protection decentralization - this refers to whether users are able to control their 

assets by making withdrawals from the protocol at any time. In conclusion, Ms. Rettig noted the 

main risks are cyber security risk and software technical risk, suggesting the DeFi industry may 

look to an SRO to develop specific standards for auditing. 

Mr. Schwarcz responded by reiterating DeFi's "whom to regulate problem," but noted 

that the Financial Action Task Force ("F ATF") has recommended that for Know Your Customer 

("KYC'') and anti-money laundering ("AML") compliance, virtual asset service providers 

("V ASPs") should be held accountable. 

Mr. Arad added his view, noting that the crypto industry often talks about 

decentralization, but in reality not all activities are decentralized, as they happen across both onchain and off-chain sources. While this aspect has posed a regulatory challenge, Mr. Arad also 

argued that decentralization is not a binary concept of replacing traditional centralized systems 

with decentralized systems, but about finding ways to synthesize the benefits of both. 

In reply, Ms. Rettig noted that the vertical integration of market operators and trading 

fim1s is not unique to the crypto asset markets, but that these issues have been addressed through 

the regulation of other financial markets, through infonnation partitions, disclosures, and selfregulatory organizations ("SROs"). Ms. Rettig argued that the same regulatory principles can be 

applied to the centralized crypto asset markets, as there is no need to create new rules and 

regulations from scratch. Instead, regulators can import or adapt the rules and regulations that 

have been developed for other markets. 

8 
V. The Climate-Related Market Risk Roundtable 

Ms. Crighton then introduced Mr. Slocum and Mr. Malyshev as the two speakers on the 

Climate-Related Market Risk Roundtable. Mr. Slocum thanked Commissioner Johnson for her 

leadership on climate-related issues and for reviving the Climate Risk Subcommittee. He echoed 

Commissioner Mersinger's earlier remarks, noting it has been rewarding to work with the 

EEMAC, particularly Commissioner Mersinger's focus on getting out of Washington, D.C. and 

into the field to see where manufacturing and commodities are being utilized. He then turned to 

the topic ofvoluntary carbon markets, saying that not long ago, it was routine for major 

corporations and other entities to announce net zero commitments that largely relied on carbon 

offsets. However, as these pledges have been subject to increased scrutiny, carbon offset markets 

have been exposed as deeply flawed and rife with bad actors. He noted that recent initiatives by 

some of the self-governing organizations to address these liabilities have failed to resolve the 

underlying credibility problems. 

Since Mr. Slocum questioned whether carbon offsets could actually be an effective tool 

to address the climate crisis, he believed regulators should encourage actions that produce direct 

emission avoidance from point and mobile sources and from supply chains. In addition, Mr. 

Slocum suggested the subcommittee could address some ofthe issues recently raised by 

Commissioner Goldsmith Romero, such as implementing a heightened review framework for 

self-certified carbon offset products similar to what has been done for digital assets, and 

launching efforts to directly educate consumers about the realities of carbon offsets. He also 

applauded Commission leadership for announcing the creation of the new Environmental Fraud 

Task Force within the Division of Enforcement to encourage whistleblowers to come forward to 

expose fraud in the carbon offset market. 

Following Mr. Slocum's presentation, Mr. Malyshev discussed the development of 

environmental commodities products, noting there are a number of environmental products 

already traded in the United States and globally, such as carbon credits, water credits, and lowcarbon fuel standard ("LCFS'') credits. He explained these products are not physical 

commodities in the traditional sense, but instead "mental products" created by humans. 

Malyshev indicated there has been an increased interest on the retail side towards tokenization, 

in hedging, speculation, and proliferation of listed futures based on environmental commodities. 

Next, Mr. Malyshev discussed the two principal types of environmental commodities 

markets, namely compliance markets and voluntary markets. Compliance markets are mandated 

by individual states, while voluntary markets are not, thus compliance markets are more reliable 

than voluntary markets as they are guided by state statutes and regulations. 

Lastly, Mr. Malyshev discussed the CFTC jurisdiction over the enviromnental 

commodities markets. He said that the CFTC has two levels ofjurisdiction: anti-fraud and antimanipulation jurisdiction over commodities traded in the spot and forward markets, and 

exclusive jurisdiction over derivatives, such as swaps, futures, and options relating to 

environmental products and other sustainability-related products traded on DCMs. Arguably, 

since the majority of environmental products are currently traded as commodities and not as 

derivatives, if they are subject to fraud or manipulation, the CFTC would have enforcement 

jurisdiction but not regulatory jurisdiction. Neve1theless, much can be done on the policing of the 

9 
carbon credits markets, according to Mr. Malyshev. He said that the [Second Voluntary Carbon 

Offset Convening] on July 19 would be a great example of what the CFTC can do as a market 

regulator to enhance public trust in these markets and put in place market structures that have 

worked well for other commodities. 

VI. Closing Remarks by Commissioner Johnson and Adjournment 

There were no comments from the floor following the Climate-Related Market Risk 

Roundtable. Ms. Crighton made no final remarks but invited Commissioner Johnson to share her 

closing thoughts. 

Commissioner Johnson began by highlighting some of the thoughtful commentary 

expressed by presenters and panelists, which she said should inform the discussions of the 

MRAC subcommittees as they go forward. Specifically, she thanked the CCP Risk and 

Governance Subcommittee and the Market Structure Subcommittee for ensuring diversity of 

membership and maintaining essential workstreams in evolving markets. She also thanked the 

IRBR subcommittee--which had been retired in June--for its significant accomplishments, 

particularly in helping to facilitate the migration away from LIBOR. In addition, she appreciated 

hearing from the panelists who were helping to guide the thinking of the two newly-f01med 

subcommittees, i.e., the Future of Finance Subcommittee and the Climate-Related Market Risk 

Subcommittee. Lastly, Commissioner Johnson thanked attendees and Commission staff for their 

contributions, saying she would welcome additional feedback from members and the general 

public--as the public comment period would stay open for one week after the July 10 meeting. 

Ms. Dahlman thanked all attendees and adjourned the virtual meeting at 2:37 pm. 

 I

Alicia Cright Date 

MRAC Chair