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                        EventsPublic Statements & Remarks
  

        
      Chairman Rostin Behnam
                        Commissioner Kristin N. Johnson
                        Commissioner Christy Goldsmith Romero
                        Commissioner Summer K. Mersinger
                        Commissioner Caroline D. Pham Public Statements & RemarksOpening Statement of Commissioner Caroline D. Pham before the July 26, 2023 Open Meeting
            July 26, 2023
    
          
            Good morning everybody, and thank you for being here.  I'd like to thank all of the CFTC staff who put this meeting together, the Chairman, my fellow Commissioners, and particularly my team for helping me prepare for this meeting.  Today, I would like to talk about a couple themes:  good government, administrative agencies, self-regulation, and the importance of having a pragmatic approach and ensuring that our rules are workable.

Good Government and Administrative Agencies

A hallmark of our American system of government is the constitutional law doctrine of separation of powers among the legislative, executive, and judicial branches of government.[1]This doctrine ensures that each branch of government will provide checks and balances upon another branch’s exercise of power for encroachment or aggrandizement.  I believe that this approach of checks and balances to defend against the over-concentration of power is especially prudent in regards to administrative agencies, who wield the authority to impose obligations on the public or withdraw previously-granted entitlements.  These regulatory agencies must be fair and just in the exercise of the administrative power, which is derived from both the legislative branch and the executive branches of government.

The self-regulatory frameworks set forth in the Commodity Exchange Act (CEA) and CFTC regulations reflects the scales of justice and the balance between a free, and safe, society.  I caution against any attempt to put a thumb on the scale, which would upset this delicate balance, including further delegations of authority by the Commission to the staff.[2]

It is a truism that the heads of administrative agencies are a step removed from the will of the people,[3]because agency heads are not directly elected, but are instead appointed by the President with the advice and consent of the Senate.  Therefore, this sentiment rings even more true with respect to the delegation of authority by the Commission to the staff, who though are dedicated public servants, are even more attenuated from the will of the people.  Like liberty, the public trust and delegations of authority by the Commission, “once lost is lost forever.”[4]

Effective Self-Regulation and Part 40 Regulations

As I have noted before, the CEA mandates that the Commission serve the public interest through our oversight of “a system of effective self-regulation of trading facilities, clearing systems, market participants, and market professionals.”[5]Part 40 is the cornerstone of effective self-regulation in our derivatives markets because it sets forth the standards for listing new contracts and issuing or amending rules for registered entities, including those that are self-regulatory organizations (SROs) that have rulebooks that are enforceable against SRO members.  The penalties for violating SRO rules can be severe, including fines, suspension, or revocation of membership.

Our system of self-regulation works because our SROs take their role seriously in upholding the CFTC’s regulatory framework and ensuring market integrity.[6]Self-regulation is effective when it is cooperative.  I commend designated contract markets (DCMs), swap execution facilities (SEFs), derivatives clearing organizations (DCOs), and swap data repositories (SDRs) that recognize and support the efforts of our Division of Market Oversight and Division of Clearing and Risk staff, and I urge these registered entities to do their best to assist staff and make the review process as efficient as possible.

Notwithstanding the important role of SROs in the CFTC’s regulatory framework, the Commission must be able to exercise oversight of registered entities, new products, and new rules or rule amendments.  That is why our existing Part 40 regulations include checks and balances on self-certification and Commission approval or non-approval for product and rule filings. I am looking forward to the discussion today on the Part 40 amendments.

A Pragmatic Approach to Workable Rules

Turning to the next theme, it is critically important to have a pragmatic approach to workable rules, particularly when it comes to operational challenges.  That’s why I'm pleased that on the agenda today we will be addressing several different rulesets where the Commission and the staff have worked with the public in order to ensure that our rules actually work.  I’m particularly pleased because I believe it's important to continuously improve our rules and to do good housekeeping when warranted.

Final Rule on DCO Reporting

Regarding the final rule for DCOs, it is clear that mandatory clearing for swaps was a pillar of the G20 reforms after the 2008 financial crisis.  And the U.S was one of the first jurisdictions to adopt a clearing requirement pursuant to that directive.  The Commission has a great deal to be proud of with respect to its DCO registration and oversight regime. And so I'm looking forward to discussing this DCO reporting final rule.

Proposed Rule on SEF Confirmations

Regarding the swap confirmation requirements for SEFs, this is a very clear example of a rule that was implemented that never worked from the beginning.  This fact was recognized by the no-action relief that was granted when the rule became effective, and which was continuously extended over nearly a decade, and is finally now being codified.  As I have expressed in the past, the remedy for unworkable rules is best done through formal action undertaken by the entire Commission, rather than informal and perpetual no-action positions maintained by the staff.  The former approach is more consistent with the CFTC’s function as an administrative agency accountable to democratic control and the rule of law.

Proposed Rule on Swap Margin Requirements and Seeded Funds and Money Market Funds

Finally, I’m pleased to be considering the proposal on seeded funds and money market funds.  The world has worked tremendously hard over many years to implement the uncleared swap margin rules, and the CFTC’s Global Markets Advisory Committee (GMAC) was instrumental in working together with the public to really understand the different implications and particularly the operational aspects of this incredibly complex set of rules.  I am pleased to support the leadership of former Commissioner Dawn Stump and of Commissioner Summer Mersinger in ensuring that these rules come before the Commission for consideration. And I thank the work of the Market Participants Division on this very lengthy effort.

Conclusion

In closing, I think it bears reminding that the CFTC is uniquely positioned at the intersection of the real economy and financial markets.  Derivatives are inextricably linked to the underlying reference asset, and our derivatives markets span the breadth of agricultural products and other goods and articles, services, rights, and interests in the stream of commerce and financial markets.[7]

Because of the importance of derivatives markets to the real economy—in order to facilitate risk management and price discovery for farmers and ranchers, all the way to the largest Fortune 100 companies—the Commission is mandated to serve this “national public interest” through our oversight of a system of effective self-regulation.[8]

This statutory mandate is intentional, and coupled with the mandate to promote responsible innovation and fair competition,[9]the message is clear:  Derivatives markets should enable growth and progress for commercial enterprise and free markets through providing a release valve for risk transfer as part of the engine of the real economy.

Growth and progress is how the United States and the American people have achieved the largest economy in the world, with the deepest and most liquid capital markets.  This is why America is the land of opportunity—why I stand for growth, progress, and access to markets—and why the Commission must preserve the balance in our system of effective self-regulation in the derivatives markets.  Thank you.

[1]“[T]he accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, self-appointed, or elective, may justly be pronounced the very definition of tyranny.”James Madison, The Federalist No. 48 (Feb. 1, 1788), https://guides.loc.gov/federalist-papers/text-41-50#s-lg-box-wrapper-25493415.

[2]See generally James Madison, The Federalist No. 51 (Feb. 8, 1788) (“But the great security against a gradual concentration of the several powers in the same department, consists in giving to those who administer each department the necessary constitutional means and personal motives to resist encroachments of the others.”), https://guides.loc.gov/federalist-papers/text-51-60.

[3]Cf. The general will, or volonté générale. Jean-Jacques Rousseau, Article VI, Declaration of the Rights of Man and of the Citizen (1789).

[4]The full quotation is: “But a Constitution of Government once changed from Freedom, can never be restored.  Liberty once lost is lost forever.” “John Adams to Abigail Adams, 7 July 1775,” Founders Online, National Archives, https://founders.archives.gov/documents/Adams/04-01-02-0160.

[5]See Concurring Statement of Commissioner Caroline D. Pham Regarding the CFTC Request for Information on Climate-Related Financial Risk, U.S. Commodity Futures Trading Commission (June 2, 2022), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement060222.

[6]See Statement of Commissioner Caroline D. Pham Regarding Request for Comment on the Impact of Affiliations Between Certain CFTC-Regulated Entities, U.S. Commodity Futures Trading Commission (June 28, 2023), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement062823.

[7]7 U.S.C. § 2(1). There are some important exceptions and ongoing legal debate as to the outer limits of the definition of a “commodity” under the CEA. See CFTC v. My Big Coin Pay, Inc., 334 F. Supp. 3d 492, 498 (D. Mass. 2018) (citingCFTC v. McDonnell, 287 F. Supp. 3d 213, 228 (E.D.N.Y. 2018)).

[8]7 U.S.C. § 5(a). See Concurring Statement of Commissioner Caroline D. Pham Regarding the CFTC Request for Information on Climate-Related Financial Risk, U.S. Commodity Futures Trading Commission (June 2, 2022), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement060222.

[9]7 U.S.C. § 5(b). See Concurring Statement of Commissioner Caroline D. Pham Regarding the CFTC Request for Information on Climate-Related Financial Risk, U.S. Commodity Futures Trading Commission (June 2, 2022), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement060222.
      
    
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