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Speaker 1: Hello, and welcome to an episode of the Odd Lots Podcast.

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Speaker 1: I'm Tracy Alloway.

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Speaker 2: And I'm Joe Wisenthal.

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Speaker 1: We are very happy to be recording a live episode

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Speaker 1: in Chicago at the ISDA AGM. There are a lot

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Speaker 1: of talking points. You hear a lot of things like leverage, liquidity, risk,

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Speaker 1: how to properly regulate and handle trillions of dollars worth

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Speaker 1: of derivatives. But there's another thing that you hear quite

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Speaker 1: a bit about as well, Joe.

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Speaker 2: Right, of course, NonStop talk about crypto. Obviously, crypto itself

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Speaker 2: wanes and ebbs in terms of how much people are

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Speaker 2: interested or paying attention. Maybe we're still in a winter

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Speaker 2: right now, but I feel like the next time there's

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Speaker 2: a summer, a lot of how that market looks is

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Speaker 2: going to be based on decisions and choices that are

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Speaker 2: happening today by industry participants in regulators.

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Speaker 1: Perhaps ironically, but not necessarily unexpectedly, when the lines on

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Speaker 1: the chart go down in crypto, there does seem to

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Speaker 1: be some extra regulatory attention paid to the market. So

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Speaker 1: I am very pleased to say that we have the

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Speaker 1: perfect guest to discuss all of this. We are going

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Speaker 1: to be speaking with CFTC Chairman Russ Benham Russ, thank

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Speaker 1: you so much for coming on all thoughts.

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Speaker 3: Thanks Tracy, Thanks Jo, It's good to be here.

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Speaker 1: I want to start out with a very simple question

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Speaker 1: that I think everyone agrees on, who should regulate crypto?

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Speaker 3: Well, you know, we have.

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Speaker 4: A very unique system of financial regulators in the US.

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Speaker 4: I don't think that's new or something novel to either

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Speaker 4: of view or the audience or the listeners as well,

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Speaker 4: and I think it's been built up over decades. It's

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Speaker 4: been built up as a result of crises and different

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Speaker 4: instances or sort of inflection points in the financial history

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Speaker 4: of the US, both monetary system and financial markets. But

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Speaker 4: because of that, we have over time developed a pretty

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Speaker 4: comp comprehensive regulatory system where each agency, whether it's the

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Speaker 4: market regulators or the prudential regulators, has a unique responsibility

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Speaker 4: and it really falls on what type of asset are

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Speaker 4: they regulating. Is it a banking asset, is it a

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Speaker 4: market sort of financial asset or with trading markets and whatnot.

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Speaker 4: And we have the SEC and the CFTC as the

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Speaker 4: market regulators, and the banking regulators which include you know,

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Speaker 4: the FED, occ FD.

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Speaker 3: I see, so.

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Speaker 4: As much as the crypto conversation presents new and novel

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Speaker 4: issues and questions about the underlying asset, how to regulate it,

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Speaker 4: whether to regulate it. I do think, and I've said

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Speaker 4: this many times before, we have to sort of use

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Speaker 4: the same playbook that we've used in the past as

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Speaker 4: we think about policy that we construct for crypto.

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Speaker 2: So you mentioned that people are aware of, you know,

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Speaker 2: the unique nature of the US regulatory regime. But as

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Speaker 2: much as we're sort of know that, like, I still

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Speaker 2: have very you know, I'm not a Washington person. I

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Speaker 2: don't know how it works. Like do you and your

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Speaker 2: counterparts of the other agencies? We see these headlines, right,

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Speaker 2: we'll talk about that is like to see if TC

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Speaker 2: has one view and this secs another view on these things?

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Speaker 2: Do you guys call each other.

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Speaker 3: Up in chat?

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Speaker 1: Like?

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Speaker 2: How does that work? The sort of Yeah, do you

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Speaker 2: guys just talk?

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Speaker 1: Gensler is here later, Yeah, can we get them throwing

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Speaker 1: that out?

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Speaker 3: Do you just talk about Wait, we absolutely do talk.

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Speaker 4: We talk within the context of a lot of the

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Speaker 4: interagency working groups, which you're familiar with, the f SoC

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Speaker 4: or the President's Working Group, but we also do have

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Speaker 4: one on one conversations, and a lot of these conversations

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Speaker 4: that we have, and this is my perspective, of course,

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Speaker 4: I can't speak for the others. Is high level, sort

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Speaker 4: of thirty thousand feet about what we're thinking, what we're seeing,

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Speaker 4: who the registrant pool is that we're starting to observe

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Speaker 4: within our markets, and how we need to approach this.

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Speaker 4: A lot of the work gets done at the SNAFF level,

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Speaker 4: a lot of the technical, legal work, economic work. But

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Speaker 4: we are shaping policy and we're shaping decisions as we

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Speaker 4: see risks emerge, as we see new markets emerge. But

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Speaker 4: communication is frequent, it's very transparent, and I will say this,

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Speaker 4: I've said this many many times before. We have common

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Speaker 4: interests across the US government in terms of what we

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Speaker 4: want to accomplish and how we want to accomplish it.

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Speaker 1: Can you maybe clarify that last bit, because there is

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Speaker 1: this ongoing debate about whether or not crypto should be

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Speaker 1: regulated in a meaningful way at all. I guess the

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Speaker 1: argument against regulating it would be that that way you

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Speaker 1: kind of keep it out of the wallt financial system,

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Speaker 1: you get less contagion. So what exactly are you thinking

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Speaker 1: in terms of regulating the space, what is the end goal?

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Speaker 4: Yeah, you know, this is a question that I think,

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Speaker 4: I think about a lot, But it really comes down

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Speaker 4: to me thinking about my position and my current role

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Speaker 4: and how that intersects with the markets as they're developing.

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Speaker 4: And I know and I can appreciate that others, including yourselves,

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Speaker 4: might have a different perspective about crypto, how if it

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Speaker 4: should be regulated, and the experiences we had, most notably

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Speaker 4: last year in twenty twenty two, and how those repercussions

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Speaker 4: affected traditional markets, if at all. And there's a strong

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Speaker 4: argument that they didn't impact the traditional markets. But as

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Speaker 4: I think about my role, and let's just break down,

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Speaker 4: you know, that puzzle of financial regulators in the US.

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Speaker 4: As one of two chairs of the two market regulators

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Speaker 4: in the US, it's very difficult for me to sit

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Speaker 4: back and say, you know what, this will just fizzle

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Speaker 4: over time, or this is not in the best interest

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Speaker 4: of the United States or economy, national security or whatnot,

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Speaker 4: or we don't have to necessarily worry about this because

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Speaker 4: there's no contagion risk to other parts of traditional markets.

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Speaker 4: I think we've all read or heard or maybe no

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Speaker 4: individuals who were hurt from last year's You know turmoil

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Speaker 4: in the crypto markets. It is a largely unregulated market,

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Speaker 4: notwithstanding some state level requirements, and I do think my

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Speaker 4: responsibility within the context of the mission of the SAC

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Speaker 4: is to protect investors and when it comes to commodity

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Speaker 4: financial assets, which many of these tokens are, I have

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Speaker 4: to do everything I can with the power I have

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Speaker 4: as Chair of the CFTC to ensure that US customers

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Speaker 4: are protected, and we use every tool we have within

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Speaker 4: our toolbox, whether it's regulatory, whether it's putting out notices

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Speaker 4: and advisories, or most notably and importantly as using our

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Speaker 4: law enforcement tool through enforcement. So we continue to use

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Speaker 4: these tools. But I don't see given the way the

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Speaker 4: market's developing and evolving, and the CFTC does have a

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Speaker 4: unique role and has had a unique relationship with crypto,

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Speaker 4: our relationship with crypto at the CFTC certainly precedes me.

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Speaker 4: It goes back to twenty fourteen, is I think when

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Speaker 4: we brought our first enforcement case, and we've seen the

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Speaker 4: development of derivatives products on crypto over many years. We

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Speaker 4: have listed futures contracts on both bitcoin and ether going

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Speaker 4: back several years now, so we do have a very

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Speaker 4: vested interest in the protection and the monitoring and the

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Speaker 4: surveillance of this underlying cash market, which, as I said,

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Speaker 4: remains largely unregulated. So I will continue advocating. I think

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Speaker 4: there's a lot of individuals in Congress and around Washington

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Speaker 4: who agree with me, and certainly some who disagree, But

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Speaker 4: I do always sort of fall back to that home

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Speaker 4: base for myself is chair this agency that I have

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Speaker 4: to focus on protecting US customers, and as long as

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Speaker 4: this market exists, potentially grows ebbs and flows in terms

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Speaker 4: of size and market cap, we need to do whatever

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Speaker 4: we can to protect those investors.

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Speaker 2: All right, So we've been to tell you a little

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Speaker 2: bit high level here, so I want to like jump

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Speaker 2: into it just a specific question, and you mentioned the

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Speaker 2: existence of a bitcoin and futures that are traded. My

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Speaker 2: understanding is that on the matter of ether specifically, there

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Speaker 2: is a different perspective at the CFTC and the SEC.

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Speaker 2: Is it a commodity?

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Speaker 3: Is it a security?

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Speaker 2: And I was kind of a two part question, which is,

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Speaker 2: you know, how do you arrive at the view that

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Speaker 2: say ether is a commodity and therefore should be regulated

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Speaker 2: as such. And then we're I guess More importantly, you

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Speaker 2: know there are other coins out there, and so there

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Speaker 2: are other Ethereum competitors level one blockchain platforms like a

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Speaker 2: Salona or something. Would the logic that leads you to

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Speaker 2: sort of make the case that Ethereum should be seen

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Speaker 2: as a commodity apply to other coins potentially as well.

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Speaker 3: Well, it's it's less logic as opposed to legal analysis.

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Speaker 4: So maybe you know those are within the same bend diagram, right,

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Speaker 4: Legal analysis hopefully is logical.

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Speaker 1: My husband's a lawyer, and I would debate that statement.

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Speaker 4: Yeah, but you know we, as I said, and Joe

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Speaker 4: you pointed this out, we have two listed futures contracts,

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Speaker 4: one on Bitcoin and one on Ether. And this is

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Speaker 4: not because we the CFTC, sought out market participants exchanges

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Speaker 4: and said you should do this. Nor is it because

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Speaker 4: we have a list on our website that says these

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Speaker 4: tokens are commodities and these tokens or securities. This was

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Speaker 4: a market driven effort by exchanges, probably driven by client

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Speaker 4: demand to list two particular tokens and the process that

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Speaker 4: sort of transpires when you list a contract, and this

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Speaker 4: is not unique to crypto. This happens in that the

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Speaker 4: ad complex, the energy complex, the metals complex, and others.

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Speaker 4: Is you know, there's legal analysis done.

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Speaker 3: By the exchange.

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Speaker 4: They have to conform with the laws and the regulations

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Speaker 4: of the CFTC. There's open dialogue over sometimes many months

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Speaker 4: to make sure that the contract conforms with our legal

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Speaker 4: requirements and that at some point there's two avenues to

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Speaker 4: go down. You can something called self certify a contract,

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Speaker 4: or you can seek approval from the Commission. So this

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Speaker 4: is what happened with both the bitcoin and the Ether contract.

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Speaker 4: Bitcoin in twenty seventeen, Ether in about twenty twenty. And

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Speaker 4: that is what we've done historically and consistently, and in

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Speaker 4: the context of your question about is it a security

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Speaker 4: or is it a commodity, there's no doubt we within

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Speaker 4: the agency and at the staff level examine the characteristics

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Speaker 4: of a financial asset to ensure that it complies with

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Speaker 4: the law and that it falls within the definition of

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Speaker 4: a commodity and more importantly, is not a security. If

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Speaker 4: you look up at the definition of a commodity under

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Speaker 4: the Commodity Exchange Act, nearly everything is a commodity, including

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Speaker 4: a security. It's just securities are exempt from the CEA.

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Speaker 4: So we do have dialogue with the SEC and other agencies,

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Speaker 4: and we go through this sort of legal analysis to

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Speaker 4: ensure that we feel confident that when in exchange or

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Speaker 4: registrant lists a contract, it does in fact comply with

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Speaker 4: a law.

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Speaker 3: Now, I'll add.

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Speaker 4: Very quickly, and many in this room know this, and

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Speaker 4: I'm sure many of your listeners know this as well.

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Speaker 4: We have to drive our legal analysis from legal precedent,

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Speaker 4: which your husband will know, right, And this how we test,

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Speaker 4: which talks about, you know, four factors about an investment

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Speaker 4: of money in a common enterprise with an expectation of

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Speaker 4: profit from the work of others, and that for better.

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Speaker 3: Or for worse.

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Speaker 4: Is this sort of driving force that sits as the

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Speaker 4: foundation of our legal analysis to this day for digital assets.

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Speaker 4: When we think about that question about securities versus commodities,

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Speaker 4: and I know Congress is contemplating this, we've raised this question.

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Speaker 4: There are many characteristics about the financial the digital financial assets,

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Speaker 4: which are common to traditional financial assets, but there are

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Speaker 4: certainly many characteristics which are unique and I think demand

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Speaker 4: a unique set of thoughts and policy driven ideas about

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Speaker 4: how and whether we should regulate it.

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Speaker 1: So, just on that note, could you have a situation

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Speaker 1: where someone creates a coin or a token and they're

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Speaker 1: raising money and it is a security as defined by

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Speaker 1: legal precedent and you know, the how we test and

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Speaker 1: things like that, but then technology is enables it to

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Speaker 1: become decentralized enough that it could be a commodity.

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Speaker 4: Yeah, I mean, there's no doubt about that, and that

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Speaker 4: this is certainly a question that we've been grappling with,

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Speaker 4: and I know Congress is thinking about it as well.

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Speaker 4: That you know, initially, Tracy, as you point out, there's

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Speaker 4: going to be a pooling of capital from investors to

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Speaker 4: start a protocol or to start a project, and at

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Speaker 4: some point there would be a milestorm or inflection point

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Speaker 4: where that asset flips from being a security because of

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Speaker 4: those characteristics and then ends up.

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Speaker 3: Being a commodity.

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Speaker 4: We've never had to deal with this, I think in

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Speaker 4: the context of traditional, non digital assets. But again, these

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Speaker 4: are the types of questions that I think force policymakers

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Speaker 4: elected officials to think about which regime do these financial

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Speaker 4: assets properly fit into? And the policy case that I've

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Speaker 4: made as the chair of the CFTC is, you know,

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Speaker 4: we have to think about how these assets exist within

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Speaker 4: the financial ecosystem and what requirements we should layer on

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Speaker 4: to each of the financial assets as it relates to

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Speaker 4: customers and investors. Right, And if you think about the

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Speaker 4: SEC and the thirty three Act and the thirty four

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Speaker 4: Act and how and why that those laws were built,

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Speaker 4: it is in fact this term is thrown around a lot,

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Speaker 4: but to bridge an information gap between an issuer of

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Speaker 4: a security and an investor. Right to provide as much

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Speaker 4: information between that centralized body of individuals that's running a company,

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Speaker 4: or running an organization, or running a common enterprise, so

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Speaker 4: that investor, whether retail or institutional, can make the most

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Speaker 4: informed decision.

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Speaker 3: Fine.

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Speaker 4: Commodity markets are completely different in the sense that you

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Speaker 4: have decentralized financial assets, whether it's weak, whether it's crude,

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Speaker 4: whether it's palladium, and you want to create a resilient,

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Speaker 4: transparent market environment so that the individual investor, whether retail

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Speaker 4: but more commonly institutional, understands the risks associated with a

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Speaker 4: investing in commodity markets, but more importantly can understand and

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Speaker 4: know with confidence that the infrastructure around those trading markets,

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Speaker 4: whether it's the intermediary, the exchange, the clearinghouse, the custodian,

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Speaker 4: are well regulated and sort of resilient in their ability

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Speaker 4: to manage that trading and that execution.

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Speaker 2: See you mentioned when a new commodity or any new

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Speaker 2: future is launched, the entity can either self certify or

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Speaker 2: go to you for approval. There is one type of

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Speaker 2: entity that I'm pretty sure does not do any of that,

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Speaker 2: and that is Defy exchanges. If I were to launch

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Speaker 2: a DeFi exchange, I come up with some new code

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Speaker 2: that's like, oh, this could be a novel way of

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Speaker 2: trading futures for some of these digital assets. What do

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Speaker 2: I have to do to be in your good graces?

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Speaker 2: What would constitute are any defile exchanges doing that? What

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Speaker 2: would get me in trouble? And are the laws clear

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Speaker 2: for someone interested in the space such that they could

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Speaker 2: create a code, manage the code, manage a DOW perhaps

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Speaker 2: that runs the code, such that they can stay on

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Speaker 2: your good side.

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Speaker 4: Yeah, Joe, you wouldn't be the first who would do that,

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Speaker 4: so you're a little bit behind the ball there. But

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Speaker 4: you know, this does raise questions about whether or not

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Speaker 4: you have individuals involved in programming and what the code

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Speaker 4: is and how it's set. But ultimately, and I do

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Speaker 4: think you know this raises this question about regulation by enforcement,

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Speaker 4: and I very vigorously oppose, at least from a CFTC perspective,

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Speaker 4: and that's the only agency I can speak for, is

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Speaker 4: that we have done everything in our power while I've

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Speaker 4: been chaired and including my predecessors, to remain transparent and

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Speaker 4: to engage with market participants in this digital asset defy space,

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Speaker 4: to ensure they know as much as they can about

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Speaker 4: what the Commodity Exchange Act requires and what is required

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Speaker 4: of them if they're going to offer futures options or

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Speaker 4: swaps to US customers. And I think it's easy to suggest, oh,

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Speaker 4: there's you know, there's no institution, there's no individual, it's

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Speaker 4: just code. You can't regulate that. It's sort of self effectuating.

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Speaker 4: But that's really the wrong set of questions. It's really

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Speaker 4: about what are US customers being offered and exposed to

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Speaker 4: and who is the either individual or the group of

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Speaker 4: individuals who set up that entity that code to offer

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Speaker 4: those products.

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Speaker 3: So we are not legal counsel.

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Speaker 4: We don't provide legal advice per se. And I know

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Speaker 4: that's a challenge. There are barriers to entry, as many

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Speaker 4: people in this audience knows to participate in regulated markets.

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Speaker 4: But regulated markets are why we have the best markets

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Speaker 4: in the US and in the world, and it really

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Speaker 4: is incumbent on individuals to understand and appreciate that if

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Speaker 4: you're going to offer derivatives to US customers, there is

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Speaker 4: a very well developed and mature legal base and requirements

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Speaker 4: for complying with the law.

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Speaker 1: Speaking of exchanges, this wasn't necessarily a DeFi exchange, but

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Speaker 1: a centralized one. I want to personally thank you for

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Speaker 1: producing one of the most entertaining legal documents of all

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Speaker 1: time in the form of the lawsuit against Binance, And

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Speaker 1: for those of you in the audience who haven't read it,

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Speaker 1: I highly recommend that you do. It is a good

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Speaker 1: reminder to pick up the phone every once in a

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Speaker 1: while and don't write everything down in emails. But was

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Speaker 1: there a legal advice that is not legal advice? But

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Speaker 1: was there anything in there that surprised you or that

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Speaker 1: said something about the nature of the crypto ecosystem itself

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Speaker 1: and the way that it's being run. I mean, you

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Speaker 1: had people openly talking about, you know, this might be

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Speaker 1: money laundering, but it's only eight hundred dollars. You can't

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Speaker 1: even buy an AK forty seven for that, Well, this

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Speaker 1: was in an email.

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Speaker 3: I'm going to be careful about what I say and

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Speaker 3: when I don't say.

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Speaker 4: Given that it's it's active litigation, I certainly can say

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Speaker 4: that it was not our intent to entertain. But you know,

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Speaker 4: it is certainly a well developed complaint. And credit to

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Speaker 4: staff at the CFTC for doing the really hard work

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Speaker 4: to put that together. I think at this point, and

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Speaker 4: I've been at the Commission remarkably almost six years, nothing

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Speaker 4: surprises me anymore.

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Speaker 3: So we do our work, we do it hard.

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Speaker 4: We know that there's a lot of individuals out there

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Speaker 4: who either don't want to comply with the law, choose

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Speaker 4: to evade the law, or don't know about the law,

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Speaker 4: and you know, sometimes they will do things that are surprising,

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Speaker 4: including writing things down. But we are focused on making

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Speaker 4: sure we're applying the law protecting investors us investors. And yeah,

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Speaker 4: that case, it's ongoing, and we're going to keep vigorously

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Speaker 4: bringing bad actors to account here and we'll see what happens.

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Speaker 4: Is that at this point is still active and those

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Speaker 4: are only allegations.

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Speaker 1: Does it feel like the digital nature of this space,

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Speaker 1: the fact that the participants are so online, so much

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Speaker 1: of the activity takes place online. Does that make enforcement

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Speaker 1: actions easier or harder?

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Speaker 4: From your perspective, Yeah, it's a good question, and I

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Speaker 4: think it actually kind of goes to I'm going to

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Speaker 4: just pivot a little bit, but I think within the

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Speaker 4: same context or theme. You know, there's a lot of

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Speaker 4: individuals who question the use case for digital assets, right,

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Speaker 4: and so often we hear about bad actors illictit finance

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Speaker 4: utilizing this vehicle digital assets to sort of conduct their business,

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Speaker 4: which is unfortunately nefarious and sort of contravention to law

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Speaker 4: and good good practice. But what I've observed from a

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Speaker 4: regulatory perspective and recognizing the sort of counter to that

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Speaker 4: is using you know, traditional paperbacked FIAT. What I've recognized

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Speaker 4: over the past couple of years working with my colleagues

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Speaker 4: at the Treasury Department, FBI, other law enforcement agencies are

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Speaker 4: the regulators, is we're really developing a lot of very

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Speaker 4: sophisticated tools to trace the use of digital assets as

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Speaker 4: a means to conduct illegal activity. So I think from

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Speaker 4: my perspective, it's still a little bit the jury is

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Speaker 4: out on whether or not. As these technologies develop and

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Speaker 4: as the surveillance tools continue to mature whether or not.

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Speaker 4: I think from a law enforcement perspective, we're going to

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Speaker 4: be able to root out fraud and manipulation and elicited

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Speaker 4: activity in fact easier than we do under traditional forms

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Speaker 4: of illegal activity.

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Speaker 2: So a year ago, at this time, FTX was still

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Speaker 2: a big thing, and they were in the process of

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Speaker 2: attempting to sort of restructure how or pushing to restructure

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Speaker 2: how futures were traded in the US and beyond crypto,

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Speaker 2: like a fundamental rethink of how futures are traded with

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Speaker 2: potentially direct access to the exchange, proposals for twenty four

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Speaker 2: to seven, algorithmic automated margining, things like that, And at

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Speaker 2: the time I think you were like somewhat opened to

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Speaker 2: this idea. Then, of course FTX collapsed a few months later,

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Speaker 2: and I think for now that's dead, but the core ideas,

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Speaker 2: like would you still be open to some of these

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Speaker 2: ideas and just in terms of like rethinking how we trade.

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Speaker 2: Obviously they're still currently in people's minds, probably associated with FTX,

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Speaker 2: but the ideas themselves in terms of like what futures

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Speaker 2: trading could look like in the future, could you could

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Speaker 2: you see that conversation revisited at some point.

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Speaker 4: Yeah, you know, I think if you as I reflect

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Speaker 4: on twenty twenty two and that FTX sequence of events,

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Speaker 4: which goes back to twenty twenty one when they bought

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Speaker 4: the entity sort of that they had purchased was leder x,

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Speaker 4: which recently just got auctioned off to a bidder. I

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Speaker 4: think it's my responsibility, in any chairs responsibility to always

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Speaker 4: be open to new ideas. Right we have we have

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Speaker 4: these very clear milestone moments in market structure and market

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Speaker 4: technology over the past one hundred years that clearly have

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Speaker 4: put markets on a different path in a different course.

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Speaker 3: Right whether that.

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Speaker 4: Was and in this city, you can appreciate it better

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Speaker 4: than anything else, going from pit trading to electronic trading

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Speaker 4: some twenty years ago, right that. I often you would

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Speaker 4: use that example to sort of demonstrate and illustrate how

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Speaker 4: we have to be open to technological disruptions in market execution.

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Speaker 4: It's just if we don't do it, we're going to

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Speaker 4: potentially be behind from a you know, us perspective, and

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Speaker 4: I think it's incumbent we think about it. The other

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Speaker 4: point is, with respect to FTX and leder x, that

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Speaker 4: was not the first entity to come to the CFTC

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Speaker 4: and request an approval for non intermediation, which essentially was

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Speaker 4: what it was. And I said this as well, if

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Speaker 4: you think you know over the course of twenty two

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Speaker 4: as we were reviewing that application, which was a legal

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Speaker 4: requirement for us to do. This wasn't some sort of

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Speaker 4: arbitrary choice I made of oh, Okay, we have an application,

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Speaker 4: let's look at it, or I couldn't as easily dismissed it.

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Speaker 4: We have a legal obligation to review and to respond

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Speaker 4: to applications, and if we don't then we're actually sort

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Speaker 4: of at legal risk of being sued by the applicant

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Speaker 4: for not being responsive to them. But we did have

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Speaker 4: two public engagement activities i'll call them that. We had

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Speaker 4: a request for information or a consultation document in March

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Speaker 4: of last year, and then we had a public round

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Speaker 4: table around non intermediation, and that was driven around just

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Speaker 4: making sure that we were getting as much input from

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Speaker 4: the public whoever wanted to provide it, but also to

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Speaker 4: have a larger discussion about market structure and non intermediation

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Speaker 4: because as we see this digital asset market mature and

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Speaker 4: develop with traditional financial players a piece and wanting to participate. Why,

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Speaker 4: whether through offering you know, services or assets to their

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Speaker 4: customers or potentially using the blockchain technology as a foundation

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Speaker 4: for you know, you know, banking processes. We have this responsibility,

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Speaker 4: I think, from a regulatory perspective to really think through

436
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Speaker 4: these things. So despite what happened to FTX, you know,

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Speaker 4: the application was still ongoing. We weren't close to a decision,

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Speaker 4: and there were certainly a lot of legal issues, risk issues,

439
00:24:31,800 --> 00:24:35,040
Speaker 4: and policy questions that we were diving through. But I

440
00:24:35,080 --> 00:24:39,359
Speaker 4: certainly think, as I said this before, that proposal wasn't

441
00:24:39,359 --> 00:24:41,679
Speaker 4: the first of its kind, and it's not going to

442
00:24:41,680 --> 00:24:42,720
Speaker 4: be the last of its kind.

443
00:24:44,160 --> 00:24:47,680
Speaker 1: Speaking of new ideas, I'm going to pivot slightly from crypto,

444
00:24:47,960 --> 00:24:50,080
Speaker 1: although I think this is actually related to it, because

445
00:24:50,119 --> 00:24:54,320
Speaker 1: it feels like one of the lasting legacies of crypto

446
00:24:54,840 --> 00:24:58,320
Speaker 1: no matter what happens now is it's sort of normalized

447
00:24:59,160 --> 00:25:03,439
Speaker 1: gambling behavior by investors, so bets purely on you know,

448
00:25:03,760 --> 00:25:05,840
Speaker 1: token go up, token go down, line on the chart

449
00:25:05,880 --> 00:25:10,240
Speaker 1: go up or down. And recently we have seen new

450
00:25:10,320 --> 00:25:14,360
Speaker 1: prediction markets and entities forming things like Calshi and predict

451
00:25:14,359 --> 00:25:18,280
Speaker 1: it that are offering all different types of bets and

452
00:25:18,320 --> 00:25:21,440
Speaker 1: I'm curious how you are viewing those through the lens

453
00:25:21,520 --> 00:25:22,240
Speaker 1: of a regulator.

454
00:25:23,000 --> 00:25:25,159
Speaker 3: Yeah, you know, I have.

455
00:25:25,280 --> 00:25:28,719
Speaker 4: I've had conversations with both of those entities, and there

456
00:25:28,720 --> 00:25:33,240
Speaker 4: are certainly other entities that are trying or doing similar activities.

457
00:25:33,359 --> 00:25:37,240
Speaker 4: And you know, binary options, these prediction markets are not

458
00:25:38,000 --> 00:25:40,840
Speaker 4: necessarily novel. But I think from a policy perspective and

459
00:25:40,840 --> 00:25:44,320
Speaker 4: from my role, you know, on the one hand, we

460
00:25:44,400 --> 00:25:46,920
Speaker 4: have to think about what the law requires, and the

461
00:25:47,000 --> 00:25:49,480
Speaker 4: law is very clear when it comes to these types

462
00:25:49,520 --> 00:25:50,600
Speaker 4: of contracts that.

463
00:25:52,040 --> 00:25:54,200
Speaker 3: It is illegal to list a.

464
00:25:54,160 --> 00:25:57,480
Speaker 4: Contract that has to do with war, assassination, terrorism and

465
00:25:57,520 --> 00:26:00,960
Speaker 4: illegal activity gaming or something that's out in the public interest.

466
00:26:01,160 --> 00:26:01,280
Speaker 3: Right.

467
00:26:01,720 --> 00:26:05,520
Speaker 4: So of that five or six items that I just

468
00:26:05,600 --> 00:26:12,240
Speaker 4: listed off, most are pretty clear. War terrorism, assassination, gaming

469
00:26:12,359 --> 00:26:15,080
Speaker 4: becomes a trick or a tricky issue that we are

470
00:26:15,320 --> 00:26:17,320
Speaker 4: we have dealt with, and we're dealing with right now.

471
00:26:17,840 --> 00:26:21,080
Speaker 4: Something against the public interest also becomes tricky, right, And

472
00:26:21,119 --> 00:26:25,040
Speaker 4: that's where as we see this emergence of products, and

473
00:26:25,080 --> 00:26:27,840
Speaker 4: this is a combination or a confluence of events driven

474
00:26:27,840 --> 00:26:33,159
Speaker 4: by technology, market disruption, barriers to entry essentially lowering or

475
00:26:33,200 --> 00:26:35,720
Speaker 4: being eliminated, and that really is a sort of by

476
00:26:35,800 --> 00:26:40,120
Speaker 4: product of phones and access to markets, clearly a shifting

477
00:26:40,160 --> 00:26:45,040
Speaker 4: and consumer an investor demand, retail investor demand around products

478
00:26:45,080 --> 00:26:48,359
Speaker 4: and access to markets, and then an expansion of the

479
00:26:48,400 --> 00:26:51,600
Speaker 4: type of products we list right where historically just down

480
00:26:51,640 --> 00:26:55,120
Speaker 4: the road you'd have ag products, you'd have energy products,

481
00:26:55,119 --> 00:26:57,840
Speaker 4: you'd have metals products. Then you had the emergence of

482
00:26:57,880 --> 00:27:01,520
Speaker 4: financial futures, you know, forty fifty years ago, and now

483
00:27:01,200 --> 00:27:05,160
Speaker 4: we're sort of entering this next paradigm and it's been

484
00:27:05,160 --> 00:27:07,639
Speaker 4: going on for the better part of a decade where

485
00:27:07,880 --> 00:27:12,320
Speaker 4: with this confluence of events, technology, investor behavior, and barriers

486
00:27:12,359 --> 00:27:15,600
Speaker 4: to entry, folks are saying, why should we be limited

487
00:27:16,240 --> 00:27:18,840
Speaker 4: in the types of products that we can trade or

488
00:27:18,840 --> 00:27:23,360
Speaker 4: have access to with this sort of legacy group of products,

489
00:27:23,400 --> 00:27:25,120
Speaker 4: why does it just have to be these few risk

490
00:27:25,160 --> 00:27:27,760
Speaker 4: management tools. We have so many risks in the economy,

491
00:27:28,040 --> 00:27:30,879
Speaker 4: so many risks to are businesses, whether small, mid size,

492
00:27:30,960 --> 00:27:33,359
Speaker 4: or large, so many risks individually, and we've seen them

493
00:27:33,359 --> 00:27:35,280
Speaker 4: in the past couple of years, whether it's you know,

494
00:27:35,840 --> 00:27:38,440
Speaker 4: Russia invading you the Ukraine and what impact that has

495
00:27:38,480 --> 00:27:42,040
Speaker 4: on consumer prices and inflation, whether it's a pandemic, a

496
00:27:42,080 --> 00:27:45,919
Speaker 4: once in a century pandemic that affects everyone in a

497
00:27:46,000 --> 00:27:48,960
Speaker 4: very unique but substantial way. Why should we not be

498
00:27:49,040 --> 00:27:52,399
Speaker 4: able to manage these risks? So I think, from my perspective,

499
00:27:53,200 --> 00:27:55,520
Speaker 4: have to always start the baseline as the law, what

500
00:27:55,600 --> 00:27:58,720
Speaker 4: it allows, what it doesn't allow, engaging with Congress and

501
00:27:58,760 --> 00:28:00,919
Speaker 4: seeing whether or not they want to spand or limit

502
00:28:01,000 --> 00:28:04,960
Speaker 4: that that those provisions or keeping them the same, and

503
00:28:05,080 --> 00:28:08,280
Speaker 4: whether within those two provisions I mentioned gaming and the

504
00:28:08,280 --> 00:28:11,359
Speaker 4: public interest, we as a commission in me by proxy

505
00:28:11,400 --> 00:28:14,680
Speaker 4: as chair can sort of lead a discussion about what

506
00:28:14,880 --> 00:28:17,840
Speaker 4: road do we want to go down and what potential

507
00:28:17,880 --> 00:28:21,560
Speaker 4: products could we start to list or allow stakeholders resistaurants

508
00:28:21,560 --> 00:28:24,320
Speaker 4: to list that would stay within the confines of that

509
00:28:24,560 --> 00:28:29,320
Speaker 4: legal framework and also allow markets to evolve, grow and

510
00:28:29,840 --> 00:28:33,320
Speaker 4: sort of shift with this consumer sentiment. Right, But there

511
00:28:33,359 --> 00:28:36,760
Speaker 4: are there are a lot of risks associated with you know,

512
00:28:36,840 --> 00:28:41,680
Speaker 4: potentially listing contracts around political elections or other types of events.

513
00:28:41,720 --> 00:28:44,160
Speaker 4: And this is where the Commission really has to dig in,

514
00:28:44,320 --> 00:28:47,840
Speaker 4: get you know, stakeholder input, but hopefully make decisions in

515
00:28:47,880 --> 00:28:51,120
Speaker 4: a very concerted, cautious and balanced way.

516
00:28:51,280 --> 00:28:54,479
Speaker 2: What is the concern around political contracts? Because just as

517
00:28:54,520 --> 00:28:56,680
Speaker 2: a consumer of news, I love them. I love being

518
00:28:56,680 --> 00:29:00,080
Speaker 2: able to say, oh, you know so and sot on four. No,

519
00:29:00,200 --> 00:29:01,400
Speaker 2: I don't even want to bet. I just want to

520
00:29:01,440 --> 00:29:03,280
Speaker 2: see the line. And I actually, you know, I find

521
00:29:03,280 --> 00:29:05,400
Speaker 2: it useful to see where consensus is to be able

522
00:29:05,440 --> 00:29:08,320
Speaker 2: to put a price on that. They're definitely there are

523
00:29:08,360 --> 00:29:11,920
Speaker 2: definitely times where I watch the news, we don't know

524
00:29:11,960 --> 00:29:13,959
Speaker 2: what's going on, and I look and like the markets

525
00:29:13,960 --> 00:29:16,640
Speaker 2: at like ninety percents, like the Insider, the people who

526
00:29:16,880 --> 00:29:19,240
Speaker 2: follow this stuff do know, and there's useful information. They're like,

527
00:29:19,520 --> 00:29:21,360
Speaker 2: I wanted to exist in twenty twenty four of why

528
00:29:21,400 --> 00:29:21,840
Speaker 2: won't it?

529
00:29:22,840 --> 00:29:27,200
Speaker 3: So Look, I'm unbiased. I believe in markets.

530
00:29:27,240 --> 00:29:31,520
Speaker 4: I believe in efficient markets and price discovery obviously, and

531
00:29:31,680 --> 00:29:36,520
Speaker 4: the importance of the intersection between efficient, well run markets

532
00:29:36,560 --> 00:29:39,280
Speaker 4: and how they can price risk for capital allocators or

533
00:29:39,320 --> 00:29:43,160
Speaker 4: decision makers. I would say, and this is often not

534
00:29:43,520 --> 00:29:47,240
Speaker 4: thought of, and it doesn't surprise me. But just to

535
00:29:47,320 --> 00:29:49,520
Speaker 4: walk you through a hypothetical, and I'm going to take

536
00:29:49,520 --> 00:29:53,680
Speaker 4: a quick step back to the crypto conversation. We don't

537
00:29:53,760 --> 00:29:56,240
Speaker 4: have and it just should be clear to everyone. You know,

538
00:29:56,320 --> 00:29:58,720
Speaker 4: I've said this, We've discussed this. I don't have legal

539
00:29:58,800 --> 00:30:02,520
Speaker 4: authority to police cash crypto markets. We do have this

540
00:30:02,720 --> 00:30:06,760
Speaker 4: very limited authority within the CFTC to police cash markets

541
00:30:06,920 --> 00:30:11,320
Speaker 4: if there's fraud or manipulation. And the policy idea behind

542
00:30:11,400 --> 00:30:14,040
Speaker 4: this authority that Congress provided to us is that if

543
00:30:14,080 --> 00:30:16,880
Speaker 4: you're going to have potentially fraud or manipulation in an

544
00:30:16,960 --> 00:30:21,120
Speaker 4: underlying contract or an underlying cash market that could impact

545
00:30:21,240 --> 00:30:25,440
Speaker 4: CFTC regulated markets, the CFTC should be able to police

546
00:30:25,480 --> 00:30:26,040
Speaker 4: those markets.

547
00:30:26,120 --> 00:30:26,239
Speaker 1: Right.

548
00:30:26,280 --> 00:30:30,600
Speaker 4: We wouldn't want manipulated cash markets to impact the markets

549
00:30:30,640 --> 00:30:33,920
Speaker 4: we regulate. So now let's pivot back to this conversation

550
00:30:34,000 --> 00:30:39,160
Speaker 4: around election contracts in theory if and just taking into

551
00:30:39,200 --> 00:30:41,440
Speaker 4: the context what we see in the news, what we

552
00:30:41,600 --> 00:30:46,720
Speaker 4: listen in the news, and how news and its impact

553
00:30:46,920 --> 00:30:51,800
Speaker 4: on elections and how we behave has changed and evolved

554
00:30:51,800 --> 00:30:55,280
Speaker 4: over the past decade. Imagine a situation where we have

555
00:30:56,120 --> 00:31:01,440
Speaker 4: alleged fraud or alleged manipulation of an election and someone

556
00:31:01,560 --> 00:31:04,920
Speaker 4: coming to the CFTC and say, you know, you have

557
00:31:05,800 --> 00:31:09,640
Speaker 4: a contract listed on an election in you know, ex

558
00:31:09,760 --> 00:31:14,080
Speaker 4: district in why state and we believe there was fraud

559
00:31:14,880 --> 00:31:19,480
Speaker 4: because of hardware, software, news, you name it, right, you

560
00:31:19,640 --> 00:31:26,040
Speaker 4: need to police that fraud. So, without being too indirect,

561
00:31:26,600 --> 00:31:29,080
Speaker 4: what I'm trying to say, is the CFTC could end

562
00:31:29,200 --> 00:31:32,440
Speaker 4: up being an election cop and I don't think that's

563
00:31:32,480 --> 00:31:35,480
Speaker 4: what Congress meant or intended for us to do. And

564
00:31:35,560 --> 00:31:38,240
Speaker 4: I think that raises for me personally, and I can't

565
00:31:38,240 --> 00:31:41,200
Speaker 4: speak for the Commission or my colleagues a lot of

566
00:31:41,840 --> 00:31:46,200
Speaker 4: legal questions and policy questions about whether or not you

567
00:31:46,240 --> 00:31:49,920
Speaker 4: would want a financial regulator policing elections.

568
00:31:50,880 --> 00:31:53,720
Speaker 1: That's super interesting, and I'm now imagining in my head

569
00:31:53,920 --> 00:31:56,880
Speaker 1: like a headline in the year twenty thirty about CFTC

570
00:31:57,080 --> 00:32:01,280
Speaker 1: issues enforcement action against Russia for electtion meddling, the sparking

571
00:32:01,360 --> 00:32:05,960
Speaker 1: World War three, which I'm sure no one wants. I

572
00:32:05,960 --> 00:32:10,480
Speaker 1: can't bet on it. But actually related question on prediction markets.

573
00:32:11,040 --> 00:32:15,360
Speaker 1: You talked about people pitching these as a hedging strategy.

574
00:32:15,520 --> 00:32:17,880
Speaker 1: So we have a business risk that might be related

575
00:32:17,960 --> 00:32:20,160
Speaker 1: to this thing, and if we had a betting contract

576
00:32:20,240 --> 00:32:23,600
Speaker 1: we could mitigate that risk. At what point does that

577
00:32:23,800 --> 00:32:25,560
Speaker 1: kind of overlap with insurance?

578
00:32:26,560 --> 00:32:31,520
Speaker 4: Yeah, I mean in many respects derivatives markets have. There

579
00:32:31,680 --> 00:32:37,560
Speaker 4: is natural overlaps between insurance markets and derivatives markets. They're

580
00:32:37,680 --> 00:32:42,200
Speaker 4: unique products, obviously in the way they're structured and the

581
00:32:42,400 --> 00:32:44,960
Speaker 4: cost whether it's the premium on the insurance side, or

582
00:32:45,040 --> 00:32:48,280
Speaker 4: the margin on the futures or the derivative side, the

583
00:32:48,400 --> 00:32:53,560
Speaker 4: duration of the contract itself, and this aspect of delivery

584
00:32:53,600 --> 00:32:58,040
Speaker 4: if you're talking about physical commodities. So there are many

585
00:32:58,120 --> 00:33:03,360
Speaker 4: different components or characteristics that differentiate the two, but it's

586
00:33:03,560 --> 00:33:07,960
Speaker 4: certainly not a unique They're both risk management products, right,

587
00:33:08,000 --> 00:33:09,600
Speaker 4: And it's a question that we deal with sort of

588
00:33:09,640 --> 00:33:10,160
Speaker 4: all the time.

589
00:33:25,920 --> 00:33:27,880
Speaker 2: So I want to go back to sort of something

590
00:33:27,960 --> 00:33:30,280
Speaker 2: that Tracy brought up, which is this sort of like

591
00:33:31,160 --> 00:33:33,880
Speaker 2: this gambling on everything mentality, and people are just placing

592
00:33:33,960 --> 00:33:35,760
Speaker 2: bets on all kinds of things. And you know, I

593
00:33:35,880 --> 00:33:39,080
Speaker 2: was reading some of the public comments to the FTX proposal,

594
00:33:39,320 --> 00:33:41,480
Speaker 2: and one of the criticisms of it in terms of

595
00:33:41,560 --> 00:33:44,080
Speaker 2: restructuring is, oh, this is just going to bring more

596
00:33:44,160 --> 00:33:49,160
Speaker 2: retail people into futures trading. It's de facto gambling. People

597
00:33:49,200 --> 00:33:51,560
Speaker 2: are going to lose a lot of money. It's very risky.

598
00:33:51,840 --> 00:33:54,960
Speaker 2: Do you have a position, essentially on the question of,

599
00:33:55,120 --> 00:33:58,920
Speaker 2: like what is the right level of sort of retail

600
00:33:59,040 --> 00:34:03,080
Speaker 2: participation in these markets? Do you factor into your thinking

601
00:34:03,200 --> 00:34:07,200
Speaker 2: like these are sophisticated markets and there should be some

602
00:34:07,520 --> 00:34:10,840
Speaker 2: curbs on the degree to which mom and pop is

603
00:34:10,920 --> 00:34:14,560
Speaker 2: playing in sophisticated financial markets or are you sort of

604
00:34:14,640 --> 00:34:17,360
Speaker 2: like neutral on this question. And as long as the

605
00:34:17,640 --> 00:34:21,560
Speaker 2: trading is done with integrity and not manipulated, that is

606
00:34:21,600 --> 00:34:23,480
Speaker 2: sort of up for the market to decide how much

607
00:34:23,520 --> 00:34:24,759
Speaker 2: public participation there is.

608
00:34:25,080 --> 00:34:27,400
Speaker 4: Yeah, I mean it becomes very difficult for me to

609
00:34:28,360 --> 00:34:32,080
Speaker 4: tell an individual investor how they can either invest or

610
00:34:32,160 --> 00:34:35,239
Speaker 4: allocate their capital. I think, as chair, you know my

611
00:34:35,480 --> 00:34:38,440
Speaker 4: number one responsibility and this kind of goes to your point, Joe,

612
00:34:38,640 --> 00:34:41,480
Speaker 4: is that we do everything we can to ensure that

613
00:34:41,600 --> 00:34:46,200
Speaker 4: the markets are transparent, farewell regulated as much information is

614
00:34:46,320 --> 00:34:50,719
Speaker 4: flowing from the regulated entity to the customer in terms

615
00:34:50,760 --> 00:34:55,160
Speaker 4: of disclosures about risks associating with investing in leverage markets,

616
00:34:55,680 --> 00:34:58,640
Speaker 4: the risk of loss around any investment at all.

617
00:34:58,800 --> 00:35:00,200
Speaker 3: And then I think it puts.

618
00:35:02,680 --> 00:35:05,520
Speaker 4: A burden and I say that not necessarily a negative

619
00:35:05,560 --> 00:35:09,719
Speaker 4: way on the agency. As markets evolve, and we've seen this,

620
00:35:09,840 --> 00:35:11,160
Speaker 4: and I'll use a quick example.

621
00:35:11,440 --> 00:35:12,600
Speaker 3: We all remember.

622
00:35:13,880 --> 00:35:19,480
Speaker 4: The game stop Reddit trading in the equity markets back

623
00:35:19,520 --> 00:35:23,160
Speaker 4: in twenty twenty. We had actually seen quite a sharp

624
00:35:23,280 --> 00:35:27,080
Speaker 4: move in some of our markets in the metals complex

625
00:35:27,440 --> 00:35:31,120
Speaker 4: at the same period, and it was driven a lot

626
00:35:31,200 --> 00:35:36,040
Speaker 4: by social media, so silver right, and it's hard to

627
00:35:36,120 --> 00:35:40,440
Speaker 4: move those markets. Those are very deep markets, very entrenched institutionally,

628
00:35:41,560 --> 00:35:43,520
Speaker 4: and to be able to move those markets through some

629
00:35:43,640 --> 00:35:47,120
Speaker 4: sort of externality in this case social media is not easy.

630
00:35:47,280 --> 00:35:50,760
Speaker 4: But point being is are we have and we continue

631
00:35:50,880 --> 00:35:55,400
Speaker 4: to see an influx of retail participation, of retail interest

632
00:35:55,480 --> 00:35:57,040
Speaker 4: in our markets. And this goes to what I was

633
00:35:57,040 --> 00:36:00,279
Speaker 4: saying earlier about barriers to entry being lowered because of

634
00:36:00,320 --> 00:36:05,600
Speaker 4: technology disruption, retail behavior shifting and wanting more access to

635
00:36:05,719 --> 00:36:08,279
Speaker 4: markets and new products, and I think that just puts

636
00:36:08,320 --> 00:36:11,000
Speaker 4: the onus or burden, however you want to frame it

637
00:36:11,200 --> 00:36:14,960
Speaker 4: on us, including my successors, to make sure that we're

638
00:36:15,040 --> 00:36:19,520
Speaker 4: really upping the ante in terms of how we're sharing

639
00:36:19,640 --> 00:36:23,480
Speaker 4: information to investors in the general public about the risks

640
00:36:23,520 --> 00:36:27,800
Speaker 4: associated with derivatives markets and what it means to invest

641
00:36:27,840 --> 00:36:30,560
Speaker 4: in these markets and what the risks are. But you know,

642
00:36:30,719 --> 00:36:32,720
Speaker 4: going back to your original point, I think it becomes

643
00:36:32,880 --> 00:36:36,520
Speaker 4: very difficult for any chair or any commission to.

644
00:36:36,560 --> 00:36:38,640
Speaker 3: Say you can't do this. Now.

645
00:36:38,760 --> 00:36:42,000
Speaker 4: Obviously, we have tests on the equity side, it's the

646
00:36:42,280 --> 00:36:43,520
Speaker 4: Accredited Investor test.

647
00:36:43,719 --> 00:36:44,600
Speaker 3: With us, we have this.

648
00:36:46,200 --> 00:36:49,640
Speaker 4: Eligible contract participant or ECP kind of a wonky term

649
00:36:50,040 --> 00:36:53,920
Speaker 4: to participate, most notably in swaps markets. But you know,

650
00:36:54,360 --> 00:36:57,920
Speaker 4: we do have some framing about certain markets and who

651
00:36:58,000 --> 00:36:59,920
Speaker 4: can participate in them. But if you're thinking about just

652
00:37:00,120 --> 00:37:03,719
Speaker 4: pure futures and options on futures, in my view, it's

653
00:37:03,760 --> 00:37:08,800
Speaker 4: all about disclosures, information flow and availability and knowledge about

654
00:37:10,040 --> 00:37:10,760
Speaker 4: risk of laws.

655
00:37:11,920 --> 00:37:14,480
Speaker 1: Since we're talking about risk in general, I wanted to

656
00:37:14,520 --> 00:37:18,479
Speaker 1: ask you about cybersecurity. In the aftermath of the Ion hack,

657
00:37:18,640 --> 00:37:23,400
Speaker 1: which unsettled the derivatives market and probably unsettled some of

658
00:37:23,480 --> 00:37:26,399
Speaker 1: the weekends and workdays of some people in this room,

659
00:37:27,320 --> 00:37:32,560
Speaker 1: you talked about the potential need for additional rules around cybersecurity.

660
00:37:32,880 --> 00:37:34,560
Speaker 1: What would those look like and how are you thinking

661
00:37:34,600 --> 00:37:35,040
Speaker 1: about them?

662
00:37:35,480 --> 00:37:37,719
Speaker 4: Yeah, we don't as a market regulator, and I know

663
00:37:37,800 --> 00:37:41,520
Speaker 4: the SEC is in the same camp. We don't have

664
00:37:42,200 --> 00:37:47,000
Speaker 4: a legal authority to register to police to supervise third

665
00:37:47,120 --> 00:37:49,600
Speaker 4: party vendors, right, So we have a registrant who then

666
00:37:49,680 --> 00:37:54,560
Speaker 4: outsources some back office processing or settlement services or cyber services,

667
00:37:54,600 --> 00:37:56,320
Speaker 4: you name it. I'm sure a lot of these services

668
00:37:56,360 --> 00:38:03,320
Speaker 4: are outsourced. We cannot peek into register, regulate, supervise that

669
00:38:03,520 --> 00:38:06,720
Speaker 4: entity and I think by and large this is another

670
00:38:07,200 --> 00:38:10,600
Speaker 4: situation which is not uncommon in the regulated space, where

671
00:38:11,120 --> 00:38:16,200
Speaker 4: naturally our registrants have vested interest in ensuring the viability

672
00:38:16,239 --> 00:38:18,560
Speaker 4: of their entity and the health of the markets and

673
00:38:18,600 --> 00:38:21,120
Speaker 4: the ecosystem, so they're going to do their due diligence.

674
00:38:21,560 --> 00:38:25,080
Speaker 4: We do have guidance and advisories within the CFTC to say,

675
00:38:25,120 --> 00:38:26,839
Speaker 4: you know, this is what we expect from you as

676
00:38:26,960 --> 00:38:31,440
Speaker 4: you engage and contract with vendor and vendor services. But

677
00:38:32,160 --> 00:38:36,120
Speaker 4: you know, tracy to your point, the policy question, especially

678
00:38:36,200 --> 00:38:40,600
Speaker 4: with what we dealt with with ion, is should the

679
00:38:40,719 --> 00:38:45,439
Speaker 4: CFDC have new legal authority to either and I'll sort

680
00:38:45,480 --> 00:38:49,640
Speaker 4: of talk about the spectrum of options is keep things

681
00:38:49,680 --> 00:38:53,360
Speaker 4: status quo and just continue to issue either advisories or

682
00:38:53,440 --> 00:38:57,120
Speaker 4: guidance and best practices of what we expect from our

683
00:38:57,239 --> 00:39:00,680
Speaker 4: registrants as they engage with vendors. Or is it to

684
00:39:00,800 --> 00:39:04,440
Speaker 4: shift to a regulated structure where we then have we

685
00:39:04,600 --> 00:39:08,399
Speaker 4: the CFTC have authority to regulate and register in some way,

686
00:39:08,480 --> 00:39:12,279
Speaker 4: shape or form, the vendor, the third party provider, or

687
00:39:12,440 --> 00:39:15,200
Speaker 4: somewhere in between. And this is not inconsistent with what

688
00:39:15,320 --> 00:39:19,399
Speaker 4: prudential regulators currently do. It's called the Bank Supervisory Act

689
00:39:19,440 --> 00:39:24,000
Speaker 4: I believe is they can supervise vendors or third parties

690
00:39:24,440 --> 00:39:29,560
Speaker 4: if that vendor is providing a essentially a regulated service

691
00:39:29,680 --> 00:39:33,080
Speaker 4: to the bank, to the regulated entity. And you know,

692
00:39:33,280 --> 00:39:36,759
Speaker 4: I've proposed these ideas to Congress. I think the conversation

693
00:39:36,960 --> 00:39:40,839
Speaker 4: is active and each has its own benefit and risk,

694
00:39:40,960 --> 00:39:46,320
Speaker 4: Each has its own benefit and responsibility. But I do

695
00:39:46,480 --> 00:39:48,680
Speaker 4: think it's something that we have to think about because

696
00:39:48,920 --> 00:39:52,680
Speaker 4: in the context of cyber risk, regardless of size of

697
00:39:52,719 --> 00:39:57,200
Speaker 4: the registrated registered registered entity, this is you know, single

698
00:39:57,280 --> 00:40:01,560
Speaker 4: point of failure issue that as we saw with Ion,

699
00:40:01,680 --> 00:40:05,280
Speaker 4: which really was not a huge provider of back office

700
00:40:05,320 --> 00:40:08,680
Speaker 4: services to US entities. More specifically, this had a pretty

701
00:40:08,680 --> 00:40:11,680
Speaker 4: significant impact on our ability to do our job, most

702
00:40:11,760 --> 00:40:14,759
Speaker 4: notably issue this commitment of Traders report, which you know

703
00:40:15,000 --> 00:40:17,680
Speaker 4: we heard a lot about, but you know, a serious

704
00:40:17,800 --> 00:40:21,120
Speaker 4: risk and something that I think demands a new policy conversation.

705
00:40:21,719 --> 00:40:24,120
Speaker 2: So right before we got on stage, we watched this

706
00:40:24,320 --> 00:40:27,520
Speaker 2: video about the rise of voluntary carbon markets and how

707
00:40:27,560 --> 00:40:29,680
Speaker 2: this is going to be a big market and companies

708
00:40:29,880 --> 00:40:34,160
Speaker 2: using financial products to offset some of their carbon consumption.

709
00:40:34,880 --> 00:40:36,480
Speaker 2: You know, one of the there's sort of one of

710
00:40:36,520 --> 00:40:39,520
Speaker 2: the questions that comes up in carbon markets or offset

711
00:40:39,600 --> 00:40:42,920
Speaker 2: markets is the quality of the asset itself. If I'm

712
00:40:42,960 --> 00:40:45,640
Speaker 2: buying an offset, did this really reduce some sort of

713
00:40:45,760 --> 00:40:48,120
Speaker 2: carbon emissions or is it some sort of is it

714
00:40:48,200 --> 00:40:52,800
Speaker 2: a gimmick? Will the CFTC as these markets develop, mostly

715
00:40:52,960 --> 00:40:55,920
Speaker 2: just focus on the trading of these offsets or also

716
00:40:56,040 --> 00:41:00,440
Speaker 2: the quality of these offsets, the projects that generate these offsets,

717
00:41:00,560 --> 00:41:03,040
Speaker 2: whether they're genuinely sort of doing what they claim.

718
00:41:03,600 --> 00:41:06,880
Speaker 4: Yeah, this goes back again to a consistent theme of

719
00:41:06,920 --> 00:41:12,400
Speaker 4: our conversation is what interest do we the CFTC have

720
00:41:12,960 --> 00:41:16,600
Speaker 4: in the regulated market and then naturally the unregulated market

721
00:41:16,719 --> 00:41:20,000
Speaker 4: or the underlying market. Excuse you, so, in this case

722
00:41:20,080 --> 00:41:22,880
Speaker 4: with the VCM market, the voluntary carbon market, there are

723
00:41:23,400 --> 00:41:27,920
Speaker 4: at least two listed futures contracts on registered exchange CFTC

724
00:41:28,080 --> 00:41:34,040
Speaker 4: registered exchanges, and just by virtue of that reality that

725
00:41:34,160 --> 00:41:39,680
Speaker 4: we have regulated futures contracts, I then have a vested

726
00:41:39,760 --> 00:41:43,279
Speaker 4: interest in the underlying market, right and if there is,

727
00:41:43,320 --> 00:41:46,400
Speaker 4: in fact, as you raise Joe, questions about the integrity

728
00:41:46,520 --> 00:41:49,440
Speaker 4: of the registries and the actual offsets, whether or not

729
00:41:49,520 --> 00:41:53,960
Speaker 4: they're really meeting their goals of sequestering x tons of carbon,

730
00:41:54,440 --> 00:41:57,759
Speaker 4: whether the project really exists, you know, is there additional

731
00:41:57,880 --> 00:42:00,719
Speaker 4: carbon being sequestered or is it just, Oh, I have

732
00:42:00,840 --> 00:42:03,360
Speaker 4: a thousand acres of trees, let me just generate some

733
00:42:03,480 --> 00:42:07,799
Speaker 4: credits that have been sitting there for thirty years. We're

734
00:42:07,840 --> 00:42:11,160
Speaker 4: not an environmental regulator. I say that often. I understand

735
00:42:11,280 --> 00:42:13,880
Speaker 4: that there are limitations to what we can and cannot do.

736
00:42:14,560 --> 00:42:17,520
Speaker 4: But as was said earlier, there are a number of

737
00:42:17,680 --> 00:42:22,840
Speaker 4: private sector market driven initiatives, the Integrity Council on Voluntary

738
00:42:22,880 --> 00:42:26,680
Speaker 4: Carbon Markets and others trying to create standards and best

739
00:42:26,760 --> 00:42:30,440
Speaker 4: practices around the voluntary carbon market. So we are looking

740
00:42:30,520 --> 00:42:35,800
Speaker 4: at all aspects of the market and all aspects of

741
00:42:35,920 --> 00:42:38,680
Speaker 4: what the private sector is doing, and thinking about what

742
00:42:38,960 --> 00:42:42,600
Speaker 4: role we can play in ensuring that the underlying market

743
00:42:42,640 --> 00:42:46,360
Speaker 4: has integrity and credibility, so that and most importantly, the

744
00:42:46,440 --> 00:42:49,600
Speaker 4: markets that I regulate have the same credibility, because that

745
00:42:50,320 --> 00:42:53,680
Speaker 4: price dislocation that might occur between the underlying and the

746
00:42:54,320 --> 00:42:59,040
Speaker 4: cash and the derivatives is obviously something that's very important

747
00:42:59,040 --> 00:43:01,400
Speaker 4: to us, and we need to make sure as the

748
00:43:01,800 --> 00:43:05,240
Speaker 4: law very clearly states that our contracts are not readily

749
00:43:05,360 --> 00:43:09,040
Speaker 4: susceptible to fraud and manipulation, and if there are issues

750
00:43:09,120 --> 00:43:12,200
Speaker 4: in the underlying market that raise questions about fraud or

751
00:43:12,239 --> 00:43:15,279
Speaker 4: manipulation that naturally is going to have an impact on

752
00:43:15,360 --> 00:43:18,200
Speaker 4: our markets, and something that I would care deeply about

753
00:43:18,280 --> 00:43:19,120
Speaker 4: and want to address.

754
00:43:20,360 --> 00:43:24,200
Speaker 1: Speaking of credibility, Congress currently hashing it out over the

755
00:43:24,280 --> 00:43:28,000
Speaker 1: debt ceiling, I don't want to ask you about that directly,

756
00:43:28,239 --> 00:43:30,160
Speaker 1: but maybe we could talk about it through the lens

757
00:43:30,320 --> 00:43:32,439
Speaker 1: of the treasury market, because I know this is something

758
00:43:32,480 --> 00:43:35,479
Speaker 1: you've considered. You gave a really good speech on this matter.

759
00:43:35,600 --> 00:43:38,640
Speaker 1: I think it was November of last year. How confident

760
00:43:38,880 --> 00:43:43,400
Speaker 1: are you that the treasury market can withstand some sort

761
00:43:43,520 --> 00:43:47,279
Speaker 1: of unexpected disruption along the lines of what we saw

762
00:43:47,360 --> 00:43:51,480
Speaker 1: in March twenty twenty when the market was royaled partially

763
00:43:51,600 --> 00:43:52,880
Speaker 1: because of treasury futures.

764
00:43:54,320 --> 00:43:56,359
Speaker 3: Well, two very different.

765
00:43:57,640 --> 00:44:01,399
Speaker 4: Situations, right The issues that we dealt with in twenty

766
00:44:01,480 --> 00:44:06,439
Speaker 4: twenty were certainly generational at best, you know, in terms

767
00:44:06,480 --> 00:44:09,879
Speaker 4: of how markets reacted, as we all remember in this room,

768
00:44:10,000 --> 00:44:14,160
Speaker 4: the huge move downward because of demand destruction and that

769
00:44:15,640 --> 00:44:21,960
Speaker 4: very odd correlation between you know, treasury markets moving in

770
00:44:22,080 --> 00:44:29,000
Speaker 4: the same direction as equity markets. What's happening right now

771
00:44:29,160 --> 00:44:33,279
Speaker 4: in the debt ceiling debate is very different, and I

772
00:44:33,360 --> 00:44:35,719
Speaker 4: don't want to even begin to predict how that might

773
00:44:35,840 --> 00:44:40,680
Speaker 4: impact treasury markets because they're just very different. And I think,

774
00:44:40,760 --> 00:44:44,160
Speaker 4: you know, I'll probably leave it there and hopefully that

775
00:44:44,320 --> 00:44:46,320
Speaker 4: things will get hashed out and figured out, and I

776
00:44:46,400 --> 00:44:48,440
Speaker 4: have confidence in the President to be able to do that.

777
00:44:49,520 --> 00:44:51,560
Speaker 4: What we experienced in twenty twenty And as I think

778
00:44:51,600 --> 00:44:55,640
Speaker 4: about that in those few months and some of the

779
00:44:55,760 --> 00:45:01,200
Speaker 4: dislocations we saw between futures and cash, you know, I

780
00:45:01,360 --> 00:45:04,759
Speaker 4: always pull myself back and have to, you know, we

781
00:45:04,880 --> 00:45:07,279
Speaker 4: have to remind ourselves of what we went through and

782
00:45:07,440 --> 00:45:11,560
Speaker 4: how the economy and markets were reacting to that situation,

783
00:45:11,719 --> 00:45:15,120
Speaker 4: which was unprecedented sort of historically. And I do think

784
00:45:15,200 --> 00:45:18,800
Speaker 4: by and large, and you know, can't forget about the

785
00:45:18,880 --> 00:45:22,680
Speaker 4: fact that we had intervention from the Federal Reserve and

786
00:45:22,920 --> 00:45:26,839
Speaker 4: through these multiple facilities. But markets did perform quite well,

787
00:45:27,800 --> 00:45:29,920
Speaker 4: and the infrastructure and the market structure I think was

788
00:45:29,960 --> 00:45:32,440
Speaker 4: in place. But we did see dislocations, and you know,

789
00:45:32,680 --> 00:45:35,880
Speaker 4: this was the rebo market dried up. We had huge volatility,

790
00:45:35,960 --> 00:45:39,560
Speaker 4: which created huge shifts and demands for initial margin and

791
00:45:39,840 --> 00:45:43,760
Speaker 4: variation margin. So it should not come as a surprise

792
00:45:43,920 --> 00:45:48,200
Speaker 4: given the volatility and the unknowns that were occurring at

793
00:45:48,239 --> 00:45:48,680
Speaker 4: that moment.

794
00:45:49,320 --> 00:45:51,359
Speaker 1: All right, well we're going to have to leave it there,

795
00:45:51,440 --> 00:45:53,520
Speaker 1: but Chairman Benham, thank you so much for coming on

796
00:45:53,600 --> 00:45:56,160
Speaker 1: add Lots, giving us some insight into how you're thinking

797
00:45:56,200 --> 00:45:59,319
Speaker 1: about a lot of these, you know, thorny and new

798
00:45:59,400 --> 00:46:02,800
Speaker 1: and complicated issues. So thanks so much, thank you, thank you,

799
00:46:03,560 --> 00:46:20,000
Speaker 1: thank you for joining me. Well, that was our conversation

800
00:46:20,239 --> 00:46:25,160
Speaker 1: with CFTC Chairman Russ Benham at the ISDA Annual General Meeting.

801
00:46:25,440 --> 00:46:27,920
Speaker 1: Thank you so much to IZDA for inviting us to

802
00:46:28,080 --> 00:46:31,560
Speaker 1: record live on stage. I'm Tracy Alloway. You can follow

803
00:46:31,640 --> 00:46:33,840
Speaker 1: me on Twitter at Tracy Alloway.

804
00:46:33,680 --> 00:46:36,440
Speaker 2: And I'm Joe Wisenthal. You can follow me on Twitter

805
00:46:36,640 --> 00:46:39,920
Speaker 2: at the Stalwart. Follow our guest Russ Benham. He's at

806
00:46:40,120 --> 00:46:45,359
Speaker 2: CFTC Venom, Follow our producers Carmen Rodriguez at Carmen Arman

807
00:46:45,680 --> 00:46:48,719
Speaker 2: and Dash Bennett at Dashbot. And follow all of the

808
00:46:48,719 --> 00:46:52,239
Speaker 2: Bloomberg podcasts under the handle at podcasts. And for more

809
00:46:52,280 --> 00:46:55,560
Speaker 2: odd Loots content, go to Bloomberg dot com slash odd Lots,

810
00:46:55,640 --> 00:46:58,719
Speaker 2: where Tracy and I blog, we push the transcripts, and

811
00:46:58,760 --> 00:47:01,360
Speaker 2: we have a newsletter that comes out every Friday and

812
00:47:02,200 --> 00:47:05,480
Speaker 2: check out our new discord Discord dot gg slash odd

813
00:47:05,600 --> 00:47:08,680
Speaker 2: Lots listeners are in there chatting twenty four to seven

814
00:47:08,719 --> 00:47:10,560
Speaker 2: about all of the things we talk about on the

815
00:47:10,640 --> 00:47:15,800
Speaker 2: show and more, water, energy, futures, crypto, real estate, you

816
00:47:16,000 --> 00:47:17,759
Speaker 2: name it. It's a really fun place to hang out.

817
00:47:17,840 --> 00:47:20,319
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818
00:47:20,560 --> 00:47:21,400
Speaker 2: and thanks for listening.