WEBVTT - ICYMI: CFTC's Caroline Pham on Market Volatility

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News.

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<v Speaker 2>You're listening to Bloomberg Business Week with Carol Masser and

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<v Speaker 2>Tim Steneveek on Bloomberg Radio.

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<v Speaker 3>Well, the Commodity Futures Trading Commission is asking for public

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<v Speaker 3>comment on allowing round the clock trading and derivatives markets.

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<v Speaker 3>This is according to a statement put out earlier this week.

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<v Speaker 3>The CFTC also wants input on offering perpetual futures. It's

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<v Speaker 3>a type of contract that's popular outside the United States

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<v Speaker 3>and gaining some traction in digital asset trading. So we

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<v Speaker 3>want to talk about that. We want to talk about

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<v Speaker 3>the overall massive derivatives market. Delighted to have with us

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<v Speaker 3>in our Bloomberg News. DC Bureau is acting Chair of

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<v Speaker 3>the CFTC, Carolyn Caroline Fam Chair Fam.

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<v Speaker 2>So nice to have you with Tim and myself.

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<v Speaker 3>Let's talk a little bit about the market volatility that

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<v Speaker 3>we have seen over the last month or so. What

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<v Speaker 3>have you seen in the derivatives market amid that volatility, trends, flows,

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<v Speaker 3>oversized bets.

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<v Speaker 2>What can you tell us sure?

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<v Speaker 4>Of course, so one of the things that is really

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<v Speaker 4>important to remember about the recent market volatility and all

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<v Speaker 4>time highs as far as volume goes, is that the

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<v Speaker 4>markets operated in a functional and liquid manner, so we

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<v Speaker 4>were really pleased. Of course, all regulators were concerned about

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<v Speaker 4>the market conditions. You had the very sharp spikes with

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<v Speaker 4>the volatility, you had the record all time flows of volume,

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<v Speaker 4>but the markets were resilient, there were adequate margin levels.

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<v Speaker 4>You know, a lot of people have thought about what

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<v Speaker 4>happened in March twenty twenty with the dash for cash,

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<v Speaker 4>and we wanted to make sure that wouldn't happen again.

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<v Speaker 4>So you saw the global regulatory community come together with

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<v Speaker 4>some margin reform, and we're pleased to see that that

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<v Speaker 4>all worked as planned and there were no significant operational issues.

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<v Speaker 4>So I think relieved to see that the markets performed

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<v Speaker 4>well throughout that volatility.

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<v Speaker 1>No significant operational issues. That's certainly great news. Was anything close?

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<v Speaker 1>Were there any issues of concern for you?

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<v Speaker 4>No. We were in close contact with all market infrastructures

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<v Speaker 4>and market participants throughout the market stress and market conditions,

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<v Speaker 4>and we had no significant issues, no issues of concern whatsoever.

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<v Speaker 3>Is there anything you are seeing or hearing? You know,

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<v Speaker 3>this is certainly your world. I guess we're trying to

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<v Speaker 3>gauge whether or not foreign investors are pulling back on

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<v Speaker 3>US assets and dollar based assets, and I'm just curious

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<v Speaker 3>in any of the trend flows are Again, this is

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<v Speaker 3>your world, and as you talk to officials here in

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<v Speaker 3>the United States when it comes to trading and investing,

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<v Speaker 3>are you hearing or seeing any of that.

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<v Speaker 4>Look, I think it's very tempting to chase the charts

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<v Speaker 4>and to be very focused on sort of the you know,

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<v Speaker 4>minute to minute, day to day, you know spikes, but

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<v Speaker 4>that's just all part of market functioning. And I think

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<v Speaker 4>what you're going to see, as it has been for decades,

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<v Speaker 4>that the US is the world's reserve currency, that US

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<v Speaker 4>treasuries are as safe haven, and in fact, the global

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<v Speaker 4>financial system runs on US treasuries.

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<v Speaker 2>So I'm confident that that will continue to be the case.

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<v Speaker 1>Are you not concerned that the US is losing its

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<v Speaker 1>status as a safe haven? Look what we saw with treasuries,

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<v Speaker 1>Look what we've seen with the dollar in recent weeks.

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<v Speaker 1>Is that something that's concerning to you?

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<v Speaker 4>Again, I think it's important not to chase the charts

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<v Speaker 4>and be focused on the minute to minute or the

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<v Speaker 4>day to day. But if you look over all US

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<v Speaker 4>markets have never been safer, sounder.

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<v Speaker 2>Or healthier, all right.

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<v Speaker 3>So one of the things we want to talk about,

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<v Speaker 3>and we certainly set it up in our introduction to you,

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<v Speaker 3>is about this twenty four to seven trading and the

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<v Speaker 3>CFTC putting out requests for comment on potential uses and

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<v Speaker 3>risks to allow for twenty four to seven trading in

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<v Speaker 3>the derivatives market. I know you just made the outreach,

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<v Speaker 3>but any comments, what are you hearing and kind of

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<v Speaker 3>what is top of mind when you think about uses

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<v Speaker 3>as well as risks.

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<v Speaker 4>So I'm pleased to talk about this issue because it's

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<v Speaker 4>something that we've been seeing in our markets for the

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<v Speaker 4>past several years, but until recently, we did not have

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<v Speaker 4>an administration and a policy that was pro innovation and

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<v Speaker 4>pro growth, both in new products as well as in

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<v Speaker 4>new markets. So again, the debate around twenty five four

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<v Speaker 4>seven trading and extended trading hours or continuous trading hours

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<v Speaker 4>has been very active for the past several years. But

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<v Speaker 4>now we're finally moving from talk to action. We've had

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<v Speaker 4>a number of exchanges in our markets show their interest

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<v Speaker 4>and announce that they are looking at moving to twenty

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<v Speaker 4>four to seven trading or twenty four to six trading

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<v Speaker 4>or twenty four to five trading.

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<v Speaker 2>And while that.

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<v Speaker 4>Presents a lot of opportunities and there's a lot of benefits,

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<v Speaker 4>particularly when you have an asset class that is liquid

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<v Speaker 4>enough to support continuous trading or extended trading hours, we

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<v Speaker 4>also have to make sure that we are prepared again

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<v Speaker 4>from an operational perspective, because as we discussed with the

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<v Speaker 4>recent market volatility, it's absolutely incumbent upon us as regulators

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<v Speaker 4>to make sure that the markets are functioning well. So

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<v Speaker 4>that's what this request for comment is. It's a thoughtful

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<v Speaker 4>set of questions that seeks to understand the uses, benefits

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<v Speaker 4>and also risks of extended trading hours or continuous trading hours.

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<v Speaker 2>I'm really looking forward to the comments.

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<v Speaker 4>Again, this is an area that's been very well debated

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<v Speaker 4>for several years. I don't think we're going to see

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<v Speaker 4>any surprises, and the safetyc has always been at the

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<v Speaker 4>forefront of market innovation. We saw this with the creation

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<v Speaker 4>of financial commodities and diritors based on interest rates in disease,

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<v Speaker 4>and then again with all of the new and interesting

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<v Speaker 4>asset classes, including crypto.

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<v Speaker 1>Do you think it's a good idea? Do you think

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<v Speaker 1>twenty four to seven trading of these products is a

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<v Speaker 1>good idea.

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<v Speaker 4>I think twenty four to seven trading is appropriate, but

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<v Speaker 4>only when there is enough liquidity. So look at the

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<v Speaker 4>FX market. The FX market is already trading on a

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<v Speaker 4>continuous basis. There's no closing hours for the FX market.

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<v Speaker 4>What we've seen in some of these announcements is that

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<v Speaker 4>people are focused on the crypto asset class right now.

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<v Speaker 4>That's also one that trades continuously today. So it doesn't

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<v Speaker 4>change anything about the current market structure, just only that

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<v Speaker 4>it's now happening in a regulated way with our futures products.

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<v Speaker 2>So I think that's going to be very key.

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<v Speaker 4>But again, we want to make sure we are thinking

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<v Speaker 4>through all the possible issues, and we want to make

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<v Speaker 4>sure we're doing so in an open and transparent way

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<v Speaker 4>with lots of public engagement and public comment.

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<v Speaker 3>How do you ensure CHEFAM that you know, what could

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<v Speaker 3>be a lack of liquidity during the off hours, potentially,

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<v Speaker 3>if it's twenty four to seven trading, that leads to

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<v Speaker 3>maybe some severe disconnects in.

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<v Speaker 2>The derivatives market.

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<v Speaker 3>So I'm just curious, how do you make sure that

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<v Speaker 3>doesn't happen.

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<v Speaker 4>That's exactly the key point, because that's why it's so

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<v Speaker 4>important to make sure there is sufficient liquidity. When you

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<v Speaker 4>have something that already trades continuously, like FX or like crypto,

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<v Speaker 4>it's less of a concern. But we are looking at

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<v Speaker 4>everything from a very product specific perspective.

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<v Speaker 2>We're looking at each individual product, what asset class it's

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<v Speaker 2>based on. But obviously you would.

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<v Speaker 4>Have concerns when you're looking at something that doesn't trade

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<v Speaker 4>continuously today, something like ag futures for example. That is

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<v Speaker 4>something that we would be extremely cautious about before we

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<v Speaker 4>move to anything like this type of innovation.

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<v Speaker 3>So it wouldn't be like across the board, there's very

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<v Speaker 3>possible that there are carve outs right depending on the market.

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<v Speaker 4>So this is again on a product by product based

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<v Speaker 4>So we've had some exchanges that have self certified or

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<v Speaker 4>have showed an interest to trade certain products, and these

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<v Speaker 4>are all at this point in time based on the

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<v Speaker 4>crypto asset class on a twenty four seven basis or

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<v Speaker 4>twenty four six or twenty four to five. Some of

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<v Speaker 4>this as future plans, so it's not actually live before

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<v Speaker 4>the commission, but again it's something where we're looking at

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<v Speaker 4>very specifically on that product basis. It's not going to

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<v Speaker 4>be where all of a sudden it's a free for

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<v Speaker 4>all in the market.

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<v Speaker 1>You mentioned crypto, so let's go there. How is the

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<v Speaker 1>CFTC going to work with the SEC? Of course, Paul

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<v Speaker 1>Atkins was sworn in his chair this week. When it

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<v Speaker 1>comes to cryptocurrency, what's the plan?

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<v Speaker 4>I think what is great about this current administration is

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<v Speaker 4>the clear vision that was expressed in the President's Executive

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<v Speaker 4>Order on Digital Assets, the creation of the President's Working

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<v Speaker 4>Group on Digital Asset Markets, and the open and continuous

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<v Speaker 4>communication we have with all of the relevant stakeholders, including

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<v Speaker 4>all the regulators. I've known Chairman Atkins for a long time.

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<v Speaker 4>I'm really looking forward to working with the SEC under

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<v Speaker 4>his leadership, and this really resets the CFTC and the

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<v Speaker 4>SEC back to how it's always traditionally been between the

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<v Speaker 4>two of us, where we work together on any issues

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<v Speaker 4>of jurisdictional lines.

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<v Speaker 2>And that's something that's gone.

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<v Speaker 4>All the way back to at least the eighties, and

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<v Speaker 4>it's something that I look forward to continuing as we

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<v Speaker 4>move forward through creating more regulatory clarity in the United

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<v Speaker 4>States for crypto.

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<v Speaker 3>Hey, one thing we got to ask you doge, it's

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<v Speaker 3>gone to the SEC, has it gone to the c FTC.

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<v Speaker 4>There is no DOGE at the CFTC at this time,

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<v Speaker 4>But that doesn't mean that we haven't been doing our

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<v Speaker 4>own efforts to make sure that we're being gking the

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<v Speaker 4>most return for the American taxpayer and that they're getting

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<v Speaker 4>value out of their dollars. So my efficiency initiatives at

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<v Speaker 4>the CFTC have already resulted in eighteen million dollars in savings.

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<v Speaker 4>That's about five percent of our appropriated budget, about twelve

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<v Speaker 4>percent of our non payroll budget. And I'm pleased to

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<v Speaker 4>say that this year it looks like on an annualized basis,

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<v Speaker 4>we'll be on track to save fifty million dollars and

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<v Speaker 4>our budget is only three hundred and sixty five.

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<v Speaker 2>What are you cutting? We have some contracts that are excessive.

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<v Speaker 4>We have had contracts where I think, you know, just

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<v Speaker 4>applying basic cost management principles, people didn't stop to think,

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<v Speaker 4>do we really need five of the exact same contract

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<v Speaker 4>for the exact same it service. So it is really

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<v Speaker 4>just common sense reviewing our contracts, making sure that we

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<v Speaker 4>are only paying for what we actually use and what

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<v Speaker 4>we actually need.

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<v Speaker 3>Is sometime like a redundancy a contract because to make

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<v Speaker 3>sure that there's a backup program or that that wasn't

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<v Speaker 3>the case.

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<v Speaker 2>No, that's not the case.

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<v Speaker 4>Let me give you an example, one point four million

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<v Speaker 4>dollars on a focus group for consumer fraud. We all

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<v Speaker 4>know that consumer fraud is bad. That is money that

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<v Speaker 4>could be better put towards upgrading our technology.

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<v Speaker 1>For example, Hey, before we let you go, I just

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<v Speaker 1>wanted to ask another crypto question. We learned yesterday that

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<v Speaker 1>the president is set to have dinner with the top

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<v Speaker 1>two hundred and twenty holders of the trump a Mean coin.

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<v Speaker 1>The issuers of the cryptocurrency announced yesterday. We saw this

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<v Speaker 1>on social I'm curious, just as a regulator, how you

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<v Speaker 1>look at the relationship that the president has with this

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<v Speaker 1>digital asset, and as a as a person who is

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<v Speaker 1>in charge of essentially creating policy on this stuff.

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<v Speaker 2>Our job is.

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<v Speaker 4>To make sure that we have markets that are safe

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<v Speaker 4>and that are sound, and that we preserve market integrity,

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<v Speaker 4>and that we make sure that most of all, in

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<v Speaker 4>looking at market integrity, that the markets are well functioning

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<v Speaker 4>and that there is an actual connection to the fundamentals

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<v Speaker 4>that are underlying the market. So for us that is,

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<v Speaker 4>of course, across the entire market. There's no distinction for

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<v Speaker 4>anything else.

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<v Speaker 1>Does it make your job more difficult?

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<v Speaker 2>My job is difficult every day. It doesn't make any difference.

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<v Speaker 3>All Right, We're going to leave it there. Listen, Thank

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<v Speaker 3>you so much, really appreciate your time. We've been talking

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<v Speaker 3>with Caroline fam she's the acting chair of the Commodity

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<v Speaker 3>Futures Trading Commission. Joining us from the News Bureau of Washington,

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<v Speaker 3>DC for Blueberg News