Website at student cam support for competition rules, tips,resources and a stepbystep guide. Next and indepth discussion on how the Commodity Futures Trading Commission operates and regulating the crypto currency industry. Chair roston benham talk about that and more during the annual easy and techweek hosted by Georgetown University law center at the institute for Financial Markets. This runs 26 minutes. Hello everyone, ding ding. For our next round of conversations, again if anyone wants to continue their conversation in our wonderful lounge area with little tvs where you canwatch the conversation from there. But weve had some really great conversations and it is a distinct pleasure for me to welcome my friends to the stage, the chairman. You can come onstage mister chairman. Where we will be having the honor of hearing all regulatory. Move right as i said in the last group. Thank you. Every kid born today is going to be redeemer. The crypto winter will do all kinds of things. We are in washington dc, finally back here and you know, when thinking about the conversation ill start with some more obvious questions that i know Everyone Wants to get to and then some of the questions that i have fought a bit more about as ive watched you in the international landscape. I guess the first question is the jurisdictionalquestion. Of regulatory commerce, especially when it comes to crypto currency but most of us today are sort of trying to kick the tires on Regulatory Risk and policy relating to crypto. The ccc has really had a very interesting moment. One that we really havent seen really since the financial crisis and trying to sort of fit in to think through where and how the ccc can leave on issues of risk and regulation. What do you think in a nutshell when you are asked this question and for the audience especially for those who come from out of town, where you think the cfc see can lean and most effectively . Great to be here, always a pleasure to sit next to you. I would say if were talking about the resiliency and strength, the integrity of crypto space and i think we all have different perspective certainly as a regulator, my priority is integrity and protection but we are a Civil Enforcement agency that we have been playing quite active with a very limited jurisdictional hook which is a very dc term going back to 2014 so we been doing everything we can to protect customers and use that authority and that authority is important because we assess penalties which ultimately the goal is to deter future wrongdoing whether its fraud through discouragement or restitution we can get money back to people who have been defrauded so if you talk about the integrity and success and the quality of the market its hugely powerful tool that we share with the cc obviously and justice and some other regulators as well. The other element is where a market regulator. And this market has we talk about being worn recently but its not too old. Its matured a bit, maybe not as much as some of us might but its matured for sure in the past few years and my observation is that the market among some of the larger Trading Platforms is very similar to the markets we are seeing. Its traditional for the most part, bidders and sellers in the component of making a market fair, efficient and transparent are not very different regardless of the financial asset your trading. You want freetrade transparency, posttrade transparency. You want an orderly book with liquidity. You want participants who meet government standards, who will not left contracts to market manipulation. You want to make sure conflicts of interest dont exist. These are Core Principles we have in the cftc and that weve been imposing, overseeing and regulating for decades and thats why i think when i think about our role viscvis crypto that we the enforcement and market oversight and that experience and expertise really gives us a strong opportunity to be a very effective trainer in the space. One of the interesting aspects that i follow because im more of a well, security kind of dies and when you look at the specific array of issues involved with Something Like regulating the bitcoins spot market, its an idea where one hand can have a very interesting place, very Important Role for establishing integrity. But getting to that transparency , transparency is typically associated with series law, we have to file certain kinds of documents that are used, sometimes renting is not right but closely designed to introduce transparency into markets and its not normally a concept of disclosure, its not usually a concept as opposed to with Derivatives Market indexes and 50 cc. How would the ccc be able to lean in on that particular issue . Im glad you asked because its one i get asked a lot these days and i think if you spend some time and learn a little bit about our rules at the ccc and our revelations and requirements, we dont have the traditional securities based disclosure regime. But theres a reason for that and theres a reason for why you want to bridge that, i use this term a lot and its been used by others, information gap to the security and investors, the purchaser of the Security Threat we dont have that issue in the commodities space because commodities are largely decentralized and dont have those core components of security which is the Management Team perhaps the headquarters audited financial statements, risk analysis, a lot of these things we see in 10ks and prospectuses so what ive advocated for and what ive asked congress for is very clearly spot authority over commodity digital tokens. There certainly is an extremely Important Role for the fcc to pay on an security token side but i dont think that putting the commodity tokens which in my view at a minimum we have a clear decision by a federal court for bitcoins, several federal courts for bitcoins. Ive advocated or articulated that these are the commodities and several other tokens are commodities as well. These tokens should be regulated by the cftc. Getting back to your question though about exposure, you think about we have exchanges which are called designated contract markets. We have our version of brokers, we have pool operators which are like Asset Managers and advisers, commodity pool operators. Theres a pretty rigorous disclosure regime around what these entities, these regulated entities need to do and the information they need to share with their investors. Its not cure the specific or about the underlying commodity, its about the risk associated with investment rivets about the risks associated with Derivatives Market and leverage and infrastructure of the marketthats what we need to focus on in the commodities space because those are the issues we need to bridge , not the Management Team or the centralized team its interesting because that dovetails with acting comptroller mikes comments earlier and thinking about what is the purpose of the disclosure and how do you actually achieve the role and what tools do you use to get there and thats obviously going to be something that the cftc isgoing to be thinking about. Sorry to interrupt but were going to have to adapt. No doubt about it, this is not a very light in the box moments where everything is clear and perfect, this technology is different, very new and all agencies are going to have to adapt to the currentstructure because its notbuilt decades ago , we are moving in and an evolutionary time in the market. Your much more interesting than that but its very fascinating because ultimately , the cftc c is going to get called upon as it did before agencies are called upon fromtime to time to innovate. To meet specific regulatory challenges that are before them. The cftc has done in creating data repositories,we have to do it now when it comes to bitcoins markets. One thing that the cftc is continuing as well is also enforcement. And in trying to adapt and think through what enforcement needs in different contexts and what a lot of folks here are aware of the recent case in dallas have taken off really in 2021. I have in my notes that there are about 5000 in operation with almost 4 million token holders so thats not nothing. You cant any particular case but are there any lessons in your mind that token holders should be taking into consideration when voting in balance or are there any lessons we are not imposing token holders from the standpoint of the cftc . Are part of this case i cant discuss but parts i can discuss and for those of you familiar youll understand why. There are elements that are ongoing in litigation. I said this before but the down dont think anyone who is creating down or part of the tao should think this is a free pass from regulation, thats just the bottom line. This is a very unique technology that is being driven by the moments of the day and the fact that we have technology that enables a potentially decentralized entity or organization does not mean its going to be free from a sort of Regulatory Framework at the state or federal level and i would encourage those in the audience to take a moment and look at this case that chris brings up. Its on our website as well with what public information. It was hardly decentralized there were a few individuals who were very much at the center of establishing the protocols that as we bring it. And it was just clear thought and not only was there a statement that suggests that we structured this in a way to avoid regulation, but there was a solicitation of retail customers and leverage derivatives. On the Trading Platform, essentially they were very much like a Trading Platform so these cases where and this is i think an extreme where its so egregious and so obvious that we would be essentially abjectly failing to do our job as we bring the case, things are facts and circumstances matter as they are in litigation enforcement but in this particular matter i think its pretty clear that a few individuals were clearly trying to evade our rules understanding the scope of them. And to offer contracts that were regulated by our statute and our rules to retail customers so going back to what i said earlier, yes this technology is new. Its unique, it is traditional and our statute expects the rules behind the statute but i would say for anyone out there whos participating orgrading or innovating , dont expect to see a free pass. With the dow in itself there are sometimes those who think that the absence of a legal wrapper is somehow a pass from escaping liability and sometimes its just the opposite but incorporating or registering with your authorities is essential. But getting back to this larger regulatory conundrum or challenge, ive been trying to figure out how do you adapt . How do you keep enough room to while at the same time carrying out your Central Mission with market integrity . It naturally brings up a larger conversation thats been around really for 20 or 30 years for a principlesbased approach to oversight versus more prescriptive forms of oversight. How much flexibility and adaptability does everybody need and how much precision does the rulemaking or even the market need in order to function properly. When you think about the principlesbased aspects of derivative law, of cftc oversight, how do you think that maps on to a subject or an area . I think its wellsuited but i want to turn back a little bit to answer the thought because i think there is this conception of a principlesbased regulation. Some will come at principlesbased regulation and think the regulator is looking at things , monitoring from the very birds eye viewand thats not true. If you look at our rulebook or we get these statutes every year, the statute is not that big. Its 20 some odd sections but theres a very thick prescriptive set of rules that are built on the foundation of the Core Principles. And it gets very prescriptive to entities about what conduct and what activities can occur and these are all driven by and through the principles themselves so going back to your question, i think its wellsuited particularly for this technology but writ large market because markets are constantly changing. Theyre constantly evolving. Many times driven by technology and Technological Advancement and it allows us as a regulator to adapt and evolve with the market. Were always going to be a step behind, there is no doubt about that. For us to keep pace and be able to adapt using this framework where theres a foundation of principles and we can amend the rules at the Commission Level without the need for more statutory authority, i think gives us the flexibility to not only be a better regulator on that enforcement standpoint and transparency and integrity standpoint but ultimately to get clarity to the market about what therules of the road are and how we need to apply them. When you look forward and you think about the challenge of cryptocurrency , the ctf c is an interesting position. Traditionally they view the markets the cftc overlooks as largely institutional. With institutional players but when you think about crypto and the purchases in crypto markets its also very much as you heard in our last session there are a lot of retail players in the market. What does that mean from your perch when you look at literally the participants, different kinds of participants increasingly in crypto markets given the traditional institutional tenets . I often bring up this anecdote we all remember the Stock Movement which is still going on. Its the peak i think in january or february 2020, focused on the equity side of our Financial Markets but there is quite a bit of a move into over markets and there was some generation in the social media space around the movements we are seeing in silver markets. Silver markets are hard to move. They are deep, liquid and have as chris pointed out heavy institutional participation so for retail participants that move them around its not insignificant. All thatto say that technology is disrupting markets. Its lowering the barriers to access and we have an increased level of interest by retail participants across the globe and i think this was given a shot in the arms by the pandemic. The storylines we hear people at home with a little bit of extra cash but theyre not spending it on vacations or other things we typically do and then markets become this very interesting way to allocate capital because theyre very volatile and a lot is going on but i think that momentum is driven a lot of excitement in the crypto space and invited a lot of new participants in our markets to the traditional equity space so weve been experiencing this for quite some time. We have a number of retail participants in our cash settled contracts that are pure derivative side and i think its something i was thinking about. I know my predecessors about how do we change the and the sort of approach to an Agency Perspectives so we have a broader outreach to the Retail Market participants and in many respects its about information and its about making sure we are getting information to these individuals in a comprehensive way about what risks exist and what risks by an elaborate market and that puts place on our shoulders to take action and ive got a few things within the agency. Ive reorganized our office ofcustomer education within our Public Affairs , we have an office of proceedings to help and support retail participants. I created a chief diversity officer which is a huge i think advancement for the agency itself given some institutional inertia of reaching out to a broader constituency of investors so that they understand what our markets are and as we continue to see this retail growth , we are doing our job. We are making the information available. On that last part out sort of say that the space scales and you have different kind of participants, it creates a burden on the industry to make sure that they might continue this scale at the understanding of these new participants are and also on the regulators to make sure they have the staff to make sure the rule is in place are being written in a way that speaks to all of our very diverse stakeholders. I guess when you look to the future, again, i want to talk about prediction all markets, you know, the issue of Prediction Markets is one thats been kicked around and its created a lot of new tricks. What policy questions do Prediction Markets posed for the cftc . Its a fascinating area and a lot of times people dont take the time to start with what are the initial areas of friction and interest and opportunity . Another good question and something that is high on my priority list. Think about the sort of base layer all start with is it should be known that for many years , there was in statute requirements that contracts listed on a regular market have an economic purchase purpose. The idea was if youre hedging or if youre a designated contract market, if youre an exchange in the marketplace and contracts have to have an economic purchase purpose. There has to be a commercial hedge or using or utilizing that contract whether its an agricultural space, energy space, or more recently a couple of decades but the financial sort of derivative space but there was always an institution needing to headset risk and there was that correlation or relationship with what is the economic purpose of that contract . Not this similar to my response to your previous question, markets are changing. Technology is enabling a whole different cohort of investors, risks are changing and adapting. One of the major participants in the space i remember having initial conversations years ago and thinking about what are the Economic Risks that small medium and Large Businesses face, not just agricultural , not just energy risks. Think about covid, this was a good example. What is the risk of spikes in positivity rates to large retail food chains across the country . Obviously it could be positive or negative depending on how things play out. You could imagine a number of scenarios where any number of issues that we deal with in the country, theres geopolitical, domestic, social. It could have Risk Management impact on some of these businesses so i think with that in mind its forces us to be openminded about giving away or at least creating a tandem sort of road with these traditional Agricultural Energy products that we have. That said, theres something that is in our statute that is very specific about the type of contracts that we can and cannot lift. We cannot just to name a few left contracts associated with war, terrorism, assassination, gaming. Its very clearly in our statute prohibited. There is some flex ability around Public Interest this is where the rub comes with this particular base. Its not the platforms that are the policy issues, its the contracts that are being lifted and i think with all thats going on in the world this is really a issue that popped up in the past decade and has really accelerated in the past 2 to 4 years where youre starting to see registered platforms wanting to lift a variety of contracts that are outside of the conditional derivative space its forcing us and on our unified agenda where were going to tackle this issue and get a little bit more prescriptive in terms of clarity about what contracts can be liftedand what contracts cant be lifted because this is an important policy question for the country. What as we see this shift in gaming and gambling, like the 2018 Supreme Court decision obviously shifted our approach to online gambling, we see this every time we watch footballon sundays or saturdays. And do we want to shift that type of activity . Not specifically that but you can imagine from a general sense onto registered Financial Markets . And then the political questions of very important question and a lot of people would say this is going to be better than pulling but you can imagine a lot of people would have strong opposition to clinical outcomes and elections being driven or being predicted in regulated financial market. We have five seconds left. Unfortunately time is up, theres so many great questions. I really appreciate you asking right now and so thanks. [applause] congress returned later for legislative work for the First Time Since the midterm elections. Houses back at 2 pm eastern. Republican rudy yacht in alaska elected to serve out the remainder of the late Indiana Republican congresswoman borski term will be sworn in to the house. Incoming house members will also be on capitol hill for orientation training sessions for the starting congress in january. The Senate Returns at 3 pm eastern and will continue to debate on maria jordan to be a Us District Court judge for puerto rico. Watch livecoverage of the house on cspan. You can also watch on our free video at, cspan now or on line at cspan. Org
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