No Longer Acting: What’s In Store For The CFTC Under Proposed Permanent Chairman Giancarlo

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Last month, President Trump announced his intention to nominate Commodity Futures Trading Commission (“CFTC”) acting head J. Christopher Giancarlo to serve as permanent chairman. Mr. Giancarlo, a Republican and former executive at financial services firm GFI Group Inc., was an Obama-era appointee who joined the Commission in 2014. He became acting chair under President Trump in January 2017. His nomination to the permanent seat requires Senate approval.
Mr. Giancarlo has been ambitious about his plans for the agency. He set in motion an overhaul he calls “Making Market Reform Work for America” meant to “reinterpret” the “regulatory mission” of the CFTC. In it, he prioritizes fostering economic growth and enhancing U.S. markets. Central to his strategy is cutting regulation and reorganizing surveillance and enforcement efforts.

The Commissioner Gives Dodd Frank, Derivatives and the FSOC a KISS

Commissioner Giancarlo is an outspoken critic of certain provisions of the Dodd-Frank Act, though some have said his general support for the goals of the law may be in opposition to the President’s broad objective to dismantle it entirely. (See, for example, here and here.)  In recent remarks before the U.S. Chamber of Commerce, Mr. Giancarlo asserted that "flourishing capital markets are the answer to US and global economic woes, not diminished trading and risk transfer." He argued for more balance, stating that "[s]o much policymaking, rulemaking, and thought have been directed at building a regulatory superstructure ostensibly to prevent another 2008-style crisis that we've lost sight of the challenges just ahead of us to formulate the right regulatory response."

In particular, Mr. Giancarlo criticized "[t]he overly prescriptive regulation of American derivative markets.” He promised to (i) "move forward with a better regulatory framework for swaps trading," (ii) take "greater care and precision in rule drafting," and (iii) utilize "more thorough econometric analysis, less contracted timeframes for public comment and a reduced docket of new rules and regulations to be absorbed by the marketplace." Regarding "flawed swaps trading rules," Mr. Gincarlo blamed them for driving business away from the U.S.  He said he would work more effectively with international regulators while still looking out for American interests.”

Of certain entities created by the Dodd-Frank Act, Mr. Giancarlo has been particularly critical. For example, he takes exception to the “overreach” of the Financial Stability Oversight Council (“FSOC”), an entity created to test and regulate risks posed by large financial firms. He has questioned the value of placing higher capital standards on designated systemically important financial firms contending that “the amount of capital that bank regulators have caused financial institutions to take out of trading markets is [not] at all calibrated to the amount of capital needed to be kept in global markets.” As Chair of the CFTC, Mr. Giancarlo will have a seat on the FSOC.

Consistent with President Trump’s Executive Order requiring non-independent agencies to conduct regulatory reviews, Mr. Giancarlo initiated one for the independent CFTC, calling the effort “Project KISS,” meaning “Keep It Simple, Stupid.” The goal, he said is to examine all the rules “to make them simpler, less burdensome and less costly.”

Commissioner Giancarlo Embraces Technology

Mr. Giancarlo is on record as lauding the “promising benefits for the financial marketplace and financial regulators” of financial technology in general, and distributed ledger technology (“DLT”, or “blockchain”) in particular. He stated that "DLT may allow market participants to manage the enormous operational, transactional and capital complexities brought about by Dodd-Frank. At the same time, it may provide regulators with the market visibility necessary to fulfill our mission to oversee healthy financial markets."

As part of his plan, Mr. Giancarlo said that regulators need to designate "savvy" teams to work with FinTech companies, create safe environments for innovators to experiment, "participate directly" to help build proofs-of-concept and collaborate with both local innovators and international regulators to minimize overlap. The DLT plan was part of five "elements" Giancarlo said would help make market reform work for America. These included providing customer choice in trade execution, fixing swaps data reporting, making the regulatory culture more progressive and encouraging FinTech innovation.

Market Intelligence and Enforcement

Mr. Giancarlo has acted quickly to implement his vision for how market intelligence should work with enforcement. After moving the market surveillance branch from the CFTC Division of Market Oversight to the Commission’s Enforcement Division, Mr. Giancarlo made two important hires. He named James McDonald, a former prosecutor and assistant U.S. Attorney for the Southern District of New York to head the CFTC’s Enforcement Division.  He then named Andrew B. Busch as the Commission’s first chief market intelligence officer (“CMIO”). Mr. Busch, former CEO of a financial services economic research company, will work with a newly-formed Market Intelligence Unit that “is designed to understand, analyze and communicate current and emerging derivatives market dynamics, developments and trends -- such as the impact of new technologies and trading methodologies," according to CFTC. Mr. Giancarlo stated that Mr. Busch will report directly to him and give the Commission “better insight into the needs of participants in the futures and swaps we oversee.”

Mr. Giancarlo will begin his tenure as Chair with clear priorities and experience honed by nearly three years as Commissioner. In his address before the Chamber of Commerce, Mr. Giancarlo summed up his ambitious goals as no less than “reducing regulatory burdens and flawed rules; enhancing the health and vitality of trading markets, fostering economic growth and broad-based prosperity; and lifting the prospects of everyone for greater health and harmony.”

 

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