▶ 0:08:00That is what the phone says. Cool. The committee will come to order. Welcome and thank you uh all for joining today's hearing entitled CFTC at 50 examining the past and future of commodity markets. After brief opening remarks, members will receive testimony from our witnesses today and then the hearing will be open to questions. So, I'll take the liberty of providing an opening statement.
▶ 0:08:29Good morning once again and welcome to the House Committee on Agriculture. 50 years ago, the Commodity Futures Trading Commission opens its doors and began operation as the world's first independent regulatory agency specifically focused on derivatives. From its early days of safeguarding agriculture future markets to today's global swaps markets, the commission plays a critical role in adapting to an increasingly interconnected and dynamic world economy.
▶ 0:09:00Over the decades, well-regulated derivative markets have been an anchor of stability during periods of tremendous change. from financial crisis and global supply chain disruptions to technological advancements and market globalization.
▶ 0:09:15Today's hearing is to examine the full uh is to examine the the full arc of the commission's 50-year history and to access and to assess its long-term success in meeting the purposes of the commodity exchange act which is u to implement in a little over a 100 words.
▶ 0:09:39Section three of the act lays out an ambitious agenda to protect market participants and to ensure resilient, fair, and dynamic American markets. The first sentence reads, "It is the purpose of this act to serve the public interests through a system of effective self-regulation under the oversight of the commission." In this sentence, Congress established the principle that industry participants are partners in regulation.
▶ 0:10:06As partners, they have both rights and duties under the act. This is an extraordinary feature of our regulatory system. By holding regulated parties accountable to outcomes and not just compliance checklists, Congress sought to expand the responsibility for promoting market integrity.
▶ 0:10:25The purpose continues laying out the principles of market integrity and customer protection that are the bedrock of the commission's work and essential to a healthy functioning work marketplace. Section three closes with the final purpose of the commodity exchange act. Quote to promote responsible innovation and fair competition end quotes. This too is a remarkable charge unique among federal financial laws.
▶ 0:10:53Congress has ambi un ambiguously set out the expectation that new ideas, new products and new services should be welcomed across derivatives markets. It articulates the principle that the commodity exchange act is not intended to be static or to govern static markets.
▶ 0:11:12As we examine the commission's success over the past 50 years, we should start our inquiry here with the purpose of the commodity exchange act and consider whether the commission is filling that statutory mandate. Joining us are six expert witnesses whose careers span the history of the commission. They were there for the most pivotal moments in the commission's history and their work shaped the markets that exist today.
▶ 0:11:42We're honored to have them with us today to share their insights into the work of the commission and its impact on global derivatives markets. With that, I'd now like to welcome the distinguished ranking member, the gentleoman from Minnesota, Miss Craig, for any opening remarks that she would give.
▶ 0:11:59Well, thank you, Chairman Thompson, for holding this incredibly important hearing, not only to look back at the successful 50-year history of the CFTC, but also to look forward and see what's potentially ahead for the agency for the next 50 years. This committee, more than most, has historically worked on a bipartisan basis when it comes to these issues, including those that impact farmers and ranchers across this country.
▶ 0:12:27That bipartisanship has also traditionally extended to the committee's work and oversight of derivatives, markets, and the CFTC. Whether it was the 2008 CFTC reauthorization or the crafting of the derivatives title of the DoddFrank Act, history has shown that this committee achieves great legislative outcomes when Republicans and Democrats work together.
▶ 0:12:53And I believe there is potential for more bipartisan success in this area in this Congress. We all know that a well- reggulated financial system keeps our country strong and prosperous while protecting Americans and their livelihoods. For 50 years, the CFTC has been the cop on the beat in overseeing US derivative markets and making sure they work.
▶ 0:13:19Not just for Wall Street, not just for the exchanges and clearing houses themselves, but for Main Street Americans whose livelihoods are impacted by these markets every single day. But to have effective oversight over these markets and protect the customers who use them take resources.
▶ 0:13:39Last July at a subcommittee hearing on re reauthorizing the CFTC, we heard from commercial endusers of these markets about the AY's stagnant funding and how the agency needs sufficient resources. Otherwise, its ability to ensure the integrity of the more traditional commodity markets for riskmanagement purposes would be diminished. If the users of these markets get it, we should too.
▶ 0:14:07Even in the FIT 21 bill passed last year, the House recognized that the CFTC would need additional resources to implement the bill's new requirements and provisions. I believe the funding provided by that bill was a good first step, but if we are going to hand the agency new responsibilities, we need to find a more permanent solution to the AY's funding needs.
▶ 0:14:30So, I look forward to working with my friends across the aisle to develop a meaningful, durable plan that provides the CFTC with the resources that will allow it to bring a strong history of regulatory achievements to new markets, including digital assets like crypto. I want to thank our witnesses for coming in today and for your testimony.
▶ 0:14:54All of you have been either working for or with us um the CFTC for years and I appreciate the perspectives you bring to the table. But I particularly want to thank Mr. Shriber for your participation. Your members need these markets to hedge their risks and obtain price discovery. While we can acknowledge the need and role speculators can play in these markets, the truth is these markets are for your members and all other commercial endusers.
▶ 0:15:23If these markets ever stop providing utility to the end users, then they'll have truly become the gambling halls they so often are accused of being. Again, Mr. Chairman, thank you for holding this hearing. And with that, I yield back. Thank the gentle lady. The chair would request that other members submit their opening statements for the record so the witnesses may begin their testimony and to ensure there's ample time for questions. our witnesses today and it is an esteemed panel that we have before us.
▶ 0:15:52Our first witness today is Charlie Kerry, a lifelong trader, the the uh former chairman of the Chicago Board of Trade and the current chairman of the Commodity Markets Council, but perhaps most importantly, Mr. Kerry as a member of the Future Industries Association's Hall of Fame, recognizing his many contributions to the futures industry. Our second witness today is Dr. Richard Sandor, chairman and CEO of the environmental financial products LLC.
▶ 0:16:21In add in addition to that role, he is also the Aaron director lecturer in law and economics at the University of Chicago Law School. Dr. Sander is widely recognized as the father of financial futures and has also been recognized by his peers as a member of the FIA Hall of Fame for his pioneering work in futures markets. Our next witness after that is Dave Shrier who is the president and chief executive officer of the American Public Gas Association.
▶ 0:16:52Mr. Strivever's diverse membership represents some of the most important users of derivatives markets, the companies that heat our homes and power our economy. Our following that our next witness will be uh Deanna Dao, a partner and general counsel with Capital Council LLC. Mrs. Dao has been a trusted counselor to a commissioner and two chairman at the commission during a pivotal time.
▶ 0:17:23She also served in executive roles across the industry. She too is a member of the FIA Hall of Fame. Our fifth witness today is Thomas Ston, the president and chief executive officer of the National Futures Association. Mr. Ston has spent over 30 years at NFA helping to shape regulatory practices across the industry. And our sixth and final witnesses is Christopher Gian Carlo. Uh Mr.
▶ 0:17:50Gian Carlo is no stranger to this committee as the former chairman of the Commodity Futures Trading Commission. uh he has been an esteemed and passionate voice about the importance of derivative markets and we are honored for him to round out our panel today. So, thank you all for joining us today and we're now going to proceed your testimony. You'll each have five minutes. The timer is in front of you. We'll countd down to zero at which point your time has expired. Mr. Kerry, please uh proceed whenever you're ready.
▶ 0:18:21Okay. Hopefully that's working right. Uh, Chairman Thompson, Ranking Member Craig, and members of the committee, thank you for inviting me here today to testify on the history of our markets and our regulatory structure in the United States. Is that not working? Go ahead and pull that microphone just a little closer. That's all. Okay. A little closer. Okay. Yeah, please. Okay. Thank you. All right. Uh, as you said, I'm Charlie Kerry. I've been a trader and I joined the Chicago Board of Trade in 1978.
▶ 0:18:48I'm honored to appear here today on behalf of the Commodity Markets Council. The Commodity Markets Council, originally the National Grain Trade Council, was founded over 90 years ago. We are the trade association that brings agriculture and energy commercial end users together with commodity exchanges and clearing houses. In my written testimony, I cover some of my personal history. Today, I want to focus on the function of the derivatives markets and the importance of the CFTC.
▶ 0:19:16Derivatives markets provide for price discovery and risk management. Vitally important functions uh to our economy, part of the economic engine, especially today given the geopolitical and economic uncertainty of recent years. Risks in in price, weather, interest rate fluctuations, foreign currency as well as geopolitics are examples of exposures that are managed on US exchanges. The CFTC has direct oversight of exchanges, clearing houses, intermediaries in US markets.
▶ 0:19:45US markets are the deepest, most liquid, efficient derivatives markets in the world. Clear, transparent, tough, and flexible regulation is a contributor to the success and of the trust in our markets. Our agricultural futures contracts serve as global benchmarks for the underlying commodities, meaning business around the world use our futures to hedge their risk.
▶ 0:20:07That is something Congress and regulators must always be mindful of as global liquidity can move offshore and it will always be to our advantage for global benchmarks to be subject to US oversight and priced in US dollars. In 2008, defaults in unregulated off exchange markets caused a global financial crisis. Whereas the CFTC regulated markets did not have these problems and they continue to perform well even during this period of historic market stress.
▶ 0:20:38The system of exchanges, clearing houses, and intermediaries were resilient, leading Congress to use CFTC regulation as a framework for previously unregulated swaps markets. When the CFTC was created, futures markets were primarily made up of agriculturalbased contracts. But Congress and regulators saw a need for a framework that could handle the market's desire for new innovative products.
▶ 0:21:04The CFTC has a history of vetting new innovative products, including weather futures, interest rates, event contracts, and digital assets. In the face of global competition in the late 1990s, Congress passed the Commodity Futures Modernization Act of 2000, which transformed a prescriptive regime into a model. These core principles allowed the market participants flexibility on how to meet the requirements and which in turn spurred American innovation.
▶ 0:21:34The principles based regime also allowed exchanges to self-certify products, something that has led to continued innovation. The CMC end user members are agriculture and energy merchandisers who serve as buyers and risk managers on the raw commodity side as well as sellers and risk managers to the businesses which will ultimately purchase the commodity.
▶ 0:21:57End users depend on riskmanagement markets to allow farmers to lock in prices for their crops uh and attain critical financing. This allows the farmer to pass that price risk ratio risk onto the end user so they can focus on making next year's planting decisions.
▶ 0:22:14While most Americans do not see this critical marketplace and the in the type of shock absorber it it provides for prices uh our markets do allow farmers as well as businesses both small and large to manage and mitigate that risk. From the price of gasoline we put in our car to the milk we buy at the grocery store to the electricity or natural gas that powers our homes. Derivatives markets provide price discovery and risk management to the industry that supplies these goods to us.
▶ 0:22:44The end user without these vital tools would be exposed to upside price pressure in buying the raw commodity and the producer would face downside pressure in the event that they had to sell. In conclusion, I would say the flexible regulatory regime for derivatives serves as a forward-looking model that has served our markets well. The CFTC is somewhat unique in structure because of this flexibility. But this flexibility benefits our users and it markets America's global position.
▶ 0:23:11It is important that the markets our farmers use are subject to rules. You as a committee oversee and the CFTC knows these markets best. It is critical we keep these markets in the US subject to US rules. As we look to the future, I'm confident we will continue to enjoy deep, liquid, and strong derivatives markets so long as we are allowed to innovate and our regulation remains right sized. Thank you, Mr. Kerry. Thank you so much. Dr. Sander, please uh begin when you're ready.
▶ 0:23:41Uh Chairman Thompson, ranking member Craig, members of the committee, my name is Richard. My name is Richard Sandor. Uh, I'm an economist who invents markets. I get it wrong a lot and once in a while I get it right.
▶ 0:24:03Uh, I joined the board of trade 1972 as vice president and chief economist. In that role, I had the honor of working on the legislation that created this commission as well as writing the first interest rate futures contract.
▶ 0:24:27In 73, there were worldwide crop failures and food prices hit record levels. We had an Arab oil embargo and chi stopped running off the coast of Peru and the world exploded.
▶ 0:24:42There was a demand for regulation and there was concerns that this inflation was caused by speculation which led the congress to convene and to create this act. the border trade at that time.
▶ 0:25:02Henry Hall Wilson, its president who was in the Johnson and Kennedy White House, uh was the president of the exchange and legal counsel was Phil Johnson. I had the privilege of working with Phil and John Rainbolt who is the chief of staff of this committee to ensure that new products and particularly interest rate futures were enabled
▶ 0:25:32by the act. The second big challenge was to ensure exclusive jurisdiction and we wor with Mike McCloud uh who was chief of staff for Herman Talmage to create exclusive jurisdiction so that interest rates would not be fragmented by five or six different regulatory agencies banking securities etc.
▶ 0:26:03The first contract that was introduced was Ginny May Mortgage Back Securities. The markets I believe drove down the cost of housing by 6 to10,000 per homeowner significantly by allowing hedging and transparency.
▶ 0:26:25That was followed by the long-term Treasury bond after the Treasury lifted the ceiling on long bonds from four and a quarter and started issuing bonds on a regular basis in ' 07. Uh and that was followed by the 10-year Treasury futures.
▶ 0:26:47And the 10-year futures again were initiated because of the Treasury's continuous round of 10-year securities. The last product that I worked on was options which in 82 were really battled and there was a lot of hostility because they had been banned in the 20s and people said that they would distort the markets.
▶ 0:27:11Quite to the contrary, they work flawlessly and ultimately farmers could use puts as opposed to futures or grain merchandisers could use them. So that was a very important regulation.
▶ 0:27:27If we take a look at the issuance last year and I don't have to remind this dog a body that we issued five trillion of securities the interest cost is now the single biggest factor and I would say in a back of the envelope basis that the introduction of interest rate futures and its widespread use probably save five to 10 billion ion
▶ 0:27:57dollar in interest expense at a at a minimum and that doesn't include Mr. K's remarks about serving as a benchmark the 10year internationally for all sovereign debt in the world. This agency gave me my life and my living and I really want to thank you all. You've been creative. you have been ahead of the mark.
▶ 0:28:26This was an agricultural and and interest rates are up to 50%. In addition to that, interest rate risk management is in every MBA program in the world. So, you fostered educational achievement and provided soundness. I think the best is yet to come.
▶ 0:28:50There are thousands of products that we have not even thought of and you can do it by continuing to see this committee works. Thank you all very much. Dr. Sanders, thank you so much. Much appreciated. Mr. Shrier, please uh begin when you're ready. Thank you, Chairman Thompson, Ranking Member Craig, and members of the committee. Thank you for the opportunity to testify before you today.
▶ 0:29:16I also want to thank the committee for holding this hearing recognizing the 50th anniversary of the creation of the CFTC. My name is Dave Dave Shrivever and I am the president and CEO of the American Public Gas Association or APGA. APJ represents approximately 10,00 communities across the United States in 38 states that own and operate their retail gas distribution entities.
▶ 0:29:40APJ's members include not-for-profit gas distribution systems owned by cities and other local government entities, all directly accountable to the customers they serve. Public gas systems focus on safely providing efficient, reliable, and affordable energy to their customers in the communities they serve. Today, I want to highlight three key points. First, how community owned gas systems engage in the derivatives market.
▶ 0:30:08Second, the CFTC's role in protecting APJ members and others from market manipulation and other market abuses. And finally, the importance of market transparency to ensure fair energy pricing. Communityowned gas utilities use derivatives as a riskmanagement tool. By engaging in over-the-counter swaps and futures contracts, our members can lock in prices.
▶ 0:30:33This helps minimize the impacts of sudden price spikes due to extreme weather or other market disruptions on their customers. Without these hedging tools, price volatility would have a greater impact upon consumers leading to unpredict unpredictable energy costs. Also, when industrial consumers of public gas systems face higher energy costs, their production costs rise leading to higher prices for consumers in the form of more expensive goods.
▶ 0:30:59By contrast, under strong CFTC oversight, markets function properly and prices remain more stable, reflecting real supply and demand conditions. The CFTC's oversight ensures our members and others have fair access to these markets. This allows them to plan responsibly and help to keep natural gas affordable for the communities they serve. The CFTC's oversight is critical in preventing market abuses that can distort natural gas prices.
▶ 0:31:29APJ continues to be a strong supporter of market transparency, limiting excessive speculation and pro and providing the CFTC with the resources it needs to protect consumers. We have seen the harm caused by instances where large financial entities manipulate prices and ultimately increase costs for end users.
▶ 0:31:49Strong CFTC oversight through position limits, trade monitoring, and adequate enforcement is essential to keeping markets fair and preventing price swings that hurt American families. Transparency is vi is vital to ensuring fair energy prices. The CFTC has made great strides in improving reporting and oversight, primarily through their operation as a principles-based regulator.
▶ 0:32:14A transparent market reduces the risk of manipulation, fosters confidence and benefits not just public gas utilities but the broader economy. Natural gas is essential to our economy and millions depend on it daily. It is critical that the price those consumers are paying for natural gas comes about not only through the application of fair and orderly markets but also through appropriate market mechanisms that establish a fair and transparent marketplace.
▶ 0:32:42The CFTC plays a critical role in ensuring the integrity of the derivatives market. As Congress considers the future of financial market oversight, we urge continued support for the CFTC's principalbased mission and its authority to regulate the evolving derivatives landscape. Derivatives markets are risk management tool that APJ members utilize to help provide affordable energy to their customers and communities.
▶ 0:33:07A strong, wellresourced CFTC is vital for public utilities to continue to utilize these markets. Thank you again and I look forward to your Mr. Shrivever, thank you so much for your testimony. Uh Mrs. Dow, please proceed when you're ready. Thank you. Good morning, Chairman Thompson, Ranking Member Craig, and esteemed members of the committee. Thank you for the opportunity to testify today. My name is Da Da.
▶ 0:33:34I'm a partner in general counsel at Capital Council LLC where I specialize in advising clients on a wide range of regulatory and legislative matters related to futures and derivatives markets. I began my legal career at the CFTC in 1980 in the division of trading and markets. I later served as counsel to Commissioner Barbara Holm, Chairman Bill Rener, and Chairman Jim Nuomo, who is here today.
▶ 0:33:58After 22 years at the CFTC, I continued my regulatory work at FINRA and then served in senior reg regulatory roles at the New York Merkantill Exchange and CME Group before moving to a multiclient platform. I've been asked to speak today about the Commodity Futures Modernization Act, a law that brought the most substantial revisions to the Commodity Exchange Act since the creation of the CFTC and fundamentally restructured the regulation of exchange traded derivatives.
▶ 0:34:25The CFMA, among other things, addressed legal certainty, and ensured the enforcability of over-the-counter swaps, adopted core principles based regulation, transforming the CFTC's role in overseeing futures markets, lifted the ban on single stock futures and narrow-based stock indices, established direct regulation of derivatives clearing houses, and added new productbased exclusions and exemptions.
▶ 0:34:51I'll focus today on the CFMA amendments to the CA that introduced principles-based regulation and changed the trajectory of the futures and derivatives industry. Signed into law in December 2000, the CFMA substituted flexible core principles for the prescriptive regulations under the prior law. This flexible principles-based approach promoted innovation and competition and the growth growth of more deep and liquid markets for hedging and price basing by commercial endusers.
▶ 0:35:21The implementing regulations set forth acceptable practices for compliance with the core principles of certification process for new rules, rule amendments, and new product listings and shortened time frames for the rule review process. It's important to note here that these compressed time frames and certification processes in no way diminish the effective regulation of these markets.
▶ 0:35:46As a result of the CFMA, US futures markets experience exponential growth, successfully competing with derivatives markets globally on and off exchange. The benefits of the growth of exchange traded futures are clear. More regulated and transparent trading in these economically important markets ensured market integrity and customer protection.
▶ 0:36:11Moreover, deep and liquid markets provide an accurate price discovery function and risk shifting mechanism for commercial hedgers. The CFMA also fostered innovation and expanded the use of electronic trading platforms in a space dominated by trading floors, hand signals, handwritten order tickets, and trading cards with timestamps. A key goal of the CFMA was to ensure proper regulation and oversight of futures markets without stifling innovation or market growth.
▶ 0:36:41By right sizing regulation of these markets, the CFMA ensured the innovation and competitiveness of US futures exchanges. It's important to note that futures markets have performed well in the midst of crises triggered by geopolitical events, terrorist attacks, a pandemic, and other severe shocks to the financial system.
▶ 0:37:02In implementing the CFMA, the CFTC created a robust regulatory program that effectively oversees the futures markets, protects customers, ensures market integrity, and enforces anti-fraud and anti-manipulation requirements. For 50 years, the CFGC has effectively regulated futures markets, keeping pace pace with change and adapting regulations to fit the ever evolving markets.
▶ 0:37:28In those 50 years, the CFTC and its regulated markets have remained resilient and strong even in the face of events that threaten the markets. While the CFMA helped foster innovation and growth in the exchange, traded, and OTC markets, it's essential to continue adapting regulations to ensure both market efficiency and financial stability. With the interconnectedness of markets, both domestic and global, it is also important to guard against systemic risk.
▶ 0:37:56The CFTC has the unique expertise to oversee futures markets, trading and clearing, and to enforce anti-fraud and anti-manipulation in in those markets. Thank you. Happy to answer any questions. Mr. D, thank you so much. Much appreciated. Now, Mr. Ston, please begin when you're ready. Thank you, Chairman Thompson, Ranking Member Craig, and members of the committee.
▶ 0:38:21Thank you for the opportunity to testify on the important topic of the CFTC's past and future at 50 years. NFA is the industrywide independent self-regulatory organization for the derivatives industry and is a registered futures association referred to as an RFA pursuant to section 17 of the Commodity Exchange Act. NFA is solely a regulatory body. We do not operate a market and we are not an industry trade association.
▶ 0:38:48Over 50 years ago, Congress passed legislation, the Commodity Futures Trading Commission Act of 1974, which amended the Commodity Exchange Act to establish the regulatory framework for the derivatives industry. This framework remains in place today and has adapted to changing and innovative products and markets, which have experienced extraordinary growth over the years. of significant import. This legislation established the CFTC and authorized RFAS to augment the CFTC's oversight.
▶ 0:39:18NFA is the sole RFA. In creating this structure, Congress did not place the important roles played by the CFTC and independent SRO at odds with each other, but rather sought to weave them into an integrated regulatory fabric. The CFTC's original mandate was limited to oversight of the commodity futures markets and its responsibilities have grown significantly over the years.
▶ 0:39:43As the CFTC's responsibilities grew, Congress and the CFTC entrusted NFA with additional oversight responsibilities as The CFTC's responsibilities are enormous and its core principles regulatory approach has allowed it to adopt practical and sound regulations that safeguard the integrity of the markets and allow for growth and innovation.
▶ 0:40:05Over the years, the CFTC's chairman, including the two with us today, former chairman Junk Carlo and Nuome and its commissioners have been outstanding leaders, and the CFTC has a professional, talented, and expert staff to advance its mission. NFA and the derivatives industry including farmers, ranchers and producers are extremely well served by having the CFDC an agency which is laser focused on supporting strengthening and safeguarding the deriv derivatives markets.
▶ 0:40:35NFA began operations on October 1st 1982. We partner with the CFTC and have a clearly defined mission. safeguard the integrity of the der derivatives markets, protect investors and ensure that NFA members meet their regulatory responsibilities. We perform seven primary functions. Registration, rule making, monitoring members, rule enforcement, market regulation, investor protection and education, and dispute resolution.
▶ 0:41:03NFA's performance of these functions allows the CFTC to allocate its resources effectively and efficiently. NFA is subject to broad CFTC oversight. The CFTC closely reviews and monitors NFA's activities to ensure that we fulfill our regulatory responsibilities. The results of our partnership with the CFTC can be demonstrated in at least two ways. First, our work with them to detect and combat fraud.
▶ 0:41:28My written testimony highlight highlights how NFA has worked with the CFTC over the years to address significant customer protection abuses associated with South Florida boiler rooms that sold out of the money options, retail forex, and the misappropriation of customer segregated funds. Second, we have partnered with the CFTC to develop sound and innovative regulatory programs, including to overseas swap dealers and our member firms engaged in spot digital asset commodity activities.
▶ 0:41:58The CFTC's success over the past 50 years is due to its ability to identify new risks, adopt new approaches, and allow for innovation. The CFTC success in the future will necessitate the same adeptness. In recognition of the CFTC's important mission, proven track record of success, and potential expansion of responsibility to oversee spot digital asset commodities, NFA believes Congress should once again consider reauthorizing the CFTC.
▶ 0:42:27I would also like to reaffirm NFA's willingness to assist the CFTC in regulating the spot digital asset commodity market if Congress moves forward with legislation in this area. 50 years after the Commodity Futures Trading Commission Act of 1974, we can certainly say that self-regulation combined with the CFTC's regulatory oversight has been a successful and effective framework for the derivatives industry.
▶ 0:42:50This framework has withtood the test of time and we anticipate as markets continue to innovate and the CFTC's NF and NFA's responsibilities potentially grow, this regulatory partnership will continue to flourish. In conclusion, I am honored to appear before you today to commemorate this very important milestone, the CFTC's 50th anniversary. The CFTC and NFA have been strong and effective regulatory partners and I look forward to our future together. I am happy to take any Mr. Sexon, thank you so much for your testimony.
▶ 0:43:21And Mr. Jian Carlo, please begin when you're ready. Thank you, Chairman, Ranking Member Craig, and other distinguished members of this committee, many of whom I've had the pleasure of working with over the years. It is indeed right for us to acknowledge the CFTC's remarkable record of success and the enormous economic value it provides for American consumers. When I'm asked to explain the purpose of the CFTC, I use a comparison to the better known Securities and Exchange Commission.
▶ 0:43:49I explain that the SEC oversees markets for capital formation. That is markets where those with a business idea find those with capital to fund their growth and success. Well, that's not what the CFTC does. What the CFTC does is oversees markets for risk transfer. that is markets with those with business risk.
▶ 0:44:10Risk to farmers of falling prices for their crop production, risk to American manufacturers for rising energy prices, and risk to homebuilders of fluctuating interest rates can offset some or all of that risk with those who are better able to bear it. CFTC markets for risk transfer are very different than SEC markets for capital formation. And because they're so different, they require specialized regulatory skills.
▶ 0:44:39And fortunately, the CFTC and its terrific staff have those skills in spades. During almost five years on the commission, I traveled the country and visited egg producers in over two dozen states from Montana and Texas, Arkansas, Louisiana, and Iowa to Minnesota and Missouri, New York, Mississippi, and Oklahoma. And I walked in wheat fields and harvested soybeans.
▶ 0:45:03I tramped through rice farms and beneath pecan groves and I milked dairy cows in Minnesota and toured feed lots and I visited grain elevators and viewed cotton gins and many of my fellow commissioners continue to do the same. What other federal regul financial regulator can say that they do that? And throughout these visits, I was moved not only by the grace and dignity of hardworking Americans, but by the importance to their lives of these risk-hedging markets under CFTC supervision.
▶ 0:45:33Now, it's true that most Americans are not farmers. Compared to having their 401ks invested in the stock market, many Americans do not directly participate in markets under CFTC supervision. And yet, thanks to these well- reggulated markets, all American consumers enjoy relatively stable prices in all their financial activity.
▶ 0:45:55From auto loans to household purchases to the price and availability of heating to the energy used in the factories where they work to the interest rates that borrowers pay on home mortgages and even the returns workers earn on their retirement savings in those 401ks. One area where these markets are essential to American prosperity is in managing risk associated with the US dollar.
▶ 0:46:21In fact, when the CFTC was reformulated out of the Department of Agriculture 50 years ago, it was quite specifically to safeguard a breakthrough in financial innovation that Dr. Sandor and others worked on and that was financial futures. Because these new instruments enable the global economy to manage the risk of variable interest and exchange rates and assure that the US dollar remain the world's reserve currency.
▶ 0:46:45The United States is the only major economy to have a regulatory agency specifically dedicated to derivative market regulation. And it's worth asking whether having such a dedicated regulator is the reason why US commodity mark commodity derivative markets are bigger and perhaps more important than most of our economic competitors or is the fact that these American markets are so big that they require a dedicated regulator in its own right.
▶ 0:47:12Perhaps both of those reasons are true and it is clear that the CFDC provides a great American advantage in terms of economic cooperation. We've heard from Mr. Casey that the CFTC's clear, transparent, tough, but flexible rules support US a production and for Dr. Sandor that the CFTC's regulated markets are indispensable tools for economic growth, driving down the cost of home ownership. And Mr.
▶ 0:47:39Shrivever explained that the CFTC's rules protect US consumers from abuse. And Miss Dao described the uniqueness of the CFTC's principles-based self-certification framework. and my dear friend Tom Ston talked about the critical role of CFTC self-regulation. Well, I just want to add one more remarkable aspect and it's something that the ranking member alluded to. It said that organizations reflect the tone from the top.
▶ 0:48:06Certainly, the CFTC's reduced partisanship mirrors the general cordiality and frequent bipartisanship of this committee and its Senate counterpart. And that characteristic in turn reflects the courtesies and values of America's homeland. As a former chairman, I readily admit my affection for this remarkable agency. For five decades, the CFTC has enhanced the American way of life, stabilized the everyday cost of living, and the CFDC has done so without undue ranker and partisanship.
▶ 0:48:36With a budget and a staff that's a pittance against those of its federal regulatory peers, the CFTC is pound-for-pound the best value in Washington, especially for American farmers, producers, and end users. So, Mr. Chairman, 50 years after its creation, I'm delighted to join this committee and say happy birthday, CFTC. Thank you, Mr. Jian Carlo.
▶ 0:49:00Thank you much for your testimony and a fitting end to that uh testimony as well based on our celebration of of 50 years. Uh you know I I um just thank you to all members of our panel for your presentation. I couldn't imagine a more experienced uh u panel that I have before us today with uh with the topic at hand.
▶ 0:49:24At this time, members will be recognized for questions in order of seniority alternating between majority minority members and the order of arrival for those who joined us after the hearing convened. You'll be recognized for five minutes each in order to allow us to get to as many questions as possible. I now recognize myself for for five minutes. Mrs. Now, as you know, the the purpose statement that I quoted in my opening statement was added to the law during the enactment of the Commodity Futures Modernization Act.
▶ 0:49:54It is not a stretch to say that the reforms made by that law built the modern commission. As you review the commission's implementation of the CFMA, has principalbased regulations worked as intended and has it been able to both promote responsible innovation and fair competition? while protecting consumers and market integrity. Thank you for that question, Mr. Chairman.
▶ 0:50:19I absolutely believe that the CFMA core principlesbased regulation has worked as intended and potentially even better than than in intended. It has really given the industry and the exchanges the opportunity to respond to changes in the markets, demands from their their customers.
▶ 0:50:45It has allowed them to really take the responsibility for ensuring that the rules that they put in place are in compliance. So they certify that these rules are are in compliance with the CA and they are responsible for providing the analysis and all of the things that would give the CFTC the information they need to allow them to certify and put these rules into place without permission.
▶ 0:51:10And this has really com allowed the time frames for these different um new products, new rules to go into effect, which is really important for getting to market in a timely way, which is important to business. So while there have been concerns about the um rules, it has proven to to to work well and we've had no issues or concerns.
▶ 0:51:40the commission has the authority to stay um potential um rules if they think that there is something lacking, it's not in compliance or the explanation is got not good enough. So they still have the opportunity to stay um when you have this principlesbased certification of rules. So yes, it has worked extremely well. It has allowed the markets to grow and to innovate and continues to work well and should should remain in place. Thank you for that. Uh, Mr.
▶ 0:52:10Jian Carlo, both you and Mr. Kerry note in your testimony that the risk transfer markets regulated by CFTC require quote specialized regulatory skills and understanding end quote. As this committee thinks about how best to fulfill the purpose of the Commodity Exchange Act, what are those specific skills and understandings needed to be effective in these markets that other financial regulators might not have?
▶ 0:52:34you know, the the ability to regulate to to oversee dynamics in uh complex wheat markets of which there's many different varieties and they all have different market participants and different dynamics and different seasonality.
▶ 0:52:48The understand the ability to understand difference in different trading markets for for petroleum products for certainly in interest rates and dollar-based uh uh instruments require specialized knowledge specialized um uh skills that take decades in some cases to develop.
▶ 0:53:07I think what we need to start thinking about doing as we go into the 21st century is enhancing those human school skills with some of the big data analytics tools that companies like Amazon and Facebook use so that those human talents which which really are trained nowhere else but at the CFTC in many of our markets can actually do their work but powered with some of the latest data analytics.
▶ 0:53:32I think we have the human the CFDC has the human talent and I think with the support of this committee we can give them the the data analysis tools to really move this forward into the next century. Well, thank you. Uh Dr. Sand, in your testimony, you estimated that three Treasury futures products have saved the United States government between 5 to10 billion each year. Even for Washington, that's a lot of money each year.
▶ 0:53:59Um, how do these products only help the US government save on interest costs? These markets are transparent, so they provide the least cost uh bond prices essentially, the lowest interest rates, and also hedging and the ability to sell its debt.
▶ 0:54:23And for dealers in US government securities, they can bid for those bonds at a higher price and a lower interest rate because they can hedge the risks.
▶ 0:54:38The liquidity in the futures market is so broad that it can absorb that amount of hedging thereby reducing interest costs for the US Well, thank you, Dr. Sam. Now, please recognize uh the ranking member from Minnesota for five minutes questioning. Thank you, Mr. Chairman. Um this question is to Mr. Ston.
▶ 0:55:06Um I appreciate your testimony explaining the steps that NFA has taken on its own to help investors better understand the nature of digital assets and the substantial risk of loss that can arise from trading these products. And I also appreciate NFA's efforts to regulate your members activities in this area through compliance rule uh 2-51.
▶ 0:55:29Um do you have any estimate or guess as to how much of the total amount of digital asset spot market trading is being conducted by or through your members and hence has these extra protections? And then does second question does NFA often hear from C hear from customer complaints from those who are trading in these spot markets with entities who are not NFA members and if so what do you tell them?
▶ 0:56:00Thank you very much for the question. Uh let me let me start off by uh saying that with regard to compliance rule 251, we adopted that uh Congresswoman because our traditional rules were aimed towards futures contracts and therefore if we had a member firm that was engaging in spot digital asset commodities and um engaging in fraudulent activities, then we could not bring a disciplinary case against them because we we didn't have them
▶ 0:56:30under our jurisdiction. So it was a very important rule for us in that sense. Uh we have over uh approximately over 100 members or so that are engaging in in spot digital asset uh activities. Uh and they self-report to us those activities primarily in their commodity pools which can invest in futures, securities, you know, anything uh including digital assets.
▶ 0:56:58We have not received um any customer complaints uh significant uh with regard to our members activities in this area. I think part of what we were trying to accomplish too is establish supervision requirements for them which is key to uh our regulatory oversight. So um with regard to our members, we have not taken any cases under 251 and as I said um very limited uh uh customer complaints have been received with regard to our members.
▶ 0:57:26If we receive uh customer complaints uh not involving our members, we typically will refer those to the CFTC. We we act very closely with the CFTC uh in their enforcement area. Uh obviously, if they're not a member of ours, the CFTC would have jurisdiction and um and be able to bring an enforcement action. Thank you so much. Um I want to turn to Mr. Shriber.
▶ 0:57:49Uh in your testimony, you cite the importance of the CFTC in investigating potential abuses, fraud, and manipulation in the markets. For fiscal year 23, the CFTC reported it brought 96 enforcement actions, and almost half of them were involving conduct related to digital commodities. For fiscal year 24, the agency brought 58 enforcement actions, again, many of them in the digital asset space.
▶ 0:58:18As traditional users of derivatives markets, do your members have any concern whether the agency is focused enough on uh surveilling and policing the markets you use compared to trading in these newer products? Thank you for the question. Um our members need to have confidence in these markets to engage in the markets. They do have confidence in the markets.
▶ 0:58:40when we've seen instances where natural gas prices have um escalated a lot of volatility such as storm Yuri, we've raised concerns and you always learn from these uh incidents. In the case of Storm Yuri, steps have been taken to mitigate those impacts in the future which we support. Um but otherwise, no, our members have uh confidence in the markets and the integrity of the markets. They these markets are as I mentioned are critical to our members because uh 95% of our members are captive to one pipeline.
▶ 0:59:09they can't physically hedge. They don't have access to storage. So using derivatives tools to hedge in these markets really helps protect their consumers. Thank you so much, Mr. Shrivever. Um, at this point, I just want to say, Dr. Sandor, I was born in 1972. Uh, and in my last 30 seconds, I just think I should give you the opportunity to say anything else you want to say. So, Dr. Sander, what what do you want to tell us today?
▶ 0:59:37Uh, I want to echo uh commissioner or chairman John Carlo's remarks. Uh, being 800 years old and and having been in this town since 1966 after completing my PhD at the University of Minnesota, I might say. Um, I think poundforpound as agency is incredible.
▶ 1:00:04If you take a look at costbenefit ratios, which economists like to think of two or three, I think the agency runs on under f a half five four 500 million. Chris, if you take five or 10 billion just from the interest rate sector, you're talking about a costbenefit ratio of 20 to one. I mean, that is unbelievable in the commercial world.
▶ 1:00:33let alone in in governmental affairs, people would be very happy. So, I want to join Chris and say happy birthday to this commission and to all of you that have enabled this. Well, go Gophers. And uh with that, Mr. Chairman, I yield Very good. I now recognize the gentleman from Oklahoma, Mr. Lucas, for five minutes. Thank you, Mr. Chairman. And I would note in 1972 I was driving a Ferguson tractor pulling a hay rake.
▶ 1:01:02So, we all had a glorious time in those days. Thank you, Mr. Chairman, and thank you to all of our witnesses for testifying. And of course, today's hearing focused on the 50th anniversary of the creation of the Commodity Futures Trading Commission. This anniversary gives us an opportunity to review the operations and activities of the commission and examine the pressing issues end users, consumers are facing in their interactions with the markets today. Derivative markets are essential riskmanagement tools for farmers, ranchers, and all producers.
▶ 1:01:31The ability to transfer risk, manage price volatility, and reasonably predict pri cost cost allow businesses to free up capital to invest in the economy, pass savings to consumers the way America that way Americans pay less at the grocery store and at the gas pump. Congress must protect the market's integrity and function so our producers can continue to affordably supply that food, fuel, fiber, energy that the world runs on.
▶ 1:01:57The previous administration posed significant challenges and uncertainty to the derivatives markets as the credential regulators look to dramatically increase capital requirements for many derivative transactions. I'm hopeful that the bosal in-game reproposal by President Trump's nominees will not present such a threat. Mr. Kerry, as a former in my role as a former member of the DoddFrank conference committee, maybe survivor is the way to describe that.
▶ 1:02:24I remember well the broad bipartisan agreement to leave endusers exempt from the regulatory burdens of DoddFrank Act. Some of the rules and proposals that came out of the last administration, especially the Bosle 3 in-game proposal were particularly burdensome and disproportionately harmed in users.
▶ 1:02:44How should incoming chairman Quinten work with Secretary Vent and the credential regulators to ensure that derivatives markets are affordable and accessible? Well, I think uh uh one of the reasons that we're here talking about the CFTC and their role as a regulator, uh I I think that one of the biggest strengths that they've had in their entire existence is their ability to conduct a dialogue where everybody's concerns
▶ 1:03:14are addressed and and and basic uh using judgment in the ability to determine where or where certain rules should be applied because you want safety and soundness in the system. You want enough capital to to basically protect the customers, but you don't want to make it prohibitive to the point where they can't do business on these exchanges, and it's better for them to go unhedged rather than hedged. Dr.
▶ 1:03:40Sander, you suggest both in your testimony and in your response to questions that the introduction of futures and options of Treasury bonds and notes have led to billions of dollars in interest savings for the US government. We're now at a time where compared to 20 25 years ago, we are moving rolling over eight times as much debt as we did. We have half the primary market makers that we had 20ome years ago.
▶ 1:04:07Could you expand on your testimony about how CFTC and SEC can partner to alleviate stresses on the Treasury market, particularly in light of the clearing rule that the industry is gearing up for? If we can't move our paper, we're in a world of hurt. Yeah. I I can't speak I can speak to the CFTC's role.
▶ 1:04:30My understanding is that the interest rate market as a very small part of the SEC. So I'm not sure you know they handle uh equities not fixed income and government securities are totally exempt. So I I don't know of any competence in in that area. I do share your concerns.
▶ 1:04:56Um if my recollection is uh and I think given my experience, I think we had a total outstanding in 77 of long-term bonds of $18 billion dollar in US history. That was the total outstanding issue.
▶ 1:05:21When you think of 36 trillion of debt out there, it's dwarfed. I think that we have to encourage more primary dealers and make the rules an excession in there because it is that competitive process at auctions that really keeps prices up of bonds and thereby interest rate lowers. So a dramatic expansion.
▶ 1:05:48I think we really need to have clearing consolidated of government securities. I think we celebrate things which should not necessarily it took three or four years to get T+1 through that shouldn't be that way.
▶ 1:06:08I think the blockchain, other technologies, trusted partners, the use of of technology which is being routinely used and AI today in industry needs to be used in the regulatory process and that would be my fundamental concern.
▶ 1:06:30There should be enough competence there that ranks it with Google or Amazon to in clearing and in other functions. Thank you Dr. yield back Mr. Chairman. Thank the gentleman. Now recognize the gentleman from Georgia for five minutes question. Thank you. Excuse me. Thank you very much.
▶ 1:07:13Correct. All of us understand from what we went through with the DoddFrank era, bad actors, poor transparency in the derivatives market.
▶ 1:07:30That's what contributed to the 2008 financial crisis and it was one of the worst crisis we had and thank God thank goodness we had the CFTC there to respond to it and uh so Mr. Shri, you first.
▶ 1:07:53In your testimony, you discuss the importance of derivatives market transparency as fundamental to maintaining fair pricing for consumers.
▶ 1:08:07Can you very briefly describe the impact that transparency requirements have in protecting consumers from risk, including for those who receive services by the 86 municipal gas utilities in my district in the great state of Georgia? I appreciate the question.
▶ 1:08:34It's um you know if you look at uh the universal public gas systems u it's uh I know Georgia takes their football seriously. We are an SEC intensive association. Um the bulk of our membership is in the SEC football states. Um so including the 86 in Georgia and a lot of these are very small and medium-sized communities. Uh so they're as I mentioned not for profofit their their citizens their consumers rely on them getting natural gas to them.
▶ 1:09:02uh APJ was a strong supporter of the DoddFrank reforms in terms of increasing market transparency, giving our members confidence that the uh prices reflected in the marketplace were accurate and accurately reflected uh supply and demand.
▶ 1:09:18Um we realize there's a role for speculation in terms of providing liquidity but trans as you mentioned transparency is critical and our members have a lot more confidence in the marketplace as a result of the action the committee and congress took through DoddFrank to enhance market transparency. Yeah. Very good. Now Miss Dao welcome home.
▶ 1:09:44For 22 years, you have served with the CFTC. And for 22 years, I have served here in Congress. And for those 22 years, the constant battle has been getting enough money to the CFTC. Why? Why is that?
▶ 1:10:13And what more should we be doing to get the money to CFTC to do their job? And I see Chairman Austin Scott here. We went to battle for CFTC.
▶ 1:10:29You all remember the European Union, as you recall, wanted to come over and take away the regulatory authority of our markets and financial But we stood up to him and said pleasantly or rather strongly, no." And let me just ask you, what more should we be doing in Congress
▶ 1:10:59here to impress the importance of the CFTC from your 22 years experience that we can finally get folks to get the CFTC more funding? Thank you for that question. Um, I wish I knew the answer to how to address this issue that has been going on since when I was at the commission. That's right.
▶ 1:11:30Starting back in in 1980 through 2022, I mean 2002. So, the important thing to to note and remember is the markets have evolved. Back when the CFDC was first created, they weren't as as large as they are now. The markets have evolved. We now have the CFDC now has authority over the the swaps market.
▶ 1:11:54It now has expanded into, you know, other types of markets, events contracts for retail. It's also uh looking to take on responsibility in the digital asset space. All of these additions to the CFTC's jurisdiction and authority demand that their budget be increased, right?
▶ 1:12:14And while maybe it's a a lack of education or understanding, but certainly it's important for the Congress to realize and recognize that the jurisdiction of the CFTC has expanded significantly and the current budget is not sufficient to cover all of the responsibilities that that it currently has.
▶ 1:12:35Well stated and uh I hope all our ears were open to hear that we are determined on both sides of the aisle to make sure that we get the CFTC more funding. Thank you very much. Thank you, Mr. Chairman. Uh and I rec recognize myself for five minutes. Commissioner Jean Carlo, you mentioned one thing that we don't talk about enough in Congress.
▶ 1:13:04Uh you mentioned the US dollar as uh the world reserve currency. Um I do believe the CFTC has played a vital role in keeping the dollar as um the world currency and your testimony would allude to that as well. Would you just speak briefly 30 seconds 60 seconds to what the consequences of uh the US dollar not being the world currency would be for uh the United States citizens?
▶ 1:13:33You know, it's it to my mind it's not a coincidence that the founding of the CFTC coincides with the the dollar going off the gold standard in the mid 1970s. Um when that happened the world nations that held dollars suddenly had enormous risk of interest rate movements of foreign exchange uh uh changes that with the dollar no longer anchored to gold. Um it was the creation of financial futures uh by Dr.
▶ 1:14:00Sandor and others that allowed these markets to actually support the dollar in its truly fiat state because now the world can hedge their risk of holding dollars, the interest rate, the risk, the foreign exchange risk and holding dollars. I will argue to you that the CFTC is really the agency that safeguards the dollar and its ability to be held by global nations around the world and and their holding of it is what makes it the world's reserve currency. Allows us to fund that enormous debt that Dr.
▶ 1:14:29Sanders spoke about. So I think the CFTC plays this sleeper role. When I say pound-forpound, Dr. Sander, it might even be better than 20 to1 because if if this agency is the agency that stands between the dollar service as a reserve currency and ending that service, I think it's a vital agency. It's it's you might remember that old story about the boy with his finger in the dyke. We may be the the boy or the child with the finger in the dyke that's supporting the dollar as the world's reserve currency.
▶ 1:14:55Chairman, um, can I u briefly please poke my head quickly, Chris? I think that's exactly right. And the members of this committee might witness a significant increase in interest rates if we lose our role as a reserve currency, driving up automobile cost, housing costs, food costs, and every other manner of consumer Thank Thank you.
▶ 1:15:23And uh coming back to you uh chairman, as Congress contemplates legislation related to digital assets, there's discussion about CFTC SEC. Uh would you explain to us why you think the CFTC's framework is the best with regard to the digital currencies to regulate them? Well, let's even start with the CFTC has been looking at digital assets going back to at least 2014 when I first started the commission.
▶ 1:15:53And under uh my predecessor, Chairman Massid, we declared in 2015 Bitcoin to be a digital the world's first digital commodity under CFTC jurisdiction. And over the last few years, why our sister agency, the SEC, has really been quite frankly resistant to engaging with digital assets. The CFTC has upped its game considerably. It's got over a decade of studying the most important digital assets which are the digital commodities like Bitcoin and Ethereum.
▶ 1:16:21So its inherent knowledge base is better than any other agency in Washington pretty much I think unarguably. Um then its framework which uh Miss Dao spoke about its self-certification process it's its principlesbased regulation is ideally suited for these new instruments that are evolving so rapidly. And I want to say one other thing. It's now almost 7 years since the CFTC first greenlighted Bitcoin futures.
▶ 1:16:48That was a controversial step at the time, but here we are 7 years later and that market is deep. It's liquid and it's transparent and it's very well regulated by the CFTC relatively free of fraud manipulation compared to spot markets. And that's why I think the CFTC is the ideal regulation regulator to take what it's learned from futures markets and go into digital spot markets for digital commodities. in my last 50 seconds.
▶ 1:17:12Um, we know about the FDX failure obviously shocked the system, but um, the DCM and the DCO, those people did not lose money. Can you explain how uh, as a market regulator, the CFTC protected? So there's only two places of the entire global FTX empire that didn't fail.
▶ 1:17:41The peace under Japanese supervision and the peace under CFTC supervision. And the reason why those those cons the users of those systems under the CFTC and the Japanese got every dollar back is because both regulators required segregation of the customer funds. They couldn't be used by Sam Bankman Freed as a piggy bank for his other activities. they had to be held separate and apart and held pledged to those uh users. So that's why they got their money back. Thank you, chairman.
▶ 1:18:10My time has expired, but the segregation of the funds is an important aspect that I don't think we talk about much either. Uh Miss Adams, you are recognized for five minutes. Thank you, Mr. chairman and uh thank you ranking member uh both of you for hosting this hearing in honor of the 50th anniversary of the commodity futures trading commission. 1972 uh was a great year. My second child, my daughter was born.
▶ 1:18:39So um I still celebrate that. But let me um just uh say to the CT the CTF's mission statement is to promote the integrity, the vibrancy and the resilience of the United States various financial markets through proper and dependable regulation.
▶ 1:18:58And in the next 50 years of the CFT's TC's work, uh I I hope that this will remain the goal and plan and the plan of the commission to ensure that consumers including those involved in agriculture commodities are all aware of necessary information and and are protected. So Mr. Mr. Shiverber.
▶ 1:19:20Um, from your testimony, it appears that your members are are supportive of speculative position limits in these derivative markets. And as you know, there are some parts of the market that have not been supportive of position limits. And the agency took a very long time to implement new position limit requirements included in the Dodd uh Frank Act.
▶ 1:19:43So can you please tell us why your members believe in position limits and the role uh you believe they play in establishing fairness and confidence in these markets for commercial uh users end users. Thank you for the question.
▶ 1:19:58um our members are market takers not market makers and the concern of our membership as I mentioned uh a lot of small medium-sized public gas systems is that there's integrity in the market and position limits help ensure that no one party has a substantial share of the market to allow excessive speculation to change the price uh beyond normal market factors. So APJ has been a strong supporter of position limits. We believe they're an important tool for the CFTC.
▶ 1:20:29Okay. Thank you, sir. So, from your testimony, I'm also interested in your emphasis on the importance of CFTC's role of promoting market transparency uh and setting the standard around the world for financial markets. And this is particularly relevant uh in terms of of its potential impact on everyday consumers especially regarding rising energy bills and goods.
▶ 1:20:53So could you further discuss how the CFTC can help prevent market manipulation or practices that could negatively uh affect consumers? Thank you for the question. Market transparency is critical uh to our members to ensure that they have confidence in the markets. They see what's happening. They can make decisions based on that full level of transparency.
▶ 1:21:16Um, and as I mentioned previously, a lot of the reforms that came about through DoddFrank significantly increased transparency to a level that gave our members greater confidence in the marketplace. Thank you, sir. Mr. Kerry, uh, you noted that a key function of the derivatives market is to help businesses manage uh, uh, volatility in our country's financial markets.
▶ 1:21:40So, what advice would you give Congress and the CFTC to help strengthen derivatives markets ability to withstand volatility and uncertainty? And additionally, how can Congress ensure the effectiveness of commodity markets and derivatives products as tools for risk management and price discovery?
▶ 1:22:03Well, actually the point I was trying to make was that the markets themselves and the liquidity in the markets themselves help reduce the amount of volatility. Uh but there is volatility, there's price risk, but it allows users to to transfer that risk to somebody who's willing to accept it.
▶ 1:22:21So I think that uh the CFTC has proven itself as as the regulator of choice because uh these markets work and you've seen them protect the customers and protect the integrity of the marketplace uh by what they do and how they constantly evolve to the needs of the marketplace.
▶ 1:22:40So I I think that uh the CFTC with the expertise within the organization is is uh one of the places Congress should look uh to uh make sure that our markets remain uh the economic engine in this country that they are. Okay. Thank you sir. Thank you uh all for your uh for your testimony and your responses. Mr. Chair, I yield back. Dr. Adams, thank you so much.
▶ 1:23:06And now recognize the the favorite son of South Dakota, Dusty Johnson, for five minutes. Uh, Mr. Chairman, John Carlo, we'll go with you. Good to have you back here. Of course, you knew a lot about swaps before you had became a commissioner or were chairman. Uh, DoddFrank obviously gave the commission tremendous new authorities and responsibilities over the swaps market, new transparency, new federal regulation.
▶ 1:23:32There were some at the time, I'm sure, that wondered whether or not the commission was up to it or whether that regulation was even appropriate. Give us a sense of why that was important and why the CFTC was the right home for it. You know, I I was probably unique at the time in actually being a wholehearted supporter of title 7 of DoddFrank, the provisions uh that awarded the CFTC oversight for most, but not all of the US swaps market.
▶ 1:23:59Um I saw really three key components of that swap regulated swaps clearing uh swaps reporting and uh swaps execution and I was a supporter of all three for really particular reasons I had spent 40 years in the private sector and uh 15 years as a head of one of the largest swaps trading platforms not not a trading firm we didn't trade we operated the platform on which these trades took place and I recognized in fact we had tried in 2005 and to launch
▶ 1:24:29a derivatives clearing platform. We believe that clearing is not a panacea for risk, but it professionalizes risk management. It professionalizes and mutualizes the risks of a failure. And so when DoddFrank took that up as a requirement for many, but not all swaps, I was supportive of that. Similarly, swamp's reporting made complete sense even though I think the approach is a 20th century, not a 21st century approach of reporting to a repository.
▶ 1:24:58But the reason we had a crisis in 2008 was not because we felt that swaps would fail. It's because we believed they would work and we only understood the gross total amount of swaps. We perceived at the time there was 400 billion swaps written against the failure Leman brothers. We now know because of work done by the former CFTC chief economist Bruce Tuckman that the net exposure was less than nine billion in 2000 in September of 2008.
▶ 1:25:28If we knew that a failure of Lehman Brothers would have triggered less than 9 billion we wouldn't have had a financial crisis because we could have let Lehman fail. We could have let it be sold. We could have let it been bought. It was the fog of war, the inability to understand the true exposure. So I'm a big supporter of that. But the blockchain is the true answer to that, not these swap data repositories. By the time the data is reported, it's too late. Regulators need to be able to see true exposures in real time and the blockchain will be able to do that.
▶ 1:25:56And finally, terms of swap's execution, I truly believe that Congress got that provision right in the DoddFrank Act by allowing swaps trading platforms to use any means of interstate commerce because the episodic nature of liquidity in the swaps market is very different than the continuous nature of liquidity that exists in the futures market. And and again, the regulation of the transparency isn't a panacea, as you said, not at all. But clearly, this is a better way to have the markets run overall. And this this is where the CFTC does well.
▶ 1:26:26CFTT takes a lot of partisanship, a lot of uh uh of emotion out of managing markets when it comes to uh swaps and futures clearing in 50 years. No clearing house has ever failed under CFTC supervision during the 2008 financial. Pretty remarkable when you think about it's truly remarkable because our markets are the some of the biggest and the most sophisticated in the world. It's really got I mean again we talk about pound-for-pound whatever way you want to measure it. The CFTC's record is really quite extraordinary.
▶ 1:26:55So, uh, in your in your written testimony, one of the headings is, you know, the next 50 years. And then I got excited when you started to talk digital assets because I thought, oh, we're going to get into something real here. You know, you you didn't address the market structures bill that passed out of committee on a strongly bipartisan basis. And I don't want to put you on the spot. It wouldn't like you were an author of it or anything, but uh, any observations for us as we get ready to to relaunch that effort here in committee? Yeah. So, the United States needs a regulator for spot markets for for crypto.
▶ 1:27:24I truly believe and when I look around the landscape, there's really only one that is ready to take up that baton today and that's the CFTC. It's been engaged continuously under both Republican chairs and Democratic leadership for the past dozen years in this marketplace. It's its record in terms of Bitcoin futures, Ethereum futures, and now just recently launched Salana futures is superb. The the the information is transparent. It's available. The markets operate in orderly fashion.
▶ 1:27:53I mean, I don't want to throw shade at a sister regulator, but its failure to engage. Oh, please do. We're fine with that here. It's its failure to engage is quite notable against an agency like this that has engaged and done so quite successfully and proven that regulators can engage with this new innovation. And I'll say one other thing. Crypto is a lot more than about just is the number going up. This is a new architecture of finance going to change everything we know about how you record who owns what and who's transferring what to whom.
▶ 1:28:21The United States must be a leader in this and this is the agency that's already served as a leader for the last dozen years. Very well said. I yield back. Uh gentleman yields back. Now recognize the gentle lady from Oregon, Miss Selenas, for five minutes. Thank you, Mr. Chair and Ranking Member Craig. And thank you to our witnesses today for being here. Since joining this committee, I've taken particular interest in the CFTC's regulatory responsibilities over event contracts, especially those related to electoral and political outcomes.
▶ 1:28:52The rise of platforms like Kulshi has turned election event contracts into a major market. In fact, during the 2024 election, Khi alone saw around 400 million wagered on election outcomes. And that's only a small portion of the broader market that easily reaches into the billions. But it's not just elections. As you all know, political outcomes of all kinds are wagered.
▶ 1:29:14For example, right now on Poly Market, an alternative to Koshi, individuals can currently acquire event contracts on things like how many gold cards might President Trump sell in 2025, whether President Trump will end the war between Ukraine and Russia in his first 90 days. And this market alone has about uh $36 million in volume. These markets exist alongside those for pop culture and sports um outcomes. So, Mr. Jian Carlo.
▶ 1:29:39Um, as a former CFTC chairman who subsequently joined Poly Market as chair of its advisory board, I I suspect you have strong perspectives on these event contracts. And to that end, I just have a couple questions for you. As it currently stands, an event contract on whether President Trump will end the war between Ukraine and Russia is treated exactly the same as a contract on whether the Trailblazers will win their next game. Knock on wood. Uh, these contracts can be on literally anything and they're treated the same by the platforms.
▶ 1:30:08How from a kalshi or poly market users perspective is an event contract on the conclusion of a war different from betting on the outcome of say a basketball game. So the questions on these event contract markets are driven by the market participants. Uh that's one of the things that's that's quite unique about them. Um uh in the case of both platforms they're quite international.
▶ 1:30:31Um, and what in in many ways we here in the United States have let the cat out of the bag in terms of um uh um the desire for people to um uh wager on events with sports gambling. When I grew up, sports gambling was not allowed. Uh now you cannot watch a sports event without the advertisers flooding the zone. And that's just not by accident.
▶ 1:30:56That's a policy choice we've made at every level of society over the last dozen years or so. And um if that's the case, then how much of it is a stretch to think that people that are going to take a side in who's going to win the Super Bowl might want to take a side in who's going to win an election or and in fact what we found in 2024, a year in which something like 70% of the world's democracies voted.
▶ 1:31:22It was the events contracts like Kelshi and Poly Market that were far more accurate in predicting the outcome of those elections whether it was the French election, the British election, uh the Indian election, the Japanese election than were any of the polling sources. So, we've got two elements going on.
▶ 1:31:39You think I think there's a societal change with this great acceptance of of betting on the outcome of popular events, celebrated events, but we also have the fact that they're actually becoming better measurements of society's feelings at a time. They don't predict the outcome, but they tell you three weeks out where society is and they seem to be far more accurate than polling is. And you know, our elections do have consequences, not only in the United States, around the world.
▶ 1:32:05They affect outcome of trade policy of of of immigration, lots of things. People do have a stake in the outcome. And if they can hedge that stake in these markets, perhaps the time has come for us to really take them up and properly regulate them the same way that we didn't run away from Bitcoin. We engaged it and build a regulatory framework around it. I think the time has come for us to build a regulatory framework around it so we can protect those who are vulnerable.
▶ 1:32:29we can make sure that these platforms have good policies and procedures and protect customers in the way that we've done a great job with in other areas of of modern life. Thank you. And just a quick followup with my last minute left. So what is your analysis of kind of the incentive structures that are created by allowing event contracts on such high stake electoral and global affairs especially as you just said?
▶ 1:32:51Um, you know, I am curious to know, are they are they predicting or are they driving the That's a hard one to measure. I I don't know if I have an answer to that. I think the same could be said about polls. Um, uh, do they drive the outcome or do they are they steered to get the outcome they want? All I can point to is it is looking backwards at 2024 where it did seem that the events contract markets were more accurate of what actually happened than were the polling in many cases. Thank you.
▶ 1:33:21Do I yield Gentle lady yields back. Now recognized the gentleman from Ohio, Mr. Taylor, for five minutes of question. Thank you, Chairman Thompson and Ranking Member Craig, for holding this hearing today. And thank you to the especially esteemed group of witnesses we have today for your insight and testimony. Mr. Ston, not to pile on here, but uh you have considerable experience with the CFTC and the markets it overseas.
▶ 1:33:48uh and you've also talked about the role of digital assets have played in uh in your career and your work to ensure there are adequate consumer uh protections in place. Cryptocurrency has taken off over the last few years. Uh as of January, there are over 20,000 different cryptocurrencies worldwide and the global cryptocurrency industry is valued around $3 trillion. Uh how do you see the cryptocurrencies impacting agriculture and our farmers in the future? And are there ways for our farmers to use cryptocurrencies or blockchain to their advantage?
▶ 1:34:19Uh, Congressman, I I um have to confess I am no expert in in the blockchain, but uh I certainly believe uh as um former chairman Jen Carlo has indicated that there is um great uh use for the blockchain in the future uh for recording transactions and uh I know that um they are there's also experimentation with tokenizing commodities and uh in order to record them but also to transfer them.
▶ 1:34:47So um a little bit uh uh maybe not completely responsive but uh I I I think that there is uh uh great opportunity there for farmers and ranchers and others. Okay. Do you see that uh cryptocurrencies in general being able to really promote economic economic growth in more rural areas or do you think it's predominantly going to remain in urban areas?
▶ 1:35:13No, I I think that as um cryptocurrencies continue to uh to grow, particularly the the technology, uh it will promote growth uh across uh across not only urban areas but rural areas and Thank you. Ohio, my home state, is one of the largest natural gas producing states in the country. Uh Mr. Shrivever, in your testimony, you mentioned that uh community-owned natural gas companies can utilize futures markets to ensure consumers have stable energy prices.
▶ 1:35:41People in my district work hard to make a living and being hit unexpectedly with massive energy bill could be devastating. Can you speak more about how the futures markets under CFTC help stabilize energy prices for utility companies and consumers? Yes, thank you for the question. Uh, as a fellow Buckeye, I appreciate the question. Um, and we do have several members in Ohio.
▶ 1:36:01Um, as our members our members goal as not for-p profofit utilities is to make sure natural gas is affordable and utilizing the futures markets allows them to take positions that protect their consumers from volatile price swings and keep the price in an affordable range which is critical especially for the low middle inome consumers they serve. Thank you. In your opinion, how would making the US uh more energy independent and dominant help stabilize energy prices for folks in southern Ohio?
▶ 1:36:31ve very much so. Uh, you know, the more natural gas that's available and as you said, Ohio Iowa is a significant natural gas producer, the more we have natural gas available, the more our members have access to the commodity. Uh, we we support increasing production. and you know some areas of the country, New England where pipeline infrastructure is constrained and it's harder to get natural gas to those areas but certainly increasing the availability of natural gas through production through increased pipeline construction benefits consumers.
▶ 1:37:01As I mentioned our members are captive for the most part 95% of our members are captive to one pipeline. So increasing infra infrastructure increasing production is going to benefit consumers. Thank you sir. Mr. Chairman I yield Thank you, gentlemen. Yields back. Now recognize the gentle lady from Illinois, Miss Bzinski, for five minutes questioning. Thank you, Mr. Chairman, and thank you, Ranking Member Craig, uh, for convening today's hearing on the CFTC.
▶ 1:37:29And to all the witnesses, thank you so much for coming today to share your perspective, um, on the history and the future of the CFTC. I want to use my time today to talk about agricultural commodity futures. Um, but before I begin, I would not I would be remiss if I didn't mention the work that this committee did on FIT 21 uh last Congress. I was proud to support a bill that properly funded and authorized CFTC uh to regulate digital assets.
▶ 1:37:56And I'm very grateful to the chairman uh for including amendments um that I had proposed to enhance consumer protections. Want to thank both the chairman uh chairman Thompson and subcommittee chairman Johnson for their leadership on that issue. Um, regarding a futures, the work at the CFTC is so important and it provides certainty and risk management tools for farmers across my district and the country and there is so much to learn.
▶ 1:38:25Uh, the University of Illinois I'm proud to represent in my district is home to the offices for futures and options research. Their team is doing cutting edge research on agricultural commodity futures and prices and commodity researchers at the university have published over 470 scholarly articles in leading a economics journals.
▶ 1:38:49Despite this incredible research and the incredible work uh that the CFTC does, much of the public is still not aware of CFTC or its function. Um so my question u Mr. Carrie, in your testimony, you touched on the purpose and function of the derivatives market.
▶ 1:39:07Can you explain how agricultural commodity futures are important riskmanagement tools in and of themselves, but also in supporting other riskmanagement tools like crop Well, yeah, they're all uh integrated. Uh the Chicago Board of Trade itself was founded because farmers couldn't get a price for their wheat. So they dumped all their wheat in the Chicago River back in the 1840s.
▶ 1:39:31So the Chicago Board of Trade was was founded to create rules and and those rules created a framework where you could have elevators and storage and they could ship their get a fair price for their grain and and ship it out east. Uh nowadays, uh the markets are more sophisticated, but the markets still work. You've got you've got uh global competition. You've got uh Brazil growing bigger and bigger and and they deni they do denominate their crops in US dollars.
▶ 1:40:01So they're quite pleased about the strength of our dollar. But I I think that the the the CFTC uh along with the exchange provides the kind of products that are integrated with with the insurance and it allows uh the the farmer to make a decision. You know, right now it looks like acres are moving to corn from beans, and that'll all be reflected in November soybeans and December corn.
▶ 1:40:25So, I I think that's pretty much the fact that we have open and transparent markets is is the way we service them. Okay. Thank you. Um, yeah, commodity futures are so important to our consumers, uh, farmers, and more. Congress needs to uplift the work, I believe, of the CFTC, including by reauthorizing it for the first time in more than 15 years. Um, Mr.
▶ 1:40:47Kerry, again, your testimony states it will always be to our advantage for global benchmarks to be subject to US oversight and priced in US dollars. Can you speak in more detail about the potential consequences to our US farmers if key agricultural benchmarks are set outside the US and in a currency other than the US dollar? Well, yeah, I I we touched on it.
▶ 1:41:12I I think uh chairman Gian Carlo tal talked about the value of having the dollar as the reserve and it's a powerful tool in a lot of ways not just a farmer but the farmer's price in dollars and regulated in the United States with with rules that come from either this committee or the CFTC itself or or or the exchanges working together allows them the greatest chance to to basically for transparency.
▶ 1:41:39If you move these markets uh to China or to Europe or Brazil, they would be treated very differently and we would be second uh citizens, second of the group. The while the growth in the underlying production in Brazil has far outpaced us.
▶ 1:41:57Uh but what we are seeing is the global benchmarks remain here because of our rule of law, because of the way we treat customer money, because of because of the way that that uh our openness, transparence uh transparency and and regulation treats the end users, the producers and the customers. Okay. Thank you very much. I yield back. Thank the gentle lady. Now recognize the gentleman from Indiana, uh Dr. Baird for five minutes of questioning. Thank you, Mr.
▶ 1:42:27Chairman, and thank all the witnesses for being here. Appreciate all the knowledge you share with this committee. Anyway, Mrs. Dao, uh, your testimony notes that the CFMA revamped how commodities are addressed and based on three classes: agriculture commodities, energy and precious metals, and financial commodities. So, could you talk about how the approach led to more effective market oversight by the commission and therefore benefited our markets and our end users?
▶ 1:42:57Thank you for your question. Um that in fact was the first time that the commission ever differentiated between the classes of of commodities and as you mentioned there were agricultural, energy, precious metals and financials. So what happened was the core principles flowed from the nature of those commodities. So for example energy and agricultural they were subject to position limits with certain exemptions for hedging.
▶ 1:43:25the financial commodities were not because there is no finite supply uh which in physical commodities raises concerns about uh deliverable supplies and market manipulation concerns. So with that recognition of the really differences in the commodities, the rules were able to be adapted to those particular um classes of commodities and reasonable in terms of what was needed in in that particular space.
▶ 1:43:55And this approach has worked well and it ensures appropriate commodities focused regulation uh at this time and it it has continued to work well. Thank you. And continuing on, um I have another question for you.
▶ 1:44:12Uh you mentioned in the in the interconnectedness of our markets uh in your testimony and so during your tenure as the commission and the commission recognized the global nature of markets in its overview and began to focus internationally. So the CTC began collaborating with foreign financial regulatory authorities and chaired the working group of the international organization of securities commissions to draft principles of cooperation in the early 1990s.
▶ 1:44:42So would you please talk about the commission and how it became exemplar uh for financial regulators around the world? So I think the commission was first in terms of recognizing regulatory regimes around the world that had comparable levels of regulation which opened the markets up for our customers and for foreign customers to have access to our markets.
▶ 1:45:11and that comparability determination and allowed allowing for home rule um homebased oversight of of uh these different types of of markets really gave the CFTC a lot of visibility globally.
▶ 1:45:28So this happened I believe it was in the 90s and then following um the 2008 financial crisis the CFDC's you know their implementation of rules under DoddFrank increasing transparency and reducing systemic risk that kind of set a standard I think for global markets as well. They play a leading role in IASCO. They collaborate with international regulators to align global standards um for derivatives futures markets.
▶ 1:45:56They work with the financial stability board, other global entities to harmonize regulations and it's been a model for regulatory frameworks. The CFTC has been a model for regulatory frameworks around the world and I believe the US remains the only regulator with exclusive jurisdiction over futures trading and So one more question. Uh Mr.
▶ 1:46:22Gian Carlo the CFTC is solely focused on derivatives markets and this is different from other financial regulators abroad. So how has this contributed to the commission's success and therefore to the success of our markets here in the US? I I think it's an interesting question. Not only does the United States have a regulator solely direct devoted to derivatives, it also has some of the world's largest and most sophisticated and most important derivative markets in the world.
▶ 1:46:52So, it's it's almost a chicken and egg question. Is is it the fact that we have this singular regulator that we've managed to grow the world's perhaps most important uh futures markets or is the fact that we do have the world's most important futures markets that requires a specialized regulator? I think it's a little bit of both. So, thank you very much and I appreciate those answers and uh I've got 15 seconds left and I yield back. Mr. Chairman, gentleman was very generous yielding back his last 15 seconds.
▶ 1:47:23Thank you, Dr. Bear. Now, pleased to recommend the or recognize the gentleman from the Commonwealth of Virginia, uh, Mr. Venman, for five minutes. Thank you, Mr. Chairman. Thank you to all the witnesses today. Mr. Carrie, in your opinion, what has been the impact of the current administration's tariffs, which have particularly impacted key inputs that drive American agricultural industry on commodities markets and your stakeholders?
▶ 1:47:52Well, I think that there there was originally tariffs uh reciprocated by the Chinese which which really changed uh the amount of agricultural goods we we sold in in China from the US. they've sought supplies elsewhere.
▶ 1:48:08I think the uncertainty today hopefully will be resolved in the near future and that uh uh that uh whatever the terrorists end up being announced that uh they they don't do any more uh do any harm to the agricultural community or the farm community. So as a follow on if we these tariffs stay in place, what what are the long-term impacts?
▶ 1:48:32Well, I I think that if there's a place uh that they can and commodity prices like the futures markets and the businesses we're in are extremely competitive and so you know it's just the natural the theory of economic men they're going to go to the cheapest place they can source these things all things being equal. Thank you Mr. Ston. Mr. Shrivever um same question. And how do you anticipate these tariffs will affect your stakeholders and and uh prices for everyday consumers?
▶ 1:49:04Uh Congressman, uh we we are a regulator and um as far as the the tariffs and and markets, um our our biggest concern is uh with regard to our member firms and customers is um volatility that's created in making sure that customers remain protective in this environment. So I um I don't have an opinion as to the economics of the tariffs.
▶ 1:49:30Uh but as a regulator um we certainly have a a a concern and are carefully watching our member firms with regard to the risks that um that are presented uh particularly given the volatility of the and um as an as an organization representing end users public gas systems not for-profit gas systems uh we don't have a position either but our members would be concerned about how tariffs might potentially impact the cost of steel which in turn impacts the cost of pipelines. Yeah.
▶ 1:50:00So, I hear a lot of concern and I'm also concerned for the 3,000 uh small farmers that are in my district and um the other farmers in the the Commonwealth, which I represent as a sole representative on the uh a committee. So, Mr. Jim Carlo, um I agree with your enthusiastic support for the CFTC and its mission, and I also hope it continues to do its work in stabilizing prices and markets for my constituents.
▶ 1:50:28Like many of my colleagues, I was deeply concerned by the current administration's choice to fire two members of the FTC, another independent agency. So, in that vein, what do you think we can do as members of the uh 119th Congress to protect the independence of the CFTC from outside political influence?
▶ 1:50:50I think it's critically important that this a this commission uh committee continue to provide the support that it's provided for the CFTC for its 50 years and I I think chair uh uh member Scott put it very well earlier when he talked about the importance of adequately funding the agency both for its existing duties but also if this committee sees to give the comm the CFTC greater jurisdiction over spot digital commodities which was in the fit for the 21st century act I think funding that new responsibility is critically
▶ 1:51:20important as well. I think an agency that is adequately funded for its mission can uh carry on as it's meant to do. And I think the issue of political interference in my experience is an equal opportunity employer. I served under both uh Democrat and Republican administration under both President Obama and and and first President Trump and there were efforts in each time by uh different white houses to call some shots and the agency successfully continued to do its mission in a bipartisan manner
▶ 1:51:50and I think adequate funding is part of that as well. So I think an important point there is that recognizing that the the commissioners and members of these independent committees are not serving as Republicans or Democrats, but they're serving in a professional capacity on behalf of the American people. That's where the oath is. That's always been the case at the CFTC. Thank you. And so um with uh only 20 seconds left, uh I'm just going to shout out to my army buddy friend that came in with his family and then I yield back. Mr.
▶ 1:52:19Chairman, thank the gentleman. Now recognize the gentleman from California, uh the rice farmer, uh the governor of um Mr. Lalfa for five minutes. There we go. Is that better? All right. Thank you. Thank you, Mr. Chairman.
▶ 1:52:48I appreciate those fine titles there. Uh, thanks to panelists here. Sorry this life of multiple committees. I wasn't able to be here for a lot of it here, but I do have a couple questions we had prepared. Um, Mr.
▶ 1:53:01John Carlo, uh, proposed reforms for us to consider in the crypto spot market, um, where, um, fraud could certainly go run Um, we're positioned to provide some common sense regulation in that in that arena.
▶ 1:53:22Could you speak to other reforms you hope to see from our efforts in Congress and the administration um that you haven't got to touch on so far in this in this discussion today? Well, I I do want to speak to the if I if I may speak to the issue of fraud in crypto markets. There's no question that um fraud in spot markets is an issue and I think why it's a reason why we need proper regulation.
▶ 1:53:47But you know we at the CFTC along with 50 state governments have been trying to uh root out fraud in some of the world's oldest markets like gold markets for h dozens if not hundreds of years and the fraud still takes place. Unfortunately, the job of regulators is one of cops and robbers. And we do our best as cops and the robbers figure out something new and they get a step ahead. And our job is to stay a step behind, not two steps behind.
▶ 1:54:13And so the notion that any there's any magic bullet to fraud in any financial market is is sadly just not true. As long as there are human beings with proclivities toward uh fraud and abuse, there will always be a need for regulation. And it's it's just it that's just the case. And so sometimes people will point to crypto and say, "Well, there's so much fraud." Well, there's so much fraud in some of the old, you know, every um crime show I show I see on TV, the the bad guys always have suitcases full of cash.
▶ 1:54:42Um uh and so that's always the case. And that's why good cops on the beat will always be necessary and adequate funding. I do think, as I said earlier, however, that crypto is really going to turn out to be a new architecture of the ownership and the transfer of things of value. It's going to change in the same way that digital photography has changed everything we know about photography in terms of usability of those photographs.
▶ 1:55:06In the same way digital architecture change everything we know about our money, about our banking relationships, about our ability to hedge our risk. It's all going to move to these new blockchain systems. And it's critically important that the United States have a champion in this. And there's only one agency that's demonstrated its ability to be that champion for a dozen years now. That's the CFTC. it's ready for this new challenge and with the support of this committee, I think it's it it's going to get it right. Thank you. Very very good good complete answer.
▶ 1:55:36Thank you for that. Um indeed uh as long as uh people are people, we're always going to have to keep an eye on them and only one step behind is and that's reality just not two. I like that. Thank you, Mr. Shriberger. Uh obviously our natural gas uh is incredibly important to our electrical grid and uh our energy needs in this country and with the miracle of hydraulic fracturing has made so much more available the last 20 years that it's really we're really fortunate.
▶ 1:56:04So uh Mr. Trier as you represent America's public owned distribution companies for natural gas uh many are regulated by the CFTC. So, how do these regulations help protect these important derivatives Thank you for the question. It's critical that our members have confidence in these markets. They utilize these markets to protect their consumers from price volatility by taking positions in futures markets.
▶ 1:56:31They can protect consumers from swings in natural gas prices uh especially during the winter heating season. Um as I mentioned previously a lot of the uh changes in terms of transparency that came about through DoddFrank were very very beneficial to our members. We strongly supported them and u we believe the CFTC has done a very good job in ensuring the integrity of the markets. Okay. Excellent. Um you know Mr. Chairman I'm going to leave it there. Thanks so much.
▶ 1:57:01I'll yield back a little extra time for a change. Appreciate it. Thank you panelist. Gentlemen uh yields back now. Please recognize the gentle lady from Connecticut, Miss Hayes, for five Thank you, and thank you to all our witnesses for joining us today. The CFTC is unique in its position as a regulator.
▶ 1:57:19Unlike the Securities and Exchange Commission, whose mission is to protect investors and facilitate capital formation, the CFTC serves as I I would describe it as sort of a referee to reduce risks and unfair competition. The CFTC maintains orderly markets for physical commodities like agricultural and energy products as well as interest rates, foreign exchange rates and digital assets.
▶ 1:57:45According to the US Energy Information Administration, roughly 41% of Connecticut households use home heating oil and 37% use natural gas. Connecticut has one of the most expensive energy rates in the country. And on average, residents pay $76 per month for heating oil and $39 a month for national GA natural gas. Mr.
▶ 1:58:07Shrivever, in your testimony, you discussed how risk hedging how you discussed how risk risk hedging mechanisms provided by the CFTC help to protect consumers from price volatility. In your view, how would customers be impacted if community-owned gas utilities could not assess these risk management tools? And would customers of privatelyowned utilities be similarly I think they both would be impacted.
▶ 1:58:34Uh consumers would be subject to much more price volatility and as we saw in Storm Yuri, um they would be hit by potentially backbreaking energy bills. Um we believe the derivatives tools that the CFTC made that the marketplace makes available and the CFTC regulates are critical to protecting consumers from price volatility. I think that's especially important is especially in communities where there not many options.
▶ 1:59:01So whoever the provider is or whatever the services that are available, consumers just have to accept that. So if there's no oversight, management, input, regulation over over those industries, it's the consumer who ultimately um bears the brunt of it and just has to pay those services because in a state like Connecticut, heating oil is not something you can just opt out of. That's correct. In cold weather states, consumers are even more, you know, um vulnerable.
▶ 1:59:31um our me our members are not for profofits. So when prices get high they call the mayor and the mayor calls the gas system manager and that's not a call he wants to get. So that we're really focused on providing affordable and efficient natural gas. And um these hedging tools are important part of that. And when they can't get an answer from their mayor or their governor, they call me. Uh the CFTC operates with about 700 employees and has been chronically underfunded even as the market it oversees have expanded.
▶ 2:00:01To put it in context, since the enactment of Dodd of the DoddFrank Act in 2010, funding for the CFTC has roughly doubled, while the value of derivative markets overseen by the CFTC has increased more than 16 times. Despite this, we've seen layoffs at the agency as part of broader layoffs instituted by the Trump administration.
▶ 2:00:22And additionally, there have been ongoing efforts to lobby Elon Musk to merge the CFTC and SEC and drastically reduce the regulatory power of the federal government. Back to you, Mr. Shrivever. What would the impact of a diminished CFTC be on market stability? And would reducing resources to the agency be harmful again for energy uh consumers? APJ supports a well-resourced uh CFTC. We want a strong cop on the beat.
▶ 2:00:51Uh having a strong cop on the beat is uh important for our members to get them confidence in the marketplace. Um ensure there's transparency, protect them from market abuses, market manipulation. We believe the CFTC is uniquely positioned to regulate these important markets and support them. keep keeping that role. I thank you.
▶ 2:01:11And I think we would all agree this is an area of common ground that if we can weed out waste, if we can weed out fraud, abuse, and deliver more to the American consumer or the American people, I think it's all in our best interest. But yes, may I? You may. Uh you mentioned an a talk about a merger.
▶ 2:01:30Uh back in uh 2017, the US Treasury Department did an analysis, a written analysis which it published as to what would be the savings between a merger between the CFTC and the SEC. And the amount of savings they estimated was a staggering million. Even with inflation, if that's 12 or$13 million today, I'm not sure the savings would be worth what would be sacrificed and losing the independent skilled uh oversight that the CFTC brings to these markets.
▶ 2:02:00Thank you. That's really important information to consider because to your point, I don't think that the savings would be worth the sacrifice, but it is definitely something that we should all pursue as these conversations are evolving. Thank you. And I yield back. The gentle lady squeezes in the young back. Uh and now we please recognize uh the gentleman from the big one uh from Kansas, Mr. Man, for five minutes. Thank you, Mr.
▶ 2:02:30Chair and chairman, and thank you all for being here today. As mentioned, I represent the big first district of Kansas, which is 60 primarily rural counties in the western east um central and and some of the eastern part of my state. I appreciate uh this hearing. I appreciate the CFTC and how safeguarding markets for the good of the country over the last 50 years.
▶ 2:02:52Um, I think we got to acknowledge that all market participants, including our a producers, Kansas and around the country, you know, benefit from these important risk management tools and have to have these tools as agriculture and the markets continue to become more complex and to be able to hedge um risk in agriculture, which is already a risky business, is just incredibly important. Um, first question for you, Mr. Ston.
▶ 2:03:17Can you tell us more about your enforcement and disciplinary process such as the types and the number of cases that that you bring in a year? I certainly can and thank you uh thank you for the question. Uh our philosophy is to uh work with our member firms uh in order for them to understand uh the industry's rules and um understand um NFA's rules uh in the context of examinations that we perform uh when we
▶ 2:03:48have uh found finds issues with uh with the examinations. Enforcement is uh something that we uh will use uh certainly in those cases where uh we have repeat offenders in uh material areas or uh right out of the box we have significant issues that we need to deal with a member firm. Congressman, we bring approximately 15 enforcement actions each year and that's been fairly consistent during the last few years.
▶ 2:04:17Um and uh when we bring those actions certainly uh if there's significant customer abuse we're looking to suspend or expel those members from NFA membership and therefore they can no longer uh engage uh in derivatives activity with the public. Um and in other cases we will uh typically uh assess some type of fine against the firm uh in the context of our enforcement actions.
▶ 2:04:42And then how do you work with the CFTC um you know in sharing that enforcement burden and how does that coordination look? Great question. Uh we work very closely with the CFTC uh with regard to our enforcement work.
▶ 2:04:56Uh we have quarterly meetings with the CFTC's division of enforcement uh with their um director and uh and others and we essentially go through what what is on our investigative log, what is on their investigative log and attempt to determine uh who is best suited to bring a particular case. So we don't uh often duplicate resources.
▶ 2:05:17Uh, of course, Congressman, as you can understand, in serious uh fraud matters, it's probably necessary for us to duplicate, but we really try to eliminate that and uh and oftentimes uh the SRO's play a key role in that. Great. Thank you. That's very helpful. Congressman, I may just add as a former chairman who worked very closely with NFA, when you think about the role of NFA and think about the role of the CFTC, you also think about the NFA is funded by the industry. CFTC is funded by the taxpayers.
▶ 2:05:45Y it's very much in the American people's interest to see self-regulators like the NFA take on a lot of the burden and we took that very seriously our time working together horses for horses but in many cases NFA is closer to the action they're closer to the members they have a good bead on what's going on who the bad actors are they do an excellent job we the American taxpayer benefits from that great great um thank you uh next question for you Dr. Sander, um your your testimony briefly discussed the importance of exclusive jurisdiction.
▶ 2:06:15Um what does you mean that one cannot serve two masters in this context and why does this matter to markets? I um if we take multiple regulations, it imposes costs on the people being regulated and they may have in fact contradictory purposes. one might be to promote leverage and the other might be to diminish leverage.
▶ 2:06:44So you could see that these two forces could actually counteract each other. And so in my opinion and looking at the investment banking world and and looking even at the legal profession, we've seen specialization and focus have enormous benefits.
▶ 2:07:05uh people who sold stocks couldn't sell government bonds and Solomon Brothers was born because it specialized the same thing with high yield bonds and the same thing with commodities.
▶ 2:07:21So in the finance world, I think specialization and singlepurpose really enriches the efficiency of markets thereby benefiting the American consumer. Great and thank you uh Mr. Chairman. I yield back. Gentlemen yields back. Now please recognize gentleman from Alabama, Mr. Figures for five minutes.
▶ 2:07:52Thank you, Mr. Chair. There we go. Freshman mistake. Uh, welcome. Uh, I want to welcome all of you. The good thing about seeing me is it means that you're close uh to the end here, but um but thank you for hosting this uh hearing, Mr. Chair, and to our ranking member uh as well. Always begin these things by st thank thanking my staff as well as you guys' staff to the extent that they help prepare you guys for being here. uh want to extend my thanks to them. Um Mrs.
▶ 2:08:21Dao, and I guess I'll take this question kind of down the road, but Mrs. Da, I know in your testimony um uh you explained um that um can help ensure appropriate market oversight without stifling innovation. And uh I want to talk about that um a little bit and why um you know, this commission is more well suited for those innovative uh technologies. if we can just kind of go down um the line.
▶ 2:08:48Well, we'll start with you and then just kind of go down the line with others about u about that issue. Thank you. Thanks for that question, Mr. Congressman. Um what was important I think in adopting the core principles flexible approach to regulation was it built in a mechanism for reasonable discretion on the exchanges part which meant that the CFTC their interpretation wasn't the only way to comply and this
▶ 2:09:18actually worked well because it was the onus on the exchanges to explain why their particular product or rule met the requirements of the act. And that, you know, took some thought, took some creativity, took the opportunity for them to sell what it was that they wanted to do and de and define why it fitted within the CFTC's rules and regulations.
▶ 2:09:46That really relieved a lot of the burden of the prescriptive rules that the exchanges had been subject to previously. Those rules took a lot of time to get products to market. There were multiple layers of review. There was, you know, a lot of back and forth, a lot of requests to amend things because of the prescriptive rules that they had to comply with.
▶ 2:10:09So this really opened up the door and opportunity for exchanges to meet the requirements in in a number of a v variety of ways that um ultimately allowed the markets to grow, allowed them to innovate and allowed them to be more competitive um and available to you know the markets that you know the end users who needed to use those markets for hedging and price spacing.
▶ 2:10:33And I'll open up to any other panelists that would like to address I just had uh one quick point. When you went to the CFMA, it it allowed for greater competition and greater innovation as you mentioned. And the fact of the matter is we could bring products to the market much faster with the cooperation of the CFTC which was we were at a critical time in history uh when we were facing threats from uh exchanges overseas and other people were trying to list our products.
▶ 2:11:03uh so that uh uh the fact that this act was put forward in two I think it was 2000 was modernization act and it and it really it really gave uh greater flexibility and and better alternatives uh to to the end users and to the exchanges that provided it. Got it. Thank you. Uh no I'm sorry. Go ahead. Yeah.
▶ 2:11:24from the point of view from an invent inventor's point of view I think it's really important that you can fail and it doesn't mean that it's more than a clinical trial.
▶ 2:11:43So you've had lots of products available for trading that haven't worked and a bunch that have worked and that comes from a continuing process of trying clinically failing trying clinically failing and then hitting up.
▶ 2:12:00The last point I want to make is back in 72 at that particular point it was 99% products that make up today a very small fraction of the business. You didn't really have financials. You had no energy contracts. You had none of those.
▶ 2:12:24And this industry's growth rate has been comparable to the growth rates in the technology world 15 20% a year for the last 50 years. And I think it's because of the richness of new products. Mr. Chair, I yel back. Uh the gentleman yields. The chair recognizes the gentleman from Iowa, Mr. Finstra, for five minutes. Thank you, Chairman Mann, and thank you for holding this hearing.
▶ 2:12:54I want to thank our witnesses. I I really enjoyed reading your uh your your information and uh all that was was said. Derivative markets obviously are the backbone of our financial system. uh the American farmers and ranchers use derivative markets as a vital way to uh to uh avoid risk or to manage risk and they do that in their inputs and outputs of price discovery their financial allocations and the CFTC provides obviously the role to protect these
▶ 2:13:24markets ensuring oversight integrity transparency in the marketplace what I want to talk about which is very important to Iowa in the fourth district second largest egg district in the country uh right behind uh Congressman man is carbon credits. Uh this has been a hot topic uh in my area over the last year and a half. Obviously, voluntary carbon markets provide a promising opportunity for our farmers, ranchers, and our forest owners to access new income areas.
▶ 2:13:54Voluntary adopting practices that cater to the different markets. Last fall, the CFTC issued final guidance on the listing of voluntary carbon credit derivative contracts, outlining key criteria to enhance the credibility and integrity of these The chairman, the former chairman, chairman Benham leadership, his leadership in ensuring these markets meet the needs of our producers is crucial as we develop clear rules, rules of the road,
▶ 2:14:24we should talk, we should say, for our stakeholders and creating a new space of added value. So, John Carlo, this is my question. Can you provide an update on voluntary carbon markets and further explain the F CFTC's role to ensure farmers and land owners are being protected from manipulation and also fraud when it comes to these carbon credit markets. Thank you, Congressman.
▶ 2:14:49I I have to confess I I'd be a little embarrassed to say one word about the subject when sitting to my right is the world's foremost expert and we're going to get to him carbon credits in the world. So, so at the risk of really making a fool of myself in front of uh such expertise, um I I must say when when I was chairman when uh when comm then commissioner then chairman Benham came to me and asked me to form his um his uh u carbon credit uh committee uh and I was pleased to
▶ 2:15:20support that work. I think that is just part of the CFTC's being in the vanguard of new innovations. I have to confess I haven't followed all of the output of that committee. Um but I know that uh there's a lot of very good work in it. It didn't just originate from his office. He formed a really a stellar committee and I think Dr. Sandor actually advised on that. Um I think he was very concerned about making sure these markets were not ones that could be unnecessarily gained. There's always some degree of that and that's why we have good regulation.
▶ 2:15:49But um uh again I will defer to to Dr. Sandor on this and that that's where I'd like to go next with it. C can you talk about this and it it's so important. I think this is a new added value to our our producers and uh h how can we protect them and what is your advice and direction?
▶ 2:16:06Um, I have a particular view that's on 35 years of working with environmental credits, including the acid rain program, which was very effective and and stopped the pollution in the Midwest and the Northeast.
▶ 2:16:29I did some research that was published in an academic journal in uh 1997 and I still hold to the conclusions of that article. I think American farmers could totally provide all of the credits necessary to diminish US emissions. Period. Full stop.
▶ 2:16:59between methane, no till, till rangeand management. All of those could add to net farm income and farmers could provide two services, one food above the ground and one below the ground carbon sequestration.
▶ 2:17:27So you're adding a whole new product line, right, to American farmers. And I think the exchanges could design products around that. And I particularly believe that not only new and obvious products like computing power for AI, I think you could design a futures contract that would guarantee net farm income. I agree. I agree. And and it's so important.
▶ 2:17:57Thank you for both of you. My time is is is run out, but it's just a hot topic and it adds value for our producers. They're excited about it. Thank you. And I yield back. Gentleman yields. Uh, the chair recognizes the gentleman from Illinois, my good friend, Mr. Jackson, for five minutes. Thank you, chairman. Honored to be here today and great to see so many great Chicagoans in here. I have the privilege of serving the first congressional district. Thank you for your outstanding leadership, Dr. Sander, on creating a market, if you will.
▶ 2:18:26you help regulate the world uh for fair pricing, for fair food, and I have very much a strong interest in making sure we maintain that leadership in the city of Chicago and in the United States. Uh Charles, great to see you again. Appreciate it. Uh we have many friends over the years. I was proud to having left Northwestern University to join Shaq and Arbor calloff and become a runner on the Chicago Board of Trade. And um those were some good old days.
▶ 2:18:55I wish we could go back to them and have fewer computers and more people talking not just there but here as well. Uh talking about the future of the industry is something I'm extremely concerned about. Uh as we speak about the future, what is it that we can do to make sure that we stay on the innovative edge. I don't want to see this industry go abroad first with you Charles on the ideas that we should take away on maintaining this industry at home.
▶ 2:19:22Well, I think that uh the innovations come they are created by the the need and the users. And so the uh the exchange is working with a regulator that is uh flexible, tough on uh customer abuse and and and uh uh the financial side of it, but willing to work with people that want to create products that are are used in the marketplace.
▶ 2:19:47you have to stay at the forefront on on creating products and bringing products to the marketplace in addition to uh having a well-run exchange and and uh uh well regulated. So I think I think the future in the exchange uh I I think you see nothing but growth. Uh, I think the Chicago Merkantail Exchange Group, which is the exchange in Chicago, traded 67 million contracts in one day. When I started, I don't know if they traded that many in a year, you know.
▶ 2:20:15So, it's uh, so we've reached out. I think we have to continue to do the things that we're doing, and I think we have to continue to have a regulator like the CFTC that allows for the growth. Well, thank you so much. Uh, to you, uh, Attorney Sandler, this is a question on the future. Um, we've talked a lot about the past. Let's talk about the future as it relates to AI. Uh, and we've seen this most recently even with this administration.
▶ 2:20:43They said AI was the reason that Jackie Robinson's name was removed from uh, military classifications, which begs the question, whose AI? All AI isn't the same. This is programmed learning. And who's feeding these machines?
▶ 2:21:00Are you concerned about uh not talking to a regulator in the future but talking to a program uh that's been AI generated to give you answers and what may be the Yes, to be to be blunt we we've had discussions. We think there are benefits but we also think there are risks and I think that it does require some human intervention to make sure mistakes aren't made like that.
▶ 2:21:27And I I I uh AI is going to do a lot of functions extremely well and create tremendous benefits, but it it has to be overseen or basically spellch checked or whatever you want to say so things like this don't happen.
▶ 2:21:44as a user of it even in preparing my testimony today it's filled with errors and it also said as I was typing in this is how I would respond which I found that remarkable in itself and so I think it's really dangerous and I I think Charlie Kerry is exactly right Like any instrument,
▶ 2:22:15it can be used appropriately or inappropriately. A scalpel or a knife, you know, things for good purposes and things for bad purposes. So I never see a world where there won't be human regulation because of what chairman Jen Carlos said.
▶ 2:22:37There's going to be bad actors and it doesn't matter what you can do and it takes other human beings I think to do it. You can use it to gain efficiencies to gather, you know, better insights into financial statements to to look at leverage in different ways that might not go. But I think human interaction is a critical component of future regulation.
▶ 2:23:08Again, what an honor to be before you today, Mr. Sander. You are a legend. and Leo Malamit and all those that have done great things. Thank you for having your Chicago style and flare. We appreciate you. Thank you, Charles. I yield back, Mr. Chairman. yields. The chair recognizes the gentle woman from Florida, Mrs. Kamik, for five minutes. Thank you, Mr.
▶ 2:23:33Chairman, and thank you to our panel of witnesses for appearing before us here today to talk about this very important topic. And of course, we've heard how for 50 years, the CFTC has played a vital role in regulating and optimizing America's commodity and derivatives market. As farmers in my district and across America know, derivatives markets such as crop futures are essential for protecting American agriculture from unpredictable risks that are inherent in the industry.
▶ 2:24:00But to make these markets work, greater transparency and trust between brokers and farmers is necessary to keep our farms profitable and to feed America. Now, what I would like to discuss today is how we can use our technological superiority uh and innovative advancements such as blockchain, which I've been listening and you all have been addressing in a couple of different ways here today to make these markets more efficient and transparent. So, I'm going to start with you, Mr. Gian Carlo.
▶ 2:24:27In the world of digital assets, blockchains, as we all know, are an instrumental tool in ensuring that transactions are transparent and openly visible. Do you see the possibility of blockchain being adapted as a tool in all American commodities and derivatives markets for purposes of transparency and beyond? Yes, it's happening already.
▶ 2:24:49One of the u unfortunate aspects of and I'll just be candid the last four years of and especially the last two years of SEC hostility is that I like the way you say that hostility I would say that in a in a not so tactful way.
▶ 2:25:04Um but one well I'll leave that to you but what what I will say is one of the byproducts but it has been that traditional financial firms have stayed away and therefore this the field has been dominated by focus on speculation and is the number going to go up now that there is in fact a more welcoming approach what I'm seeing in my work is traditional financial firms are moving in in a big way and they're bringing with it their their traditional not notions of safety and soundness of
▶ 2:25:34doing things properly of building out systems industrial-grade capability. They're moving into they recognize this as a new technology and they are going to adopt it for some of their most core systems from settlement to clearing to payments. This is going to become ubiquitous and now the grown-ups are coming into the space in a very big way and I that's going to be good for the United States. It's going to be good. We need to modernize our system. We go around the world, you find out a lot of our traditional payment systems and otherwise are antiquated.
▶ 2:26:04We have fallen behind. We need to jumpst start this. Fortunately, we've got a new technology that allows us to do it. So, I I'm very excited about what this means and it's going to work its way to very end users when people can actually make transactions with a swipe of their phone without all the intermediation, without going to the bank to say, "Oh my goodness, it's 5:00. I missed the window. I can't get my money out of the bank.
▶ 2:26:28Being able to do transactions directly, especially for people in rural communities that don't have access to branch banking, this is going to be revolutionary. Well, and to your point about antiquated systems, I mean, that's the largely one of the reasons why our derivatives market is overseas now, the majority of it. So, that's one of the challenges and and unfortunately there's this um preconceived notion that in agriculture particularly that um a they are not innovators. our our producers are actually the original innovators.
▶ 2:26:57Um so I think that there's a a window here for us to really adopt particularly leveraging the the capabilities of CFTC. So one of the big concerns with this system and the use of blockchain with tangible goods um versus intangible goods like cryptocurrencies, how can we go get over this hurdle because there's a lot of talk of how do you how do you adopt it into a tangible good, right? How do we avoid a fraud? It's it's happening very rapidly.
▶ 2:27:23I think we're going to look back this time next year and we're going to see 2025 is the year where traditional finance moved into digital assets and blockchain in a very big way. There's a lot happening that you're going to be hearing about in the months to come. That's going to be really revolution. We're now the game is a foot. It's happening now. Okay. I'm going to follow up with you offline because I have some more, but I want to I want to get to Mr. Ston. So, Mr. Mr.
▶ 2:27:48Ston, you discussed in your testimony how in 2018, the NFA implemented compliance rule 2-51 to address the risk that comes when investors trade in digital assets without fully understanding the risk um the the products at hand. What lessons and potential pitfalls would you share with policymakers here in Congress in trying to craft and I I I despise the regulatory environment in its current form.
▶ 2:28:12uh so being very cautious of that enforcement frameworks regulatory environments when it comes to digital assets in 18 seconds. Uh, Congresswoman, thank you very much. And, uh, the the lesson I will share is you have to be nimble. And, uh, the disclosures that we adopted in 2018, for example, we are again looking at today because this market has changed and so we want to make sure customers are informed. We need to be nimble as a self-regulator.
▶ 2:28:39That's one of the things that we can do effectively working with our members to do so and and we'll do so. Okay. Thank you. My time has expired and I yield. Gentle yields back. Now, please recognize the gentle lady from Ohio, Miss Brown, for five minutes. Thank you, Mr. Chairman. Um, and thank you to the panelists today. Your comments have been very insightful.
▶ 2:28:58Uh, this hearing is especially timely, not only as we mark the 50-year anniversary of the Commodity Futures Trading Commission's formation, but also due to the extreme financial markets volatility we are currently experiencing. From Putin's ongoing war in Ukraine to the president's reckless economic agenda, commodity markets have suffered significant disruptions creating uncertainty for producers and consumers alike.
▶ 2:29:22At this critical moment, as my colleagues have noted, it is more important than ever to ensure that the CFTC is fully equipped to meet the challenges ahead. As we commemorate 50 years of the agency, we must prioritize its reauthorization, modernization, and proper funding. Expanding the CFTC's reach is essential to keeping pace with the evolving markets and ensuring fair and effective oversight that protects all participants. So, Mr.
▶ 2:29:47John Carlo, as the CFTC reaches this milestone, how do you assess its success in ensuring equitable access to derivative markets, particularly for smaller market participants such as uh community-owned utilities, minority owned firms, and underserved producers? What additional steps can the CFTC and its partners take to reduce systemic barriers and promote broader, more inclusive benefits from derivative market participation?
▶ 2:30:17Thank you for that and thank you for your your remarks about adequate funding. I I will say um I have been a consistent champion for adequate funding for the CFDC under both Democratic and and Republican administrations and continue to believe that is the case.
▶ 2:30:31I I actually think the CFTC has done a relatively good job of uh ensuring equitable access to its markets uh across both from a breath point of view and from a depth point of view in terms of um making sure that um access was available that the education was available. One of the uh uh innovations that I'm very proud of during my time as chairman of the CFDC is innovating the CFDC's first podcast series.
▶ 2:30:59Um uh young people today are amazing consumers of podcast is one way of reaching a younger audience and we used it to educate young people about our markets, young farming groups, uh uh some of the community group based groups that you mentioned um our consumers of podcast material. We used it with different uh aspects of our work at the CFTC and to educate those about the market.
▶ 2:31:22So I think the CFTC is an is one agency that has done a very good job at u providing an equitable approach to its role in the marketplace and making sure that people understand how the market works and where the both the opportunities and the challenges are in it. Thank you very much. Next I want to turn to tariffs because we have seen how this chaos plays out before. In 2018, during the last Trump administration, the same terrified tweet approach to governing wre havoc on the farm economy.
▶ 2:31:52A study by Iowa State University found that over 80% of Midwest farmers reported negative impacts on their net farm income due to trade disruptions with many seeing losses from 10 to over 20%. Such losses are devastating and the result was a record number of farm bankruptcies during the Trump administration underscoring the real and lasting harm caused by reckless trade policies. So, Mr.
▶ 2:32:19Shriber, how have recent tariff threats and ongoing trade disputes affected price volatility in key commodity markets such as agriculture, energy, and metals? And what are the long-term effects to this? Yeah, our our members are are natural gas end users. So, um, I can't speak to agriculture and APJ as an organization does not have a position in their terrorists, but I I do know that our members are concerned about the long-term impacts on on the price of steel and how that may impact uh the cost of pipeline infrastructure.
▶ 2:32:50All right. Well, thank you for that. I'll I'll just close with this. Uh, time and time again, farmers tell me the same thing. They want certainty. They want to know. Um, as this committee works to pass a full 5-year farm bill to provide the predictability they need, it's deeply frustrating that outside these efforts, President Trump continues to keep farmers on edge, threatening their markets and livelihood.
▶ 2:33:20So, right now, the only predictable thing about farming is its unpredictability. and that's simply not sustainable for those who feed our country. And with that, Mr. Chairman, I yield back. Gentle lady yields back. And I recognize the um the gentleman from Alabama, Mr. Moore, for five minutes. Thank you, Mr. Chairman.
▶ 2:33:45It's essential that we take a close look at how the CFTTC has performed its vital missions over the regulating and ensuring the stability of our commodity markets which are critical to the US and our economy, the broader economy I should say, from agriculture and beyond. These markets provide a foundation for business and consumers alike. I look forward to seeing a timely reauthorization for the CFTC.
▶ 2:34:07The challenges we face today are different from those of the 50 years and it it's our job to ensure that CFTC is not only equipped to deal with these changes but is also not stifling innovation and growth with overly burdensome regulation. I appreciate the work the agency is doing and have completed thus far uh to to continue the efforts and look forward to continue the discussions today. Mr. Terry, in your testimony, you describe US regulations as clear, transparent, tough, and flexible.
▶ 2:34:36Tough and flexible presents a pretty interesting contrast. Uh could you describe kind of those regulations to me and and and how you see them as tough and flexible. I think enforcement is tough. Turn your mic on. Excuse me. I think the enforcement is tough.
▶ 2:34:51I think the the fact uh that we we strive to uh ensure the integrity of the marketplace by by virtue of the rules they provide the flexibility really comes in in uh the the dialogue and the ability to allow the marketplace to innovate appropriately.
▶ 2:35:09I think they apply the the standards for for whether it be for capital for for trade practices uh for uh anti-fraud anti-manipulation type of uh rulings and I think uh when you say flexible I think the flexibility comes w with the dialogue to to make sure that they understand who's using the markets and how they should be treated. It came up in another question earlier about uh Basel 3 and it's yeah I think our I think our regulators do a good job there. Yeah, I apologize.
▶ 2:35:39We also have a judiciary markup going. So, I've been kind of coming back and forth between the two. Miss D and Mr. G and Carlo, is that how you say that for Alabama? That's okay. Right. That'll work just fine. You've both been regulators, so do you think CFTC's regulations are tough and flexible as well? You want to go Miss Dao first and then we'll defer to the gentleman after.
▶ 2:35:57Yeah, I I understand where you see there's some inconsistency there between tough and flexible, but what's important to to realize is even though these core principles are flexible, they are rules that have to be followed. So they are tough in ensuring that these the CFTC is tough in ensuring that this these um exchanges uh comply with the rules.
▶ 2:36:23There are rule enforcement reviews where they go out and they visit and they make sure that these exchanges are enforcing their rules and then in addition as as Charlie said the enforcement mechanism is very strong. That's Mr. Gian Carlo. Yeah. No, I I tough and flexible may sound like an interesting combination of words. I can tell you as a as a father of three um uh tough but flexible was probably my approach to raising my three. I don't think it's an incompatible combination.
▶ 2:36:51And I actually think when you think about overseeing an important market, tough and flexible is the right way to go. What we don't want is tough and inflexible, which we have seen from time to time by other regulators. And and what we don't want is flexible but not tough. So I actually think it's the right combination for a regulatory body to have, and it's the one that the CFTC has long championed. It kind of sounds like guard rails in a sense to me a little bit. But uh so Mr. Gian Carlo, I I had a follow-up question for you as well.
▶ 2:37:18Um could you talk about the role of innovation on our derivatives and kind of how that plays out? Yeah. Um there's no question that we have global competitors and and and Mr. Kerry talked about that. Um some of the markets in India and China are enormous in size and they are very much trying to replicate our success and some of our a markets. So we have to keep innovating. The American way is always to innovate oursel to the future ahead of the competition. I think innovation is our critical edge. uh they can copy what we were successful.
▶ 2:37:48We need to keep moving into new areas and keep them more than one step behind but 10 steps behind. I think innovation is the future of this industry. We've talked about digital assets. We've talked about advanced contracts. We've talked about new versions of old lasting contracts with different sizes, different settlement dates. Innovation is what's given us the edge and innovation will be what keeps us having an edge going forward. Very good. Uh Mr. Shers, I hate saying your name.
▶ 2:38:15I I you you associate or you represent America's publicly owned natural gas, I guess, and I think we have some of those in Alabama. Tell me a little bit about how those members gain access to the derivatives market. Absolutely. Um, and has the CFTC regulations been able to help protect you or have they been more of a hindrance? I guess that's a they've been of great a great assistance to our members ensuring the integrity of the markets and we do have a lot. I think we have have over 80 systems in Alabama. Uh, they take their football seriously. Um, our members rely on these markets.
▶ 2:38:45They need these markets to protect their consumers from volatility and uh, with changes that have been made, they have integrity. They have confidence in the markets integrity. Very good. Mr. Chairman, I yield back. I'm over time. Gentleman yields back. Now, please recognize the gentle lady from Texas, Miss Dela Cruz, for five minutes.
▶ 2:39:03Thank There we go. I got it now. Okay. Thank you, Mr. Chairman, and thank you to the witnesses for being here. Um, I'm one of your one of your last ones here, and I am the proudly the Congresswoman of Deep South Texas.
▶ 2:39:32Uh, I sit on the border of Mexico and the state of Texas and I would be remissed if I didn't take the opportunity to talk about what's happening in in my district. Um, although it is um is is running in parallel with this, but equally important as I heard the congresswoman from the other side of the aisle talking about certainty, dependability, enforcement.
▶ 2:39:59Um, I heard John Carlo talking about being a tough parent, having rules and um, how important that is for our children to to grow up straight, right? To understand what the boundaries are. And you actually motivated me to talk about something that's affecting my farmers in deep south Texas.
▶ 2:40:19And that is uh the Mexican government not complying to the 1944 water treaty that right now is feeding and um helping our uh farmers or at least should be because our farmers are trying to harvest and unfortunately the Mexican government is not giving us the water that they need for a full harvest. That being said there is uncertainty.
▶ 2:40:43there is uh not uh any kind of enforcement or hasn't been by the administration. And thankfully now we're in a White House that supports our South Texas farmers that supports the agriculture industry and understands that national security is a matter of food security. Food security is national security.
▶ 2:41:06I've been very strong with the Mexican government uh asking them and condemning the fact that they will not supply our farmers with the water that is owed by the 1944 water treaty. Meanwhile, the Mexican farmers are harvesting all of the produce that we're able to harvest right in South Texas. So, they're starving our American farmers. Our American farmers are going out of business.
▶ 2:41:36Uh our generational farms such as the the sugar industry in my district actually closed. But yet in Mexico, the Mexican farmers are thriving and they're selling us the vegetables, the onions that we could grow right in South Texas. So it behooves them to not give us the water that they owe us. And John Carlos, as you said, you got to be tough sometimes, right?
▶ 2:42:06And under the previous administration, we did not have a tough White House that wanted to tell the Mexican government, "Hey, give us our water. This is unacceptable." But there's a change and elections do Thankfully, President Trump and uh with along with Secretary Rubio is holding back the Colorado uh water that goes to Mexico because it is not fair that we're giving Mexico water when they don't
▶ 2:42:36give us water back. and we have made a statement to say this is no longer going to be ex acceptable and the new White House will not tolerate this type of dis of uh um disobedience and bad behavior. That being said, I'll focus onto the topic at hand and um I'll ask Mr.
▶ 2:42:58Carrie, you've been around the markets that the CFT the CFTC regulates for many years and um could you talk from the perspective of both as a trader and as an executive what it is like to work with and um work with and in a market overseen by the commission. Well, the the marketplace itself provides the opportunity and seeing as I started out as a trader for my own account.
▶ 2:43:26Uh it was an exciting business. It was a good business to be in and you were involved in all the things you're talking about every day because whether it's the weather affecting the farmer, whether it's it's his economic decision to plant one crop or another crop, whether there's something going on uh uh one of the biggest things I remember is uh when we put an embargo on wheat because uh uh the Russians uh marched into Afghanistan, the regulator was there.
▶ 2:43:55the regulator was observing the behaviors and enforcing the rules and making sure that everything worked properly. But uh but the markets themselves provided for all the Thank you so much. I yield back. I thank the gentle lady and now recognize the uh gentleman from New York, Mr. Riley, for five minutes. Thank you, Mr. Chairman. Uh and thank you uh to our witnesses uh for being here. Um Mr. Mr. Triber, I was hoping to talk with you a little bit about uh utilities.
▶ 2:44:25Um after uh reviewing your testimony, I went to a um a diner in Marathon, which is in Courtland County last week. Uh the diner is actually called Riley's, but they spell it they spell it the wrong the wrong way with uh an an ei L's. Um and I was sitting down with the mayor and we were talking about all the issues uh around the area. And the one thing that everybody tells me about, pulls me aside on the street to talk to me about is the utility prices are way too high.
▶ 2:44:54Gas prices, electric prices way too high. Nice egg, central Hudson in the region. And the mayor in Marathon let me know that uh their municipal they have municipal uh electric and gas and he said that people are really happy with it. They're paying a lot less. They're getting a lot more than the utilities in those surrounding areas.
▶ 2:45:12And so I was talking to him over the weekend uh and then I read your testimony last night and one of the things that stood out in what you wrote was that the uh your members the the municipal owned uh utilities are directly accountable to the citizens they serve. And it occurs to me that it really matters who owns these critical utilities because in the district I represent, a lot of the folks are with Central Hudson.
▶ 2:45:41And Central Hudson is owned by a foreign corporation, Fortis. And just a few months ago, Ford has had their quarterly uh shareholder report and they announced that they were making like $330 million just that quarter in profits, which is probably like great news for all the shareholders uh but it's terrible uh for my constituents. And then to add insult to injury, the very next day after announcing $331 million in quarterly profits, the very next day, you know what Central Hudson did?
▶ 2:46:10They announced that they were going to jack up rates even more uh on our constituents and Hudson Valley families who are already being squeezed. My district is 11 counties and most of the rest of the counties are uh served by NiceG, which is also owned by a foreign corporation uh Avrid. And last fall, Avangrid announced that they had doubled their profits, year-over-year quarterly profits doubled from 105 million uh to 210 million.
▶ 2:46:36And meanwhile, I've got constituents pulling me aside every day telling me that they can't afford the nice egg bills. They're going up for reasons we still don't understand, and people are just getting squeezed. And so from the conversation I had in Marathon with the mayor and conversations I'm having with my constituents, a lot of folks are starting to talk about whether it makes sense to take these utilities out of the hands of these big foreign corporations that are just out to get profits for their shareholders and put them back into the hands of uh the our communities and our neighbors.
▶ 2:47:07And I'm just curious from your perspective and expertise on this if you have uh some thoughts on that that you could share. Thank you for the question. We believe the uh public gas system model has worked well. As I mentioned, our members are not for-p profofit. They're focused on providing affordable and reliable service to the customers. The dollars as a not for-p profofit that's locally owned by the citizens they serve. The dollars stay in the community. Um we we believe local control benefits the community. U benefits those who live in community. Decisions are made locally.
▶ 2:47:37Um so we think it's a very strong model. Great. I I appreciate that. And Mr. Chairman, I promise you one of these hearings I'm going to figure out how to get the the mic uh to work. This is my this is my second time where I've done, but I promise one of these I'm I'm going to do it. Um I want to ask just the panel one thing. Um and anybody can chime in on this. Uh this is something that's not historically uh been seen as a a commodities issue, but I think it is now. And that's housing.
▶ 2:48:06Um and you know, my I believe housing should be for homes, for families. And what we're seeing instead across a lot of upstate New York and I think a lot of the country is Wall Street hedge funds coming in gobbling up single family homes and then just squeezing them for profits. There's a study that um Metife Investment Management did and it shows that Wall Street could control 40% of US single family rental homes by 2030.
▶ 2:48:34And what that does is it takes all this housing stock off the market. It jacks up the prices. I think that's probably that's great for Wall Street. It's really bad uh for folks across upstate New York who are trying to buy their first home. And so I think we need to ban Wall Street from buying single family homes. I think we got to stop it. The home should be for families, not for Wall Street. And I'm trying to figure out the best way legislatively to do that. And I know Congress could, if we had the political willpower, we could enact a ban, but then we would need somebody to enforce it.
▶ 2:49:03And so my question is, is there any role potentially for the CFTC to play in that if Congress gave CFTC the legal authority and the resources to say we can't treat housing as a commodity? My time's almost expired, so maybe I would just invite you all to think about that question uh and let me know if if there's something we could do uh going forward on that. Thank you. Well, I thank the gentleman. I promise we won't add a third button for speaker system. It's already too complicated for which I hope not because I do the same thing you do.
▶ 2:49:33Please recognize the gentleman from Indiana, Mr. Mesmer, for five minutes for questioning. Thank you, Chairman. Uh, Mr. Ston, in your testimony, you draw specific attention to the new responsibilities of the CFTC and and the NFA to regulate digital asset commodity markets. With the infancy and growing popularity of these markets, there's an urgency for Congress to get it right the first time if it builds out new regulatory framework.
▶ 2:49:58Last Congress, this committee worked to establish updated regulatory guidance through FIT 21 that really did set standards of transparency and stability. But there are other legislative recommendations that would have hamstrung uh innovation in the courts. While the courts certainly do have a role in disciplinary action, what are your concerns for America's leadership in digital asset markets?
▶ 2:50:20should Congress fail to guard the industry from regulator regulatory slowdowns and lengthy non-disciplinary Uh thank you for the question. Uh ju just going back to um uh FIT 21 uh Congressman uh we had the opportunity to testify before the House Financial Services Committee with regard to FIT 21 uh and recognize the joint effort of this committee and that committee in uh formulating that legislation.
▶ 2:50:48Um, we thought that that FIT 21 was uh critical in that it addressed uh many of the customer protections that have been in place for the regulated derivatives market for years. everything from customer asset protection, risk disclosures, um capital requirements for firms, um certainly anti- fraud, and um recognizing that um if we're going to build a model for uh centralized marketplaces going forward with regard to digital assets,
▶ 2:51:18that was um that was key to addressing uh many of those customer protection concerns. I would advocate that if Congress is going to move forward again and um and and it should then uh many of those customer protections should be included again in any new legislation that is taken up. Okay. Thank you. Uh Mr. Sandor, I just came over here from an ed and workforce hearing and I think there's a interesting nexus between this this committee and and the conversations we're having this morning.
▶ 2:51:46You mentioned your teaching career in your testimony and the importance of human capital to derivative markets. What innovative policies should Congress be considering to ensure that we're not only educating the next generation of derivative experts in the US, but keeping them here to improve our systems? Yeah. As somebody who's uh spent 60 years teaching, it's it's a question that's really close to my heart.
▶ 2:52:16I think to the extent that we can make education affordable that it's critical. I'm the product of of state schools, undergraduate and graduate, and I think they perform an enormous role.
▶ 2:52:34And I think that to the extent that you and the elected members of of the House and Senate can act, it is to keep up the land grant and support of state-based universities that provide access to education at affordable costs that are not necessarily available any place.
▶ 2:52:59So I firmly believe that that's the key in providing human capital, you know, and believe that that's the future of the United States. It's an invention and inventive activity and that comes from an educated Thank you. As a graduate of Purdue University, Indiana's land grant university. I appreciate that comment.
▶ 2:53:28And with that, I'll yield back the rest of my time, so don't stand between the rest of you and lunch. Gentlemen yields back. Please recognize the gentleman from Tennessee, Mr. Rose, for five minutes. Thank you, Chairman Thompson. And I want to also thank Ranking Member Craig, for holding an important hearing. And particularly, thank you to our witnesses for taking time out of your busy schedules to be with us here today for this hearing. Mr.
▶ 2:53:52Trier, in your written testimony, you discussed the importance of the CFTC's ability to detect and deter market distortions. Can you expand a little on how CFTC's ability to detect and deter market distortions helps lead to more stable energy prices for consumers? Thank you for the question.
▶ 2:54:14Yeah, if you go back looked at what happened in 2006, I believe with Amaranth, uh, in terms of the impact that had on natural gas prices, you know, we believe having a strong cop on the beat and the CFTC is that strong cop, especially with the reforms that came out of DoddFrank. It gives our members confidence in the integrity of the marketplace. Uh, it helps them make the best decisions they can to protect their consumers from price volatility by using the tools the market affords.
▶ 2:54:43Thank you. I app and um Mr. Ston um or I'm sorry, Mrs. Dao, you ended your prepared testimony by highlighting the importance of guarding against systemic risk. In your opin opinion, do you believe the CFTC has sufficiently addressed the systemic risk that cyber security threats pose to our derivatives markets? So, thank you for that question, Mr. Congressman.
▶ 2:55:14Uh I would not be able to speak to what they've done uh in terms of risk on the cyber space side but I do know that the commission regularly engages with other regulators foreign and domestic as well as um the industry to stay a top on top of and a breast of all kinds of developments and particularly on the cyber security space.
▶ 2:55:42So, I would would expect that the CFTC has done the job, done the work that needs to be done to ensure that they're prepared for any cyber risk that might come their way, but I'm sure others on this panel may have uh more information on that front. All right. May May I speak to the question? Uh during my time as chairman of the agency, we estimated that we were subject to constant uh cyber uh uh attack trying to penetrate our systems.
▶ 2:56:10I I I don't remember the exact figure, but it was something a thousand attack elements a day under under and that's the CFTC. The tax surface of the federal government is enormous. I recently published a piece which I've shared with the White House.
▶ 2:56:25I'd be delighted to share with this committee advocating that the president exercise powers granted to him under the US Constitution to use that were first used by James Madison to authorize John Paul Jones to retaliate against British shipping that was raiding American. These attackers, these cyber attackers often cases are state sponsored, often ca sponsored by South Korea. And I think it's time we go from defense to offense and use the awesome technological capability that we have in Silicon Valley to fight back.
▶ 2:56:55And we could we can use these letters Mark available under the Constitution to authorize our technical capability to fight back against these cyber hackers that are costing us billions of dollars in in lost revenue in in in cyber protection costs. It's something we really need to take up in the United States. Let me let me follow up on that and and I'll open this up to the panel in the time that we have left.
▶ 2:57:18Does the CFTC have access to the staff and expertise that it needs to protect the uh the space? Again, I can speak to that because I was the when I was chairman, I tried to recruit some of the best talent to come to the CFTC in this area. These are people that can make millions of dollars in compensation in Silicon Valley and Wall Street. We're trying to recruit him to the CFTC for, you know, hundreds of thousands and we've got to appeal to other things other than money and others to come to government.
▶ 2:57:48So, it's always a struggle. I I don't want to say the resources aren't there. I certainly don't want to give our adversaries any indication of any vulnerability, but just candidly, it's always a struggle for government agencies to have state-of-the-art people that have that type of cyber defensive capability um because just because of the compensation structure. And and let me just in the time we left have left, Mr.
▶ 2:58:10Jen Carlo, can you talk about the role of innovation in our derivatives markets and how it leads to a a larger variety of products of or bespoke products that provide better opportunities for market participants to hedge risk and what has allowed this innovation to be experienced. You know, when I was preparing my testimony, I did a quick analysis of the size of US markets. We're still some of the largest, but we're no longer the largest. Some of the markets in India and China are larger.
▶ 2:58:40But what we have that no one can compete with is our innovative capability. Our ability to produce new products that attract an audience that gra attract a usage that attract people who have risk and see in these products ability to mitigate that risk. That really is our edge and we need to maintain that edge going into the next 50 years. Thank you. My time is expired. I yield back, Mr. Chairman. I thank the gentleman from Tennessee. Now please recognize gentleman from Iowa, Mr. none for five minutes. Well, thank you, Mr.
▶ 2:59:08Chairman, for holding what I think is a very important hearing today. We've got a great panel in front of us. Your expertise plays a crucial role in helping both our farmers and our small business guys. As the guy from Iowa, it is much appreciated. We all know how hard it's been for farmers across the country. I'd like to start by discussing the commodities market. Since its inception, the CFTC has reliably partnered with our nation's farmers to provide effective risk management.
▶ 2:59:33And I think we all know that a tractor that is upwards of $200,000 or a combine that is costing nearly a million makes a real impact to how farmers budget going forward. It's crucial that Iowa farmers and I'd say farmers across the country have access to the capital they need to remain competitive. So I'll begin with this and saying how does the CFTC and the commodities exchange act support deep and liquid markets that would help folks in my home state of Iowa. I'll open that up to the panel.
▶ 3:00:03Mr. Car, I think you're probably well suited for this conversation. I I don't know, but I'll give it a try. I I I I think the fact that the the commission regulates the products that the farmers need to basically make their decisions and to uh hedge their risks uh whether it's corn, wheat or soybeans, whatever it is, they can make they can take that and reduce it to a cash flow uh that's reasonable and then they can go ahead and finance or what uh whatever else they need to do.
▶ 3:00:32And I think the commission's role is making sure that those those uh that there's there's no fraud, there's no manipulation, that the markets are transparent, and that the market users know exactly what they're getting into when they do it. So, I mean, that that that's about as simple as it is as far as I'm concerned. Could not say it better. I think you're absolutely right. Being able to have not only the transparency in here, but this is something the CFTC has been a good partner on. I'd like to take another deep dive now into the CFTC. Uh you know, Mr.
▶ 3:00:58Gina Carlo, you have been called and I think your easier title here is the crypto dad and the CFTC certainly plays a role in the future of our digital assets. We are in a unique situation that we sit on a committee of jurisdiction. I serve on the other committee financial services. There's a great marriage that can happen here and the CFTC has been a huge partner in this. We know commodities very well in Iowa whether it's corn, soybean, hogs. The CFTC has been a partner with us in this. It's overseen those markets.
▶ 3:01:26And in downtown De Moines, our lenders understand the importance of what the SEC brings to the fight here in good access to Americanbacked uh digital securities. Under the last administration, we saw an SEC that tried to cut out the CFTC completely. Uh they labeled almost everything a digital space uh as security. And I asked a predecessor here, SEC Chairman Gensler, a simple question.
▶ 3:01:52is a digital asset called ether at the time still there now a commodity or is it a security now he couldn't answer that but he was happy to regulate it to death so my question now is that we have moved on from the last congress the opportunity becomes the opportunity to provide comprehensive rules of the road so we can onshore digital assets here for the future not see them flee off to the Bahamas or worse fall into the hands of places like Tran, China and others as as we work to get
▶ 3:02:22that legislation across the finish line. What can the CFTC do to help provide clarity on assets uh like Ether or others that operate more like a commodity? I'd appreciate your thoughts. Well, the truth of the matter, CFTC has been crystal clear on this for almost a decade now. Is in 2015, the CFTC in a bipartisan manner declared Bitcoin to be the world's first digital commodity under CFTC jurisdiction. In 2017, we greenlighted the world's first regulated market for any type of derivative on crypto. That was Bitcoin futures.
▶ 3:02:52Eight years later, that product, that marketplace is deep. It's liquid. It's transparent, extremely well regulated. So, to those efforts to bo box the CFTC out totally failed. The CFTC is reci recognized not here in the United States, but worldwide as the world's primary crypto regulator with a very successful track record.
▶ 3:03:12your own state Iowa was the first leader in terms of looking at events contracts out of the University of Iowa and that is one of the big innovations on the horizon with the United States has another opportunity to lead lead the world in setting the regulatory structure for these new instruments well as the crypto dad I wish I had a better uh crypto dad joke for you but it would take too much energy but don't bump the reality here is you know I think you're absolutely right here we need to be able to provide the framework for this and making sure that there are legitimate uh rules of
▶ 3:03:42the road as it were to not only be able to onshore but then as you just highlighted here that there is a key partnership between the CFTC, the SEC and then also being able to go after those illicit actors. You talked a little about letters of marquee in our few seconds. Talk to me here about what we can do for the illicit side of this. We have the capa capacity to knock these people right on their heels. You know, when I was a boy, there was a bully at school. My father said, "It's not enough to put your hands over the face. You need to punch him in the nose." We have been putting our hands over our face saying please don't attack us.
▶ 3:04:12Please don't attack us. Those days have to be over. We have to fight back and these letters of mark allow us allow the president and and it's one area where where the constitution is expressed. The president has the power to issue these letters of mark can be done today to authorize our technical capability to punch them in the nose. As a combat veteran, I'm ready to punch back. Thank you, Mr. Chairman. I yield back. Thank you. Gentleman yields back. Now, please recognize the gentleman from California, Mr. Carbajal for five minutes. Thank you, Mr. Chair, and thank you all witnesses for coming today.
▶ 3:04:42We're awfully close to one another. Uh I've never been this close to the witnesses. So, Mr. Shrivever, I'm sure you're a dad of something. Maybe not crypto. Uh in your testimony, you mentioned the importance of having transparency in market prices, which provides consumer assurances and prevents manipulation or other abusive market conduct.
▶ 3:05:04What is something Congress can do that is not already being done to help reduce bad actors in manipulating market As an association, we're always looking at things that can be done to give our members more confidence in the way that markets are functioning. At this point, we don't have any specific recommendations. A lot of what we asked for in terms of transparency and giving the CFTC the resources it needs came about through the DoddFrank Act. So, we were very supportive of that legislation and what it accomplished.
▶ 3:05:34Um, we believe we have a strong cop on the beat right now. We defer to the CFTC and the committee if additional measures need to be taken, but what I can do is I can talk to our members and see if there's any specific recommendations we can make and get back to you on that. Thank you. Uh, one more question, Mr. Shrivever. As you may know, the commod the CFTC funding remains as at the same levels as fiscal year 24 365 million with 701 uh full-time employees.
▶ 3:06:04The commission role is to regulate these markets. However, without the proper funding from Congress, would you say that market transparency is reachable? We support a uh very we support a well-resourced CFGC. We want to make sure they have the resources they need to be the strong cop on the beat. Um, APJ supported um, strong funding for the CFTC in the past and we continue to do so. We want to make sure they have what they need to do their job effectively. Thank you, Mr. Kerry.
▶ 3:06:33In 1980, the Commodity Futures Trading Commission had to suspend future trading for wheat, corn, oats, soybean oil, and soybean meal after then President Carter announced an embargo on the sale of agriculture goods to the Soviet Union.
▶ 3:06:49that occurred more than 40 years ago while you were the the Chicago Board of CBOT, which given some of the recent actions by the current president, it would surprise it wouldn't surprise that any of this administration takes some even more radical trade actions against many of our large largest trading partners, which could also lead to extreme volatility in the markets.
▶ 3:07:16Do do exchanges in the CFTC have any better tools to deal with irrational executive decisions like the ones we're seeing today on trade? Or is emergency suspension a trading of trading really the only tool available? Well, actually they were those prices were limit down, but I don't believe that they ever suspended trading of those contracts.
▶ 3:07:43They they just what they did was the the marketplace was completely surprised by the the Russian invasion into Afghanistan and seeing as Russia was our biggest wheat customer at the time we we went ahead and wheat immediately fell limit down corn also did but uh uh after that uh the markets recovered and they traded and they they tra so I don't I don't believe that that we suspended trading in those contracts trading was limit down the announcement was
▶ 3:08:14made I thought after the close and and that was it. So uh but the markets worked uh supply demand worked. It was a shock to the market and and the market absorbed it but uh uh and it took a price adjustment for people to uh determine where they wanted to trade the price of a bushel of wheat or a bushel of corn. Uh soybeans came back immediately because we didn't we didn't sell that many soybeans to to Russia. They they bought our wheat.
▶ 3:08:40So everything the fundamentals or the supply demand was reflected in the marketplace and the commission regulated and and the board of trade regulated it. So are you sure uh emergency suspension of trading wasn't didn't occur? Well I I it's just yes or yes or no. I'm going to have to go look myself to make sure if I'm right or wrong. So I'm asking you.
▶ 3:09:02So I I I I I know that the markets were a limit down but I didn't think that I could be mistaken but I don't think they were suspended but they but I might be I might be mistaken because I was trading the markets actively so I I didn't think I think it was just limit down because of the effect of supply demand. Thank you. You made me second guess myself now I have to go look to see if I could be wrong too you know. Thank you very much. With that Mr. Chairman I yield back. salute.
▶ 3:09:32I won't say anything about how when I second guess you buddy. Um I think that that concludes all of our uh members. We have great participation today and the many many thanks to the for the members for robust participation in today's hearing. Um and um I will make some uh closing remarks before we actually adjourn. Uh specifically want to thank our witnesses for their testimony today.
▶ 3:09:59just an outstanding panel that uh a depth of knowledge and experience and uh um experience going back 800 years. It was suspended. He always gets the last word and um uh and for the record I I I agree with him. The the commission is fulfilling its statutory mandate. Uh we should uh all be immensely proud of the work that the men and women of the commission do daily.
▶ 3:10:29And while we will of course always have policy disagreements, the heart of their work remains the faithful execution of the law. The commission and its staff do this work with skill and quite frankly with integrity. Similarly, there are registered entities across the industry who hold regulatory responsibilities including NFA.
▶ 3:10:51These self-regulatory organizations play a crucial frontline role every single day in ensuring fair and orderly markets and resilient risk management safeguards. Congress, the commission, and the industry should be proud of the extraordinary success this system of cooperative regulation has brought.
▶ 3:11:09One needs to look no further than the size and the diversity of American derivatives market to see the impact of the commodity exchange act, the commission and all the extraordinary men and women who work in our markets. As we look to the future, the derivatives market will only continue to grow in importance. The rise of digital assets, artificial intelligence, and evolving global markets will present new challenges.
▶ 3:11:35But if the past 50 years have shown us anything, it is that the commission and derivatives industry are more than capable of innovating uh to meet those challenges. So, as the commission approaches its 50th anniversary, I want to congratulate the incredible and talented staff and members of the commission, both past and present, and all the hardworking Americans across the derivatives industry on this milestone. uh you'll build an institution worthy of our trust and our confidence.
▶ 3:12:05Um under the rules of the committee, the record of today's hearing will remain open for 10 calendar days to receive additional material and supplementary written responses from witnesses to any questions posed by a member. This hearing of the committee on agriculture is adjourned. Thanks.