▶ 0:10:56The committee will come to order. Uh, welcome and thank you for joining today's hearing entitled CFTC Reauthorization Stakeholders Perspectives. After brief opening remarks, members will receive testimony from our witnesses today and uh and then the hearing will be open to questions. Um so good morning again everyone and welcome to our full committee hearing on the commodity futures trading corporate commission.
▶ 0:11:27Um thank you to our panel of witnesses for making time to be with us today. Before we start I want to thank acting chairman fam for serving as uh acting chairman and congratulate Mike Celig on his nomination as chairman of the commission. and I'm looking forward to the Senate's confirmation vote. Uh he is taking over the reigns of the agency at a transformative time for the commission and for financial markets broadly.
▶ 0:11:57He and the commission staff will have their work cut out for them, but I know that they're up to the challenge. I look forward to inviting him to the committee early next year to talk about his agenda and goals. As many of you know, the commission's authorization for appropriations lapsed a dozen years ago in 2013. And this is unacceptable and is long past time for Congress to fulfill its responsibility and reauthorize the commission, especially as we consider providing new authorities to the agency.
▶ 0:12:28I want to thank ranking member Craig for being not only a strong leader, but also a partner on this committee. The committee's yearslong process on digital assets culminated in the House passage of the Clarity Act due to no small part to the ranking member strong support. The legislation received overwhelming bipartisan support garnering 294 votes and over 80% of the members of the agriculture committee voted for it.
▶ 0:12:55In March, our committee held another bipartisan event, a hearing commemorating the 50th anniversary of the commission. We look back at the history of the CFTC and the markets that it oversees, learning about the important and unique role it holds as a regulator and how important derivative markets are to everyday Americans. These markets allow American businesses, including farmers, ranchers, and producers, to manage the risks of modern business.
▶ 0:13:24It was clear in March that as markets have evolved, so has the commission. From legacy financial futures to novel new perpetual derivatives, the CFTC has applied its principles-based mandate and subject matter expertise to regulating new products and the novel issues they Today, we build off of what we learned in March and examine the importance of the commission and derivatives market.
▶ 0:13:50Today, we're here from a we will hear from a cross-section of stakeholders who know the commission and its markets well. This is an important opportunity to consider their suggestions for improvement and refinement and set the CFTC on solid footing for the next 50 years. Again, thank you to each of our witnesses for their willingness to participate in today's hearing and I look forward to our conversation.
▶ 0:14:14With that, I'd like to welcome the distinguished ranking member, the gentleoman from Minnesota, Miss Greg, for any opening remarks she'd like to
▶ 0:14:22Thank you, Mr. Chairman, and I'd like to start simply by thanking our witnesses for being here today and for the opportunity to hold this very important hearing as we look to reauthorize the Commodity Futures Trading Commission. As we all know, for the past 12 years, the CFTC has been operating without former formal congressional authorization since it last lapsed in 2013. A lot has happened since that time.
▶ 0:14:48As the industry and markets change, we need to make sure the CFTC has the necessary tools to handle these changes while maintaining its core function of ensuring the integrity, resilience, and vibrancy of the markets it currently oversees. We all know that a well- reggulated financial system keeps our country strong and prosperous while protecting Americans. For 50 years, the CFTC has been the cop on the beat for US derivative markets and making sure these markets work.
▶ 0:15:18Not just for Wall Street, not just for the exchanges and clearing houses themselves, but for Main Street Americans and commercial businesses whose livelihoods are impacted by these markets every day. But it takes resources to have effective oversight over these markets and protect the consumers, customers who use them.
▶ 0:15:38At previous hearings on 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 risk management purposes will be diminished. If the users of these markets get it, we should too.
▶ 0:16:02the recent gutting of staff at the agency, the last minute withdrawal of a CFTC chair nominee because a friend of the president didn't like him, and the lack of nominees for other commissioner positions demonstrates the Trump administration's lack of respect for the agency, its staff, and its mission. I don't envy the challenge that the new CFTC chair nominee, Mr. Celig, faces to turn around all of this once he gets confirmed.
▶ 0:16:29I want to thank our witnesses for coming in today and for your testimony and for sharing your perspectives. It's certainly uh a critical time for the CFTC. We may not agree on everything, but we can all agree that a well-resourced and appropriately staffed CFTC is critical to a healthy financial system. And to accomplish these goals, it's critical we work together and across the aisle. Thank you, Mr. Chairman, for holding this hearing. And with that, I yield back. I thank the gentle lady.
▶ 0:16:59The chair would request that other members submit their opening statements for the record so the witnesses may begin their testimony and to ensure that there's ample time for questions. Our first witness today is the honorable Dawn D. Stump, a former commissioner at the CFTC. Our next witness is uh Mr. Edward Proer, the senior vice president for special projects at the the scholar company. He is also a member of the board of the commodity markets council and is testifying on their behalf.
▶ 0:17:28Our third witness today is Miss Alicia Kiteon. Miss Kiteon is a managing director, global co-head of futures and a head of OTC and prime clearing at Goldman Sachs as well as the chair of the futures industry association. She is testifying on behalf of the futures industry association today. Our next witness today is Mr. Rob Schwarz, former general counsel at CFTC. He is currently a partner at Morgan Lewis and uh and Bakus.
▶ 0:17:57And our final witness today is Mr. Benjamin uh Shiffron, the director of securities policy at Better Markets. Um thank you all for joining us today. And we'll now proceed to your testimony. You each have five minutes. The timer in front of you will countd down to zero at which time your time has expired. Uh, Commissioner Stump, please begin when you're ready.
▶ 0:18:20Thank you. I would like to begin by thanking Chairman Thompson and Ranking Member Craig for inviting me to be here today. And I would like to applaud all of the members for your attention to reauthorizing the CFTC. As a former staffer, I'd also be remiss if I didn't acknowledge the tremendous amount of work the staff has put into making this hearing a possibility today. Since it began operating 50 years ago, the CFTC has fostered tremendous growth and integrity in the US derivatives markets.
▶ 0:18:50While this success is driven by the market itself, it is sustained by the unique regulatory purpose Congress designed for the CFTC. A purpose that needs to be reaffirmed from time to time, lest it be misunderstood or undervalued. While the CFTC's mission remains timeless, sweeping and substantial changes in the derivatives markets have taken the agency on quite a transformative journey. I am proud to have been part of this progression.
▶ 0:19:20First as a legislative staffer at both the House and the Senate Agriculture Committee where I worked on the last CFTC reauthorization in 2008 and the DoddFrank Act during the financial crisis. I've also had the opportunity to work within the industry for a variety of CFTC regulated entities and I count among my greatest honors serving as a CFTC commissioner.
▶ 0:19:44In each of these roles, advancing legislation, conducting oversight, implementing regulation, enforcing rules, and developing compliant business operations in the real world. I have confronted many complex questions, often stemming from the competing and sometimes very creative interpretations of the objectives Congress has outlined for the CFTC.
▶ 0:20:10Time and time again, I find that the best compass in navigating these difficult and subjective debates is simply rereading the actual words in the Commodity Exchange Act. To be clear, there have been many times when I wish the words said something different. But the CA, the Commodity Exchange Act, is the ultimate directive to which we all must subscribe.
▶ 0:20:35And the reauthorization process has traditionally served as a recurring opportunity for Congress to ensure that those allimportant words in the Commodity Exchange Act remain absolutely fit for purpose such that market developers, regulators, and where necessary the courts can apply the statute in a current context.
▶ 0:20:58While the sensible flexibility of the Commodity Exchange Act largely enables the CFTC to adapt as the markets develop new products and business practices, reauthorization provides an opportunity for this committee to address ambiguities that inevitably arise with such changes. Beyond this period periodic review of the Commodity Exchange Act and ensuring that it remains up to date, I would like to briefly discuss two additional reasons reauthorization is prudent.
▶ 0:21:27one is a technical budgetary matter and the other an important validation of the agency itself. Beginning with the technical issue, it is worth briefly clarifying what we are talking about when we use the phrase CFTC reauthorization. Importantly, the duties and authorities assigned to the agency do not lapse at the end of a authorization period. rather the authorization for appropriations expires.
▶ 0:21:57This is not unique to the CFTC and in a much broader debate there is a great deal of scrutiny surrounding such unauthorized appropriations. In my opinion, the best course of action to avoid the CFTC being inadvertently caught up in this broader procedural debate is simply to authorize the This is CFTC reauthorization in its simplest form.
▶ 0:22:22changing the end date to extend the time frame for which appropriations are authorized for the In addition to updating the Commodity Exchange Act and addressing this technical budgetary matter, Congress has historically taken the opportunity to demonstrate and renew its support for the CFTC by way of reauthorization. This is not, as some have suggested, merely a symbolic gesture, but rather an important affirmation of the AY's distinct relevance.
▶ 0:22:52Though small in size, the CFTC performs a critical regulatory function, overseeing markets with enormous range of underlying products. Agricultural commodities, energy resources, interest rates, foreign currency, metals, credit tools, and equity indexes, just to name a few.
▶ 0:23:11Its remit impacts grain elevators, hedge funds, financial institutions, manufacturers, supply chains, and retail participants in both existing and newly developed derivatives markets. CFTC's regulated markets have an enormous impact on the US economy. Yet, its identity is often misunderstood as, and I quote, the little sister to the Securities and Exchange Commission.
▶ 0:23:39It's important that Congress endorses the unique objectives it set out for the CFTC to avoid these sorts of especially now during the current period of transition. In closing, I would again just like to thank you all for your attention to reauthorizing the CFTC. I think it's an important endeavor and I would be happy to answer any questions.
▶ 0:24:01Commissioner Stump, thank you so much for your testimony and your service. Uh, Mr. Processor Proer, please uh begin when you're ready. Chairman Thompson, Ranking Member Craig, and members of the committee, thank you for inviting me here today to testify about the importance of the CFTC and this committee's oversight and re reauthorization of the agency. I am Ed Proser, senior vice president of special projects at Skooler.
▶ 0:24:27Skooler is an employeeowned 7.3 billion aggra business and supply chain company with headquarters in Omaha, Nebraska. Founded over 130 years ago, our company buys, sells, stores, handles, and processes grain and ingredients through our global networks and expertise in trade and transportation. Our US grain facility networks include locations in Illinois, Iowa, Nebraska, Kansas, and Missouri.
▶ 0:24:54We employ over,200 people in more than 100 offices and facilities worldwide. I have been an active participant in physical and derivative markets in agriculture and energy for 40 years. I serve on the board of the Commodity Markets Council, the National Oil Seed Processors Association, and as a member of the CFTC's Agricultural Advisory Committee.
▶ 0:25:15I also formerly served on the risk management committee of the National Grade and Feed Association and was a member of the Minneapolis, Chicago, and Kansas City Board of Trade. Today I'm testifying on behalf of the Commodity Markets Council, founded over 90 years ago and originally called the National Grain Trade Council. CMC is the leading Washington DCbased trader association that brings agriculture and energy traders together with commodity exchanges.
▶ 0:25:43Its members include end users that utilize futures and swap markets for agriculture, energy, metal and soft commodity as well as designated contract markets, futures commission merchants and swap execution facilities. CMC advocates for open, transparent and competitive markets. For decades, we have supported both the principled regulation of and responsible innovation in clearing in derivatives markets.
▶ 0:26:11I firmly believe my testimony today reflects the views of thousands of end users, farmers, merchants, utilities, energy suppliers, bofuel producers, and manufacturers who rely on US derivatives markets as critical risk management tools, not for speculation, but is a central part of their everyday business operations. The derivatives markets are just that, derivatives of cash markets that trade every workday to provide the food, fiber, and energy we rely on.
▶ 0:26:40The derivatives markets provide liquidity to ensure efficient price discovery which allows participants around the world to signal which commodities are scarce and which are overs supplied. Specifically, these markets enable commercial users to hedge exposures to volatile price movements driven by weather events, global economic shifts, supply chain disruptions, and geopolitical instability.
▶ 0:27:05US agriculture futures contracts, corn, soybeans, wheat, livestock, cotton, and more serve as global price benchmarks used in risk management by businesses here and around the world. These functions are not just theoretical. They are vital to the real world business of producing and transporting agricultural goods to the consumers that depend upon them.
▶ 0:27:28From the price of milk and bread to the cost of gasoline and electricity, derivative markets shape our economy, ensuring that commercial participants can manage risk, avoid catastrophic losses, and deliver reliable value to consumers. The role of price discovery, risk transfer, and market liquidity are the pillars of healthy, resilient markets.
▶ 0:27:51With this in mind, I'd like to provide six recommendation for congressional action and refer you to my written testimony which further explains each of these and why they are critical. One, support the appropriate funding and staffing for the CFTC enabling the agency to keep pace with market growth, technological complexity, and global competitiveness.
▶ 0:28:14Two, ensure that regulatory standards prioritize the needs of commercial users, end users, and consumers, not just financial intermediaries, new market entrance or speculative interests. Safeguard the principal third three safeguard the principalbased regulatory model that has enabled responsive in responsible innovation and reasonable flexibility in responding to new market challenges.
▶ 0:28:41Four, maintain bipartisan commitment to transparency, public public participation, and open debate in regulatory decision-making. Five, encouraging ongoing review of market structure proposals such as event contracts, clearing organization changes, and customer bankruptcy protections to ensure that any market structure changes do not undermine our agriculture and energy markets.
▶ 0:29:08and six, anchor global benchmarks in US markets subject to US oversight and rules, strengthening America's competitive position for the benefit of American producers, consumers, and communities. Thank you again for the opportunity to represent and comment on behalf of the Commodity Markets Council and all commercial users of these agricultural and energy contracts.
▶ 0:29:31We hope you will submit a fully funded, excuse me, I hope you will support a fully funded and fully functional CFTC to ensure that our producers, merchants, and end users can continue to fuel, feed, clothe, and clothe America in a growing market. Thank you,
▶ 0:29:49Mr. Proers. Thank you so much for your testimony. Uh, Miss Greatton, uh, please begin when you're ready.
▶ 0:29:55Thank you. Good morning, Chairman Thompson, Ranking Member Craig, and members of the committee. Thank you for the opportunity to testify. I am the head of the global clearing businesses for Goldman Sachs and the co-head of its global futures business. I'm testifying today as chair of the futures industry association, the leading global trade organization for the futures options and centrally clear derivatives markets.
▶ 0:30:18There is tremendous change facing the clear derivatives markets today, especially when compared to 2008 when the CFTC was last reauthorized. FIA strongly supports the reauthorization of the CFTC as it reinforces the AY's mission in safeguarding markets critical to the global economy.
▶ 0:30:37I've had the privilege of interacting extensively with the commission over many years through FIA on behalf of Goldman Sachs and as the chair of the CFTC's market risk advisory committee and believe that with adequate resources it is well suited for the challenges ahead. FIA supports innovation and believes there is tremendous potential for technology to benefit all market participants.
▶ 0:31:00We also believe there are valuable and time-tested riskmanagement traits of our current market structure that can play an important role in the integration of traditional and novel products and platforms. When risk management goes handinand with innovation, it helps to ensure the broadest participation across both retail and users and institutional investors. It is to this end that I would like to highlight important recommendations we hope the committee and the commission will consider.
▶ 0:31:30First, many of the safeguards that exist in the markets today are behind the scenes but critical to customer protections and market stability. Futures Commission merchants or FCMs are risk managers that act as the first and last line of defense in the clearing system and prevent losses from triggering a domino effect that can threaten the stability of markets.
▶ 0:31:52FCMs are CFTC regulated intermediaries that stand between end users and the clearing houses, safeguarding customer assets, monitoring for money laundering, and providing substantially all of the financial resources in the default funds that backs stop these clearing houses.
▶ 0:32:09To the degree trading platforms offer direct access models, the CFTC should consider whether the regulatory environment may also need to evolve to safeguard markets and market participants, particularly as retail investors are provided direct clearing access on a leveraged basis. In 2023, I testified before this committee regarding volatility in the commodity derivatives markets and how end users can be better prepared to weather market turbulence.
▶ 0:32:38I also highlighted how they are finding it harder to secure and sustain capacity from their FCMs to clear. I suggested two solutions that remain necessary today. Adequate clearing house margin levels and a well-c calibrated bank capital regime. I elaborate on these points in my written testimony and would be happy to discuss them further today.
▶ 0:33:02Perhaps one of the most notable changes in the CFTC's mission over the last 20 years is that it may now oversee significantly more leveraged retail investor trading volumes than ever before. FIA supports efforts underway by Congress to clarify and strengthen the CFTC's authority over digital commodities to help ensure retail investors are are protected.
▶ 0:33:25But FIA also recommends that Congress authorize the CFTC to issue rules or guidance to require that financial resources used to manage the default involving leveraged retail transactions be segregated from other default resources in the clearing house. Such separation could mitigate systemic risk concerns.
▶ 0:33:45Next, FIA supports provisions in the Clarity Act intended to ensure risk offsets are recognized across both traditional and digital asset products that span CFTC and SEC jurisdiction.
▶ 0:33:58Recognizing such offsets will incentivize hedging activity while promoting harmonization between both Similarly, FIA supports provisions in the Clarity Act to authorize the CFTC to carry out a rulemaking to mitigate potential conflicts of interest for vertically integrated market participants and ensure retail investors remain protected.
▶ 0:34:22Rulem should establish requirements for the identification, mitigation, and resolution of these conflicts as they may arise in the context of vertically integrated market structures. Finally, FIA supports inclusion of the Griffin Fix as it is designed to strengthen customer protections in bankruptcy proceedings involving FCMS by ensuring customers have priority if there is a shortfall in segregated funds. FIA believes there is broad stakeholder support for this provision.
▶ 0:34:52FIA greatly appreciates the committee's interest in these topics that affect global derivatives markets. It is an honor to be with you today and I look forward to answering your questions. Thank you,
▶ 0:35:02Mr. Gran. Thank you so much uh for your testimony. Mr. Schwarz, please begin when you're ready.
▶ 0:35:08Thank you. Excuse me. Good morning, Chairman Thompson, Ranking Member Craig, members of the committee. I am Rob Schwarz, a partner in the futures and derivatives practice at Morgan Lewis and Bakius. Uh but more importantly for today's purposes, I spent 13 years at the CFTC, including most recently as its general counsel. I had the privilege of being involved in some capacity in most major issues before the commission for over a decade. I'm also the grandson of a farm girl.
▶ 0:35:37Years ago, my family owned a dairy farm with about five dozen cows in southeast Brooklyn, if you can believe it, just a few minutes from what's now Kennedy Airport. I looked this up with the state's Department of Agriculture, and there is now just one farm in all of New York City, and it grows salad greens and wheat grass in shipping containers. My point being that things change and things are changing for the CFTC too. New products, new technologies, new market participants, and soon new leadership.
▶ 0:36:06It's the right time to take a fresh look at the statute, the Commodity Exchange Act, and so I thank you for your work and the opportunity to appear before you. Okay. Now, the disclaimer. The views I share are my own and do not represent those of Morgan Lewis, my colleagues, our clients, or any other person or Okay. Onward. The CFTC is a special agency and I want to highlight three aspects of that. First, the CFTC is a deliberative bipartisan body in the truest sense.
▶ 0:36:35Of all the experiences I had during my service at the agency, some of the most interesting were the times I got to sit behind closed doors with generations of commissioners while they deliberated on critical issues. Democrats and Republicans of good faith would debate, sharpen their thinking, compromise, and sometimes even change their minds. I think if the American people had visibility into that like I did, they'd be pleased with what Washington is capable of.
▶ 0:37:01This is a technical field, and partisanship should not and typically does not dictate how the CFTC executes its mission. And I can tell you that most people who work at the CFTC do not care if it is led by Democrats or Republicans. They look for leadership, expertise, and problem solving, and they do their work with the same dedication no matter what. Second, the commission, when it is at full strength, possesses a wealth of knowledge. Congress designed it that way.
▶ 0:37:29The CEA directs the president to nominate individuals with quote demonstrated knowledge in futures trading or regulation or of one or more of the commodities covered by the statute and seek to ensure balance in those areas. It's tall order.
▶ 0:37:46The CEA definition of commodity, as you probably know, covers anything that underlies a futures contract, which means it covers assets from cotton and grain to oil and gas, raw materials, precious metals, interest rates, credit indices, exchange rates, and now cryptocurrency. But while achieving that balance is hard, presidents of both parties have succeeded.
▶ 0:38:08Commissions I served under included experts on agriculture, energy, financial products, international business, digital assets, and on and on. Same is true of the agency staff. CFTC economists, technical experts, lawyers, and others have degrees in everything from law and government to math and hard sciences. They include experts in fintech. They come from rural and urban backgrounds. Many have served in the military.
▶ 0:38:34Together, they have a level of skill, knowledge, and discipline worthy of the AY's mandate. That matters because there may be no other agency that touches so many areas of the economy. As former chairman Tarbert put it, the CFTC is the most important regulator most Americans have never heard of. Third, and I think because of points one and two, the agency is very effective. The commission's oversight has helped to ensure that our derivatives markets have functioned smoothly in good times and bad.
▶ 0:39:03I'm thinking of the collapse of MF Global, the disruptions of CO 19, the war in Ukraine, and the fraud at FTX, where the CFTC regulated subsidiary continued to function as normal, and the Division of Enforcement held the wrongdoers to account. Americans should feel confident the most important little agency they've probably never heard of is on the job.
▶ 0:39:26I'll end by saying that as impressive as it is, the CFTC can only be as strong not only as its members and staff, but as the Commodity Exchange Act itself, which has made the US the global gold standard for derivatives regulation. But old statutes are like old friends. You should visit them from time to time. It's important that Congress periodically inspect the machinery to ensure that it's equal to the task today and adaptable for the future.
▶ 0:39:53These are times of change and as we sit here, there are probably lurking in labs and laptops around the world. The seeds of new products and technologies we can't imagine but that the commission will someday contend with. Reauthorization is an important part of making sure the agency is always equipped to carry out the mission. So again, I thank the committee for its work and for the opportunity to assist in any way I can.
▶ 0:40:16Mr. Force, thank you so much for your testimony. Mr. Schiff, uh, please proceed when you're ready. Good morning, Chairman Thompson, Ranking Member Craig, and members of the committee. Thank you for the invitation to testify today. My name is Ben Shiffrin, and I'm the director of securities policy at Better Markets.
▶ 0:40:34Better Markets is a nonprofit, nonpartisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reforms of Wall Street, and make the financial system work for all Americans again. This year marks the 50th anniversary of the creation of the CFTC.
▶ 0:40:55Its 50-year history demonstrates that the agency is deeply rooted in and skilled at supporting producers in our agricultural markets, but also capable of responding to new and emerging issues in the financial marketplace, but only if given the appropriate authorities and resources by Congress. When Congress fails to provide the proper support for market oversight, novel products emerge and gaps develop. And even a willing and able CFTC is unable to meet the moment.
▶ 0:41:24When this happens, it leads to disastrous consequences for investors, customers, producers, and the wider A CFDC that has the appropriate regulatoratory authority and resources is critical because the CFDC's core mission is of vital importance. The agency polices the integrity of derivatives markets in order to help producers like farmers, ranchers, and manufacturers hedge risk and develop accurate prices for their products.
▶ 0:41:51The CFTC is responsible for the essential functions of providing relevant information to the public, preventing fraud and trading, and curbing financial speculation unrelated to natural supply and demand. These functions matter to every American because they impact the price of everything from the cereal they eat at breakfast to the bread they need for school lunches to the gas in their cars to get to work and the oil that heats their homes.
▶ 0:42:15At a time when all Americans are fighting to make ends meet and suffering from an affordability crisis, it is critical that the CFDC focus on its primary mission to ensure that those everyday commodities are available to the American people in the right amounts at the right time at the right and fair prices. Unfortunately, the CFTC has strayed from its core mission. The agency now seems to be spending all of its time on the crypto markets.
▶ 0:42:42From a sheer market size perspective, this focus represents a mismatched use of resources. While the global crypto market is estimated to be just over $3 trillion, the CFDC separately is responsible for overseeing 380 trillion in notional US swaps and futures contracts. Being the leading promoter of crypto is a distraction for the CFTC that the American people simply cannot The CFTC is also taking on significant new responsibilities it is illquipped to handle with prediction markets.
▶ 0:43:13Better Markets has been warning for years that prediction market platforms are trying to thwart state and tribal laws by asserting that the event contracts they offer on politics and sports are not in fact gambling despite the fact that they let people bet on elections and sporting events.
▶ 0:43:28These efforts have accelerated in recent months and threatened everything from the CFTC having the bandwidth to police traditional markets to consumers losing the protections they The CFTC's focus on crypto and prediction markets is especially problematic for its ability to fulfill its core mission because the agency is already underfunded and understaffed. The agency has only been funded by Congress at its requested level twice since fiscal year 2006.
▶ 0:43:56Once in fiscal year 2021 and once in fiscal year 2023 and it is forced to oversee the 380 trillion in notional US swaps and futures contracts with a budget of just 365 million. Reporting from Bloomberg also indicates that at least 15% of staff has been shed since the beginning of the Trump administration. Yet new areas of oversight such as crypto and prediction markets will require not only the addition of new staff but also new data metrics and surveillance tools.
▶ 0:44:26The sheer lack of commissioners serving at the CFTC and its absence of bipartisan leadership further exacerbate the agency's difficulties with fulfilling its core mission. The CFDC has been led by one commissioner in an acting chair capacity since September 2025. Yet, the CFDC was designed to be a five member bipartisan commission. The need for a full bipartisan commission is heightened during a time when policymakers are considering significantly expanding the jurisdictional reach of the agency.
▶ 0:44:55The agency should not move forward with future rulemaking or guidance efforts until the CFDC has both a permanent chair and robust bipartisan representation amongst the commissioners. Thank you and I look forward to your questions.
▶ 0:45:09Mr. Schiff, thank you so much for your testimony. At this time, members will be recognized for questions in order of seniority alternating between majority and minority members and in order of arrival for those who joined us after the hearing convene. and you'll be recognized for five minutes each in order to allow us to get to as many questions as possible and I recognize myself for five minutes. Uh Miss Kiteon and Mr. Proer, as I mentioned in my opening statement, uh this is a time for transformation in financial markets.
▶ 0:45:40As market professionals, what big derivatives, public policy issues do you see coming down the road in the coming Thank you for the question. As I mentioned in my opening comments, um there are a few areas that we're focused on. One is I think the possibilities that this transformational technology uh provides to the industry at large.
▶ 0:46:04And we think the appropriate balance of that technology along with a good strong policy framework is incredibly important to pave the way for a strong safe and healthy ecosystem. Um in terms of areas that we focus on both in our current markets as well as the possibilities on the forward areas that we're particularly worried about um continue to be margin that acts as the first line of defense. Um whether it's existing markets and and traditional markets or what uh kind of the new and and digital markets present.
▶ 0:46:34The adequacy of margin levels is incredibly important. We worry about the amount of clearing capacity in the ecosystem. Um it at the moment there's uh capacity is quite strained and with new products coming to market whether it's uh the treasury clearing mandate, the repo clearing mandate, there's significant demand for additional clearing capacity. Um and we think about kind of the the nature of bank capital regulation on us providing that capacity and continuing to intermediate in these markets.
▶ 0:47:02The impact of that on end users is incredibly significant. I'll hand it over to Mr. Proer.
▶ 0:47:07Thank you. In the 40 years that I've been involved in these derivative markets, I don't know that there's any time that we've had the pace and scope of innovation happening as fast as it is today. In that environment, having a regulator that sets in the middle and acts like a referee, not only for the very new and novel, but for the mundane, making sure the clearing house is taken care of.
▶ 0:47:34and and and if you look at the trade routes, the the way that uh even the traditional commodities are moving, who's the new producer in the in the world and and who has new surpluses, um it is most critical at this point that I think that the CFTC sets in the middle of that and make sure these markets continue to be transparent, open, and act as as functional as they have.
▶ 0:48:00Well, thank you both. um Miss Stump and Mr. Schwarz. This is also a time a transformation at the of a transformation time at the commission with new leadership and potentially new jurisdiction. How can the commission meet the moment and tackle the issues that Miss Kiteon and Mr. Processor has raised and what does the commission need to continue to be a premier financial regulator even as the markets continue to grow and change?
▶ 0:48:31Um, as you've rightfully pointed out, there is a lot to do and there needs, in my opinion, the agency is devoting time and attention to these matters, but during a period of transition, it is more challenged. So, I do look forward to a Senate confirmed chairman and um I look forward to the agency being able to get back to regular order.
▶ 0:48:57And and by that I mean having open meetings with public input, issuing rules that um enable the public to have a say in what an opinion on what is occurring in the marketplace. Um specific to some of the things that were raised, um margin adequacy, I'll start with margin adequacy and clearing. Um there is a real issue with clearing capacity.
▶ 0:49:22It was well established when I was at the agency that it as we brought in more products to the clearing environment under DoddFrank which was a a very good response to um ensuring that counterparty credit risk was addressed.
▶ 0:49:39We also at the very same time we saw the banking regulators putting restrictions um proposing restrictions on the ability of those who acted as intermediaries to take on more clearing and there seems to always be a little bit of a misaligned mission with the market regulators and the banking regulators. The banking regulators are most concerned with sustaining the banks where the market regulators are concerned with functional markets.
▶ 0:50:06So, we had an ongoing dialogue with the banking regulators when I was there to try and mitigate some of that and I think that that should certainly continue. I hope that it does continue and I hope that with more commissioners um a Senate confirmed chairman that there will be a greater coordination with the banking regulators and the CFTC as a market regulator. Um with regard to some of the market structure changes that Mr.
▶ 0:50:31Proer mentioned in his testimony um there have been an enormous call of recent days there has been um a number of calls for input from the public on a variety of new market structure changes. I do think that as those are digested by the new chairman that we will see responses in the form of rolemakings um where the public can
▶ 0:50:59Well, thank you very much. Uh u my time has expired but uh hopefully we'll uh get a chance to circle back u curious to hear your your insight on that. Mr. Schwarz recognize uh the general lady from Minnesota, the ranking member for five minutes.
▶ 0:51:18Thank you, Mr. Chairman. Um this is to Mr. uh Proer. I greatly appreciate your testimony and specific recommendations for congressional action in reauthorizing the CFTC, particularly your call for funding and staff at the agency to allow it to keep pace with market growth, technological complexity, and of course, global competitiveness.
▶ 0:51:41I also noted you're urging the committee to ensure that regulatory standards prioritize the needs of commercial endusers and consumers, not just financial intermediaries, new new market entrance or speculative uh interests. How does the committee do that?
▶ 0:51:58Are there specific changes in the uh commodity exchange act that we need to think through in order to achieve I'm not qualified to to to recommend specific changes to the commodity exchange act, but I would say that as we go forward with the new challenges with new entrance in the marketplace, um the traditionals have worked pretty well.
▶ 0:52:27um the regulatory environment that we've that we have dealt with in with the traditional markets and you think about the Ukraine war and um Chernobyl all the way back and and weather events and and we have navigated those relatively well. The markets have bent uh when we needed to when we changed regulation as we came out of 2008. So I I would suggest that they have done pretty well in our traditional markets.
▶ 0:52:56We're very interested in what the innovations are going to bring. And we're going to ask that the separation of those regulatory regimes between the traditional markets and some of the new what might be good for the new side might not be good for the for the traditional markets. We simply we don't want to squash innovation because I don't want these markets moving overseas.
▶ 0:53:21I don't want the price of soybeans to be discovered in Montagroso instead of on the Mississippi and Illinois rivers. And part of that is making sure that we do continue to innovate, but we need to do that with an eye towards making sure that the stuff that's working now continues to work.
▶ 0:53:39Well, speaking as somebody who borders the Mississippi River, thank you for that. Um, this is really to the whole panel. Um the Republicans on the House Appropriations Committee defied the administration's budget request to increase the AY's funding for full year 26 and instead proposed cutting the AY's funding from full year uh fiscal year 25 levels by 8%.
▶ 0:54:03Um talk to me a little bit about obviously um you know we've got new innovations coming with uh really additional responsibilities coming to CFTC. So, uh, do any of you think that the cut is appropriate, necessary, and particularly considering the new responsibilities that Congress may give them? And we'll start, I guess, from, uh, from my right to my left. Mr.
▶ 0:54:28thank you for the question. As I said in my opening statement, I think now is the time to be increasing funding for the CFDC and not decreasing it, especially if the CFDC is going to be asked to now oversee things like crypto and the prediction markets. seems impossible for it to fulfill those new responsibilities and also the essential functions that it already has without additional funding and additional staffing.
▶ 0:54:50Couldn't agree more with you. Uh Mr.
▶ 0:54:53thank you. Um you can tell from Mr. Proer's testimony that, you know, the private sector does not want a hobbled CFTC. It's important. They depend on it. And uh there there has generally been bipartisan support for making sure the agency is adequately funded and it's underfunded now. Uh let alone can we predict how difficult it would be uh in the future as its responsibilities appear very likely to increase.
▶ 0:55:22I'm going to run out of time. Miss
▶ 0:55:24thank you. FIA supports an adequately staffed and resourced CFTC and we'll uh defer to Congress on what that means.
▶ 0:55:32Mr. Proer.
▶ 0:55:34Good. Don,
▶ 0:55:36well, thank you. Um, yes, I do believe that the agency could certainly do well with more resources. Um, given budget situations, I know all agencies are being asked to do more with less and the CFTC is no different.
▶ 0:55:51Thank you. And in my 30 seconds, Mr. Shiffron, let's talk just a minute about uh enforcement at the CFTC. Give me your thoughts on what needs to happen. It's It's been pretty lack of day school.
▶ 0:56:04Thank you for the question. Exactly. I think we've seen CFDC enforcement ground to a halt and I think that's uh problematic. If you don't have the cop on the beat acting like a cop on the beat, you're not going to have um the protections that are there to prevent fraud and manipulation do what they're supposed to do.
▶ 0:56:22Thank you all so much. And with that, Mr. Chairman, my time has expired and I
▶ 0:56:27Thank the general lady. Now recognize uh the gentleman from Oklahoma, former chairman of this committee, Mr. Lucas, for five minutes.
▶ 0:56:34Uh there's nothing like being a recovering chairman. Mr. Chairman,
▶ 0:56:38thank you and thank you to our witnesses for being here today. The subject of today's hearing is of course the reauthorization of the Commodity Futures Trading Commission, a commission that served our A and energy markets for over 50 years. The authorization for the CFTC expired over a decade ago, as we've discussed, re-examining the commission, its functions, and its authorities is worthy goal in light of the changes our world has gone through since the the commission's expiration.
▶ 0:57:05Farmers and ranchers use tools like the derivatives that the CFTC regulates to manage price volatility, mitigate risk, and that's why it is a particularly relevant time to examine the commission as uncertainty in the farm economy is elevated. Keeping derivatives markets affordable and accessible is essential for our producers to supply the food, fiber, and energy our world needs.
▶ 0:57:28Miss Stump, the CFTC coordinates with the Securities Exchange Commission as the products and firms they interregulate often interact. Take us back up to the 40,000 foot level for just a moment and explain why two separate and distinct regulators for commodities and securities is valuable to consumers. I think oftentimes it's misunderstood. First of all, thank you for the question. It's very relevant.
▶ 0:57:56Um I I think oftentimes it's misunderstood even sometimes by the marketplace. The distinction that between the CFTC and the SEC certainly they both regulate some of the same entities. There have been suggestions that the two should be merged. I've often scratched my head by this proposition given that Congress has given each agency a very distinct how to in the way they carry out their their missions.
▶ 0:58:22The CFTC has embedded in its purpose to promote innovation that is not in the SEC's mandate. They both are responsible for protecting customers in the case of the CFTC, protecting investors in the case of the SEC. But this innovation is very distinct in this purpose of the CFTC. And I think Congress has done a remarkable job of of explaining to the CFTC how they want them to go about being a regulator that embraces innovation. The SEC does not have that mandate.
▶ 0:58:53You're exactly right. CFTC is proactive. SEC is reactive. Beginning with Miss and I want Mr. Proer's thoughts on this as well. Last week, I met with Vice Chairman Michelle Bowman at the Federal Reserve Board of Governors, who is finalizing a new capital framework proposal.
▶ 0:59:13I was disappointed to see that in the original Boswell in-game proposal, significant capital penalties on clearing derivatives for endusers, reducing the availability of these required services, can you speak to the importance of cross agency collaboration between CFTC and the banking regulators? Thank you and happy to do that.
▶ 0:59:35Um, as we think about two of the most significant impacts that have reduced the amount of clearing capacity available in particular to commodities and users, one has been the lack of margin adequacy and the other has been the punitive nature of bank capital. And so we too were quite disappointed to see the changes that were proposed previously.
▶ 0:59:54And I think part of um back to to to Miss Stump's comments, part of the benefit of interacting with the the CFTC is as deep derivatives, markets experts, we were able to articulate the impact of what that proposed regulation would mean in particular on the amount of clearing capacity we'd be able to provide. And so in their partnership, we were able to work uh handinand with the banking regulators to articulate what would happen.
▶ 1:00:18clearing businesses over the course of the last five years have seen capital between 2020 and 2022 double and then what was proposed uh two years ago with the Basel 3 endgame reproposal um that capital would have been increased by another 80% which would have fur served to further decrease the amount of capacity we
▶ 1:00:36any thoughts
▶ 1:00:38these markets need capacity not just for a normal Thursday morning but for when geopolitical events happen for when weather happens. This FCM capacity issue is is real and it's real in the country. We need regulators to work together to make sure that we have adequate protections from the FCM through bankruptcy and all of the things that that works on.
▶ 1:01:07But we need to make sure that we don't put burdens or barriers to those that want to participate in those markets. And I think that Basel 3 was one of those. The idea that the capital requirements for those would have been so high that it seemed impossible to me.
▶ 1:01:26So we need agencies to work together to make sure that we have as much capacity for FCMS to clear these derivative products because that matters to those end users in the country particularly the small end users in the country that don't have the market power to find other FCMs.
▶ 1:01:47Thank you Mr. Chairman. My time's expired. I'll submit a couple questions in writing to the witnesses.
▶ 1:01:51Very good. Uh thank the gentleman and now recognize the gentleman from California, Mr. Costa for five minutes.
▶ 1:01:58Thank you very much. Uh Mr. Chairman, I I obviously concur that we need to deal with the reauthorization and Congress needs to do its job. But u when we talk about the commodities future trading commission um in the traditional u uh areas in which you provide u u oversight with regards to derivatives and others there's an area that hasn't really been brought up to the degree that I'm concerned about and that is the red flags on so-called event
▶ 1:02:29contracts and um also um in in California where I come from uh and and a lot of Indian uh gaming uh authority. Uh these look a lot less to me like risk management tools uh that Congress ever intended the commission to deal with.
▶ 1:02:52Uh and now you're engaged in unauthorized online gambling from everything from sports events to even war. And I don't think that was intended. Mr. shorts. Are you familiar with the five categories that are prohibited under the commodity exchange? I assume all of you are. I
▶ 1:03:11I'm familiar with the five categories. It's rather than a flat prohibition
▶ 1:03:15or terrorism, assassinations, gaming, or any activity otherwise prohibited under federal law. Right.
▶ 1:03:21Yes, sir.
▶ 1:03:22Okay. Given that framework, um why do we allow then folks to go ahead and and and bet on things like sporting events or wars? Well, it's because the statute gives the CFTC discretion. It says it may make a determination that a given contract is contrary to the public interest. The CFTC hasn't done that. And so that's
▶ 1:03:43Don't you think the statute uh expressly prohibits event contracts based upon war, terrorism, assassination, gaming, or activities that are otherwise illegal under federal law? Uh, no. It's a it's a yellow light rather than a red light and delegates to the CFTC to deal with individual cases.
▶ 1:04:00What courageous act actions are you taking on a yellow light?
▶ 1:04:04Well, the the CFTC has the authority to take a look and see if it's contrary to the public interest to have that trading on an exchange.
▶ 1:04:12In that light, do you think Congress uh did not attend to allow companies to offer products that led individuals to bet on sporting events? It certainly indicates concern.
▶ 1:04:23It's a concern, but what are we doing about it? I mean,
▶ 1:04:26well, the, you know, I mean, let me give you some examples, and I I' I'd ask others to participate in this if you care to. $614 million have been uh bet on who will win the Super Bowl. Um, you know, I I like football, but uh I don't think that uh that's the business that the uh commission ought to be engaged in. 13 million on how many tweets Elon Musk will make in the month of December. I don't give a damn, frankly.
▶ 1:04:55But I don't think it's a part of your uh jurisdiction or 34 million on whether the United States will attack or bomb Venezuela. My gosh. I mean, what is this about? 3 million on whether Russia will conquer Ukraine or a city in Ukraine. I mean, news often makes this sound like, you know, what's happening in that part of the world with regards to the war.
▶ 1:05:18uh gambling on life and death on Ukrainian or on the battlefield is ripe with conflicts of interest. I Where in the hell are we going with this?
▶ 1:05:32Well, uh I'll I'll leave the policy questions to policy makers. I think uh I I I won't quibble with anything that you
▶ 1:05:38I mean, we're gambling on tragedy and and and death. No, I I I I I the concern is very very valid. The
▶ 1:05:47industry's gone more than$2 billion I I find this exasperating every single and there's no oversight.
▶ 1:05:59Um the CFTC has not taken any action.
▶ 1:06:03Well, what about states that are trying to enforce their own laws?
▶ 1:06:08That's that's an important separate issue. I I think to my mind I don't have any doubt that these products meet the definition of SWAT and are within the CFTC's exclusive federal jurisdiction. I don't think Congress intended state gambling regulators to be uh having a say on what is allowed to trade on a designated contract market. That's separate from the policy question.
▶ 1:06:31by expressly refusing uh to to bless contracts that effectively let people bet on sports or other jurisdictions. you're either blessing or not uh those who are want to ban sports betting.
▶ 1:06:50I I I won't quibble with that statement.
▶ 1:06:55Well, it just seems to me that we're not doing our job. My my time's expired, Mr. chairman. Uh, and I'd like to get obviously other uh, members of the panel to comment on this, but I think this is a serious issue that we're overlooking at this point in time and I'd like to be able to I I'll submit other questions in the future, but I think this is something that we need to to drill down on. Thank you very much for the time. Mine has expired.
▶ 1:07:22Uh, thank you, gentlemen. Now recognize gentleman from California, Mr. Laua for five minutes.
▶ 1:07:27Thank you, Mr. Chairman. Appreciate it. Thank you, Mr. Scott. Um I I just want to pick up on that topic uh with uh h how how is it in the Bailey Wick of CFTC that we would you know because you know farmers obviously are uh rely on on the futures markets for in in many many aspects. So sports betting is is somehow being defined as being in the Baywick of CFTC.
▶ 1:07:56we're talking about uh you know they're being called trades when when it's just flatout gambling in in this gray market area. So, how is it that um with farmers needing needing this help, needing this ability to have trades and have CFTs attention on that um with more and more time being devoted towards basically being a federal gambling regulator and
▶ 1:08:26anybody on the panel wants to weigh in this maybe especially Mr. Schwarz, but or or Miss Miss Stump. Um, does CFTC have the capacity under its current budget, staffing and and regulatory authority to be overseeing so-called markets offering betting on these sports events and other casino style games?
▶ 1:08:49Well, as I've said, I don't think the CFTC has adequate resources now. So uh expanding its remmit is without expanding its capacity is not helpful.
▶ 1:09:05So this provision was included in the DoddFrank Act. At that time there was very little interest in these sorts of event prediction market contracts.
▶ 1:09:14How long ago was that?
▶ 1:09:15I'm sorry.
▶ 1:09:16How long ago? How long ago was that?
▶ 1:09:18Um 2010.
▶ 1:09:20Yeah. Okay. No, it's skyrocketing of course. you know,
▶ 1:09:24these markets have developed since then. Um, but nonetheless, the CFTC is tasked to oversee these types of prediction markets to the extent that they are put on a CFTC regulated exchange. The CFTC wears so many different hats and to Mr. Schwarz uh point,
▶ 1:09:46they often find themselves um switching gears on a fairly frequent basis, whether it's um dealing with position limits in the A markets or um wagering, if you will, um or on a um event contract market, energy disruptions. I there's no way for the CFTC to know when they get to work on any given day what they're going to deal with.
▶ 1:10:14It's it's fair to think of energy and of course agriculture as a commodity and a market for it, but basically gaming, gambling within that purview just seems kind of absurd to me. We have other entities that should be really having the responsibility whether it's uh state level gambling commissions or the Indian gaming uh regulatory some anywhere else seems like especially with the workload you'd have and and me being from agriculture and this being the egg committee as important as it is
▶ 1:10:44for stability in agriculture and those options what uh shouldn't shouldn't this uh responsibility be shifted elsewhere or be more appropriate? I can only speak to I'll leave the authorities and their allocation to Congress. I can only speak to the fact that the statute currently um provides the CFTC with a um
▶ 1:11:09would your workload be
▶ 1:11:10of these contracts?
▶ 1:11:11Would your workload be easier if it didn't have this portion
▶ 1:11:18or would CFT would CFTC's workload be easier and more focused if it didn't have this area to oversee especially not in 2010 but in 2025? Well, the workload would certainly be less. Um, that said, I actually think the culprit here is the fact that when the CFTC wrote this rule in 2011 that it didn't sufficiently take into account the public interest determination that is required by the statute.
▶ 1:11:50Interesting. Do you want to expound on that a little bit more?
▶ 1:11:53Sure. Um, the way the statute's written, in my opinion, is that the agency is tasked to make two determinations. One's a threshold question. Are any of these contracts one of those five enumerated things, including gaming? And then subsequent to that, they may make a determination that the contract is not within the public interest. When the agency wrote the rules,
▶ 1:12:17I think that's a key point, the public interest. What is the public interest? I completely agree with you
▶ 1:12:22in this portion. So, and would it be better off in a complete different entity that is much more specialized or you know uh experienced in uh basically online online gambling. So, with that, I appreciate it. Mr. Chairman, thank you for the opportunity and I I'll yield
▶ 1:12:40Miss Selenus, you are recognized for five minutes.
▶ 1:12:45Well, thank you, Mr. chair and thank you to our ranking member and thank you to our panelists um for being here today. The Trump administration has nominated a chair for the CFTC but has not moved to fulfill the remaining seats and even as industry and consumer advocates warn about emerging risks in some of these emerging markets um crypto the growth of prediction markets and rapid technological advancements.
▶ 1:13:11Given the president's lack of urgency in filling these remaining seats, his own um personal financial interest related to cryptocurrency and the increasing complexity of the CFT CFTC's regulatory responsibilities, I have serious concerns that the Trump administration is purposefully handicapping CFTC's capacity. for the whole panel.
▶ 1:13:34How does leaving the CFTC without a full board in combination with the mass firings the administration has undertaken weaken enforcement and does it create opportunities for bad actors to slip through the cracks?
▶ 1:13:51I think absolutely, as I said in response to ranking member Craig's question, I think if you don't have a CFTC that not only has the resources that it needs, but that has a full complement of commissioners, it's not going to be able to do its job. It's not going to be able to do the job that it's traditionally been asked to do, and it's not going to be able to do the job that it's increasingly asked to do in in new and evolving areas. And so, um, you need the CFDC not just to have, uh, as I talked about before, a fully a fully funded agency, but you have to have a full complement of commissioners.
▶ 1:14:24Uh I will answer by saying that in my experience at the CFTC uh when the commission was at full capacity when it had commissioners with different expertise balanced expertise like the statute requires uh opposing views uh it was a strength for the commission to be able to deliberate with perspectives uh that come from those places. FIA believes a full commission is important and it's good for market safety and soundness.
▶ 1:14:55Um, one of the benefits of having a full commission is the diversity of viewpoints that all the commissioners bring. And um obviously I'm a little selfish in this side, but uh you know as we bring on a full commission, we would certainly hope that one of them would be deeply involved in agriculture and agricultures issues and be able to stand out and support us in those.
▶ 1:15:20So we continue to say that we want a fully funded, fully staffed CFTC and that's certainly one of the reasons why.
▶ 1:15:27I share your concern, Mr. Proer. I agree with everything that's been said. I was very fortunate when I was a commissioner to serve with four other individuals that were willing to come to the table and not only negotiate but listen. And that's the important point. Many different viewpoints, many different backgrounds is critical, but also a willingness to work together and deal with very challenging issues.
▶ 1:15:51Thank you. As we, as you know, members of Congress consider reauthorizing the CFTC, it's critical to remember that the commission is the only federal financial regulator funded solely, as you mentioned, um, Miss Stump, through the appropriations, through annual appropriations because it has not been reauthorized since 2008. Um this is the case despite massive market growth in swaps, crypto, we've been talking about this all morning, prediction markets, as well as emerging technological risks.
▶ 1:16:21Um markets are getting more volatile, financial fraud is getting more sophisticated. And yet the Trump administration is pushing a deregulatory agenda while Congress allows the CFTC to operate without a modern reauthor reauthorization. So for again the whole panel, can you speak to the risk that's posed by the CFTC continuing to operate in a rapidly changing financial landscape without a reauthorization and how are our growers being affected by this?
▶ 1:16:54I'll just briefly say that um I think it is um necessary to reauthorize the agency for the very reasons you outlined. there is a tremendous amount of market evolution that has occurred since 2008. Um, and just for frame of reference, I worked on that bill and I had a child who was two. He's now in college.
▶ 1:17:15Um, so I would just say that I do think it is worth a worthwhile endeavor for the um the committee and Congress to consider reauthoriz reauthorizing the agency with updated current um parameters. I think from the end user community, the idea, and Don said this in her remarks, the certainty that reauthorization brings matters.
▶ 1:17:42And that's really from our perspective is knowing that they're going to be there, knowing that they're going to be the referee matters to the end user community.
▶ 1:17:51Thank you. And my time has expired. I yield back.
▶ 1:17:55Mr. Scott, you are recognized.
▶ 1:17:57Thank you, Mr. Chairman. M stuff, you've already talked about uh how important it is for the commission to engage in uh research activities. We've had some discussion about technology and how fast those advancements are moving. Uh what are the challenges or impediments uh to the commission best fulfilling the mandate uh that they have to to promote responsible innovation?
▶ 1:18:24Thank you for the the question. Yes. Um, I think Congress had the foresight in 1974 when the agency was created to include in the statute a um a research and information program. Um, I would say that that language is slightly outdated now and could benefit from um an update. I mean things technology was very different in 1974 and the task was very different in 1974.
▶ 1:18:51So to the extent that the committee would um seek to um update that I think that's worthwhile. As to impediments, um there have been occasions when the agency would have benefited from obtaining information from the private sector because when we talk about technology, the private sector is where the most beneficial information would be for the CFTC to conduct this research and there are occasions when u federal procurement laws has prevented them from doing so.
▶ 1:19:21Part part of it gets to the definition of a gift. We most oftent times think of a of a gift as something of monetary value or a physical item when um the definition there and so I want to I want to move to you Mr. towards uh my colleague, Congresswoman Chris McDonald Revit and I, we introduced the CFTC research and development modernization act to rewrite the CFTC's mandate for research and development activities.
▶ 1:19:50Specifically, it modernizes and and hopefully will futureproof the commission's research and development mandate, provide an opportunity for the commission to create a new research and development plan. How might clear requirements, definitions, and authorities around this mandate improve operations of the commission?
▶ 1:20:07Uh well to pick up on something that Commissioner Stump said, uh the the language is 50 years old now and it authorizes or directs the commission to have a research and information program about things like determining the feasibility of using computers for trading. Now I I think we're all satisfied that it is feasible. The commission has moved on.
▶ 1:20:29Um but it would be helpful to have a clear mandate to tell the look the commission would always rather um have clear direction from Congress to execute rather than to you know set the mission for itself and make sure that it doesn't cross any any lines. The appropriations issue is very very important. So uh I I think all involved would appreciate that kind of legislation.
▶ 1:20:56So I I'll stay with you Mr. Schwarz. No other regula regulator currently exercises authority over entities registered with the commission such as futures exchanges, clearing houses or FCMS for activities subject to the Commodity Exchange Act.
▶ 1:21:11If a state regulator were able to unilaterally determine that a transaction was subject to state law, what would be the consequences of state regulators also exercising concurrent jurisdiction over an exchange, a clearing house, or an FCM for that transaction? U that that's a question that was asked back in 1974 and Congress answered it with exclusive jurisdiction for the CFTC.
▶ 1:21:36You would have a patchwork and that's probably too generous of 50 states in the District of Columbia regulating activities that occurred on for example a designated contract market. I don't think it's workable.
▶ 1:21:50Those those are my questions. Chairman, I will uh yield the one minute and 5 seconds back. Thank you.
▶ 1:21:56Very good. Mr. Scott Banks, the one minute for future use um and some future hearing. And with that, the good gentleman from Illinois, Mr. Jackson, you are recognized.
▶ 1:22:05Thank you, chairman. Thank you, ranking member. Um once again, I'd like to follow up on the earlier discussed question on the unique features of the agency being the only US financial regulator that is not funded directly by the industry that it oversees. And there's this explosion now going on in sports betting. I'm very much concerned about the uh susceptibility of the young people to um these market conditions.
▶ 1:22:36So over the last decade, we have witnessed the explosion in legalized sports wagering, an industry that has grown faster than many of our traditional financial markets. And we know whenever capital, technology, and human behavior converge at this speed, history teaches us that risk accelerates also. uh in finance we would call this a systemic creep. This isn't where we want to go but this is where we can unintentionally end up.
▶ 1:23:02The danger that small unregulated activities aggregate into a structure capable of inflicting broad harm. We call these young persons students and athletes. But after the gamblers and other people surround them and prey upon them then they're cast aside as adults and have to fend for themselves. And considering that the sports is gaining money and at the same time the president is reducing the oversight when there's more profitability.
▶ 1:23:33Um this is an open question probably starting with you Mr. Schwarz. Do you think the administration is going in the right direction having reduction and enforcement of 20% uh for oversight at the same time there's more money more profitability available. Will this create more harm for students or more safety?
▶ 1:23:54Um, well, I certainly share your concern about young people. I have my 15-year-old behind me here in the audience today, and if uh I find out that he's been betting on sports or taking positions on a futures exchange, I'm going to take away his phone. Okay. So, uh, I I think it benefits everybody to have a strong enforcement program, not to turn against my son, but against the actual wrongdoers.
▶ 1:24:19And, uh, I I don't think that the I think most parts of the private sector would agree. Depends on who the enforcement program is is looking at, but that's a very important aspect of what the CFTC does.
▶ 1:24:35Mr. Schiff, I would ask that to you. Is the administration going in the right direction and asking for reduction? Um, and the and the agency has no means by which to generate funds to safeguard the protection of students.
▶ 1:24:50Thank you for the question. As I said earlier, no, I think it's the wrong direction. I think the um funding for this CFTC needs to be increased, not decreased. I also think that it needs to be increased so the CFTC can focus on its core mission. I'm not sure that the Commodity Futures Trading Commission is the right regulator to regulate what is essentially sports gambling. Um, and so we want to see if but if it's going to be forced to do that, it needs to have way more funds than it has currently.
▶ 1:25:17Okay. And today as we look, the danger is not theoretical. Um, the decisions that this body will make will have longlasting impact. It's already pressing against the lives of young people. Many of these NCAA students um students that are able to make more money than professors, students that are um the ones that went to college are being prayed upon. Uh I would ask that to you Mr. Proer. What should the agency ask for for funding?
▶ 1:25:48If you have an opinion on that, sir.
▶ 1:25:50I don't have an opinion on funding. I I and I I can say that from our side as we look at all the new innovations that are happening, it's not really our place to say whether it's good or bad, but I think that it's better to have that debate with a fully funded, fully staffed commission in place to make sure that all all of the participants get to have a input and then to
▶ 1:26:21have a decision. rather than to do it in a vacuum.
▶ 1:26:24Thank you. I'll ask that of Miss Katon,
▶ 1:26:27Thank you. I'll echo Mr. Proer's comments. I think I'm not a lawyer, but I am a risk manager. So, two places that I would encourage not only Congress, but the CFTC to focus on is the riskmanagement framework that will and ultimately potentially apply to these contracts. And one is thinking about segregation of default funds.
▶ 1:26:45So where there's an intersection of these new products with more traditional products and end users, we have to think about the segregation of default funds to protect those communities from one another and insulate them from each other. And I'd also encourage everyone to think about the impact of direct clearing by removing intermediaries by removing in particular the asset segregation and customer protection that we provide and when they go directly to the clearing house, many of those protections go away. Okay.
▶ 1:27:12So, there's kind of two very practical considerations that should be part of this as well.
▶ 1:27:16Well, I've exceeded my time, uh, Miss Stump. I wish I could have gotten to you as well. Maybe next time. Uh, chairman, ranking member. Um, I yield back, but there's a fine line between the fandom, the, um, speculation, and the corusion are now blurred and accelerating speed. I hope that we fully fund this, and I strongly disagree, um, with the administration and cutting back funding for oversight. Mr. Jackson yields back. Thank you, sir. Uh, the chair is recognized for five minutes.
▶ 1:27:46I have been heartened by how many of my colleagues on both sides of the aisle have emphasized the need to reauthorize the CFTC. And of course, thanks to all of our witnesses for so eloquently explaining why that matters. Of course, it's not just people in this room who agree. In fact, uh, National Grain and Feed, uh, has submitted has asked me to submit for the record a letter asking us to reauthorize and unless there's objection, that will be submitted. Uh, all right.
▶ 1:28:13Uh, Miss Kiteon, uh, perhaps a year ago, I submitted a letter, uh, to then CFTC chairman, uh, Russ Benham asking for them to revisit, strengthen the clearing house, uh, margin methodology to better support end users as they do risk management uh, planning and liquidity planning. Uh, give us an update where where are we at with that?
▶ 1:28:41Thank you for your work on that letter. we we greatly appreciated and we felt like it sent a strong statement to the commission to prioritize their focus on margin adequacy. I think as as we look to where we are now, unfortunately, we haven't seen as much progress as we'd like on behalf of the clearing houses uh in terms of thinking about what is an appropriately calibrated risk margin regime.
▶ 1:29:02And so we do think that should be a priority for the incoming chair to focus on the safety and soundness of the clearing houses uh and think about kind of making some revisions to what that margin framework is.
▶ 1:29:13So you say we haven't made uh enough progress uh has substantial progress been made at all?
▶ 1:29:21In short, no. Um and I think as we you know continue to live through uh various events that have created market volatility, um we see what the impact of that is. And so in many perspectives you would say, you know, we withstood recent volatility quite well. We're not aware of any um defaults as part of the ecosystem. But what ultimately happens when we see margins go too low in times of low volatility and we enter into a period of intense volatility.
▶ 1:29:48Not only do we create a scenario where we have large increases in initial margin that's required, we have uh a requirement for a significant amount of variation margin or or mark tomarket that's required on behalf of the community to post. And so what that means is it actually undermines the credibility and ultimately the capacity that we're all willing to stand in and provide. And so that becomes an important topic. It kind of ultimately feeds to the conversation that we've been having with the enduser community. So not enough progress.
▶ 1:30:15Yes. Thanks very much. Uh Mr. Schwarz, I thought your testimony was excellent uh in at least a couple of different ways. I think you did a good job reminding all of us that respire despite these uh many market shocks in the last years, the stuff that the CFTC uh has within their jurisdiction held up pretty gosh darn well. I also liked how you talked about the expertise, the the diverse expertise that exists within the commission.
▶ 1:30:44You also mentioned uh at least in your oral testimony that uh there uh you're concerned they don't have enough resources. So talk to us a little bit about the expertise within the agency. Are there particular areas where you think there's a deficiency and do you get the sense that the commission has a plan to address that? I I will just say that uh when there is one and it is impossible for any one commissioner or chair to have a balanced expertise in all of the areas that I listed.
▶ 1:31:13So uh you know I'm not going to pick apart the the knowledge and and of any one individual but it it it needs to be broader because the markets are extremely broad. it it touches again as I said many many areas of our economy probably more than any other regulator.
▶ 1:31:33So you have to make sure that the commission has the expertise the statute requires and you ought to make sure that it's adequately staffed because the the shedding of staff has not just been numbers.
▶ 1:31:46It's been some of the most experienced and knowledgeable people at the agency and I don't know how you address that but uh it's going to be important to get people of talent and education and experience into those positions you know certainly before crypto legislation comes out and while these products are expanding the markets are expanding and some of the we've
▶ 1:32:06uh commissioner I've always understood the power of the self-certification process which I think helps to balance the outside expertise the innovation you talked about as well as leveraging the expertise inside the agency. Uh does that uh do we feel like that's holding up well here in in the longer hall?
▶ 1:32:27Well, I'm a huge proponent of the self-certification process. I do know that um in well, I'll start by saying without the self-certification process, the task that Congress has given the agency to promote innovation might be hindered. the self-certification process permits a more expedited process for various new products to come to to market.
▶ 1:32:53Um, but I would also like to take the opportunity to dismiss the fallacy that this sort of a process is um without any oversight. Um certainly with the vast number of new products that are coming to market currently, there is um a lot of work for the agency to do, but they have to do this through examinations. Um they have to do rule enforcement reviews of any of the entities that are
▶ 1:33:26Sorry, I need to give myself the hook. Commissioner, if you would be willing to submit any other comments to the record, that'd be wonderful. Thank you. Great. All right. Now, please recognize the uh gentle lady from Ohio, Miss Brown, for five minutes.
▶ 1:33:51Thank you, Mr. Chairman. The Commodities Future Trading Commission was created 50 years ago to ensure that farmers, ranchers, and energy producers and manufacturers could rely on fair, transparent markets to manage risk. For decades, that meant corn, soybeans, cattle, oil, and electricity. Markets that affect the price of food on our kitchen tables and gas in our cars. But today, the CFTC is being asked to do far more.
▶ 1:34:20In addition to its traditional responsibilities, it is now on the front lines of regulating crypto derivatives, digital commodities, algorithmic trading, and new prediction style contracts that blur the line between finance and gambling. These markets operate 247 across borders and at incredible speed.
▶ 1:34:42That means the job of protecting market integrity, preventing man manipulation, and safeguarding customers have become more complex and more demanding than ever before. At the same time, the agency is expected to oversee hundreds of trillions of dollars in futures and swaps markets while operating with a commission that has been reduced to a single sitting member and a budget that is a fraction of the size needed to keep up with the market policies.
▶ 1:35:11That imbalance should concern all of us because when markets move faster than reg the regulators, everyday people are often left to pay the price. We have seen what happens when financial innovation outpaces oversight or when Congress leaves regulatory gaps. A global financial crisis. We cannot afford to repeat those mistakes in a crypto or prediction markets. So, Mr. Chevron.
▶ 1:35:39The CFTC regulates traditional agriculture, energy markets, and emerging areas like crypto and prediction style contracts. It is operating with just one commissioner and a relatively flat budget. What specific new resources, staffing, technology, funding, or in enforcement authority must Congress authorize in order to prevent the agency from putting consumers and producers at risk? Thank you for the question.
▶ 1:36:10Congress um simply needs to ensure that if the CFDC is going to be tasked with not just fulfilling its traditional responsibilities that you mentioned, ensuring that the prices of commodities are fair and are set by supply and demand, but also take on the responsibilities for things like crypto and prediction markets. It has the resources it needs to properly oversee those markets. And that would require um tremendous new sources of of funding and staffing.
▶ 1:36:38And one of the reasons for that is because as you kind of alluded to, traditionally the CFDC has been focused on markets that have sophisticated institutional players, but the products the new products that you're talking about are really geared towards retail investors. And the CFDC has not traditionally had a focus on protecting retail investors. And so if that's going to now be its focus, it needs to kind of um have the resource and staffing to shift its focus.
▶ 1:37:01Thank you. And Miss Kiteon, what are the risks to clearing house stability today if the agency staffing and resources do not grow alongside its mission?
▶ 1:37:10I think thank you. From a risk management perspective, you know, we're incredibly focused on what is the framework that these contracts may be margined under and how are uh all of the financial resources that are at the clearing house, how are they brought to bear in the event of a a a default or an extreme stress situation.
▶ 1:37:29So, one of the things that we want to make sure is that we're thinking about particularly on clearing houses where there's an intersection of endusers as well as retail investors in these event type contracts that we're thinking about segregating the default fund and segregating the resources that backs stop those contracts and we think insulating those two very distinct pools of risk is an incredibly important step.
▶ 1:37:51Thank you. And back to you Mr. Shiffren. What are the risks to market stability, rulemaking legitimacy, and enforcement credibility when an agency overseeing hundreds of trillions of dollars is operating with only one sitting
▶ 1:38:06Well, as was referred to earlier, right, if the CFTC can't act through regular order, it's going to be harder for to it fulfill its role of essentially being the cop on the beat, right? That's what we're talking about. We're talking about the CFTC policing the derivatives markets. And if there's just one commissioner and not a full complement of commissioners and there's no bipartisan discussion and the CFDC doesn't have the resources that it needs, it's not going to be able to fill its cop on the beat function.
▶ 1:38:30Thank you so much. Reauthorization is not just about keeping the lights on. It is about making sure the CFTC actually has the tools, the staffing, the leadership, and the funding to do the job Congress expects of it. If we expand the CFT CFTC's mission without expanding its capacity, we aren't strengthening oversight. We are weakening it in ways that will be felt by farmers, consumers, and everyday families. And with that, Mr. Chairman, I yield back.
▶ 1:38:58Thank you, gentle lady. Now recognize the gentleman from Indiana, Dr. Bar, for five minutes.
▶ 1:39:03Thank you, Mr. Chairman, and thank you uh committee members and witnesses for being here. you know, it's it's really helpful to have the expertise that that you possess to share with us so that we can make better decisions about whatever it is we're talking about, in this case, the CFTC reauthorization. So, I'm going to start off, Mr. Proer, with the idea that you mentioned real world uncertainty in the soybean oil market due to delayed federal guidance on the bofuels policy.
▶ 1:39:32So, how does regulatory uncertainty, whether it's the EPA, the Treasury, the lack of CFDCA reauthorization, how does that translate into volatility and increased risk for farmers and other commercial end users?
▶ 1:39:47Markets are pretty good at pricing risk and uncertainty increases risk and that price flows through to either the consumer or the producer. Um, if you take the bofuels policy and and the the different uh contortions that we have had trying to get it started and unstarted and reauthorized and we're going through a process now uh at the EPA to to try to finalize it.
▶ 1:40:16All of those as we try to determine the the uh possibility of it happening or not happening needs to get priced in these markets. And I think that's been a a really interesting experiment and how these markets work. As we get more certain, we throw those prices the we can actually pay more to the farmer and sell products cheaper than when we can't when when the process is more uncertain.
▶ 1:40:46And certainly the the political process we've gone through around renewables has created uncertainties that have thrown um soybean oil markets um soybean meal markets and and and to some extent soybeans kind of in that uh uh arena where uncertainty was priced in a negative way.
▶ 1:41:07Thank you. Anyone else have a comment in that regard about the soybean oil? If not, my next question goes to Miss Stump. Uh, drawing on, you know, you've got a lot of experience both in and out of the commodity futures trading. And so, drawing on your work during the financial crisis and the impleation implementation of DoddFrank, what lessons uh should Congress keep in mind as it approaches this next as we approach this reauthorization?
▶ 1:41:37Um, having worked on the legislative side during a crisis and during a time when we didn't have a crisis, I think the policy outcomes are much better when you adjust the commodity exchange act outside of a crisis environment.
▶ 1:41:53Um, oftentimes during the development of DoddFrank, and I'm not suggesting that there weren't great changes made in in the financial crisis in response to what was going on, but it is very challenging to legislate in the midst of a crisis. We'd be far better served to address changes to the commodity exchange act before the event of a crisis.
▶ 1:42:41I I I think the self-regulatory model that uh that the commodity exchange act establishes is very helpful in in this regard because as new challenges come over the horizon, the commission has the ability to deal with them uh quickly and and flexibly and uh it's not constrained by the same kinds of rigid rules that other regulators might be and so it doesn't have to rule rigid rules can lead to
▶ 1:43:11loophole seeking behavior and just kind of hinder the agency from reacting quickly. So I I would just urge Congress to to consider the importance of the of the principles-based regulations, self-regulatory model that the commission has and uh allow the markets to develop in an innovative way but also not handcuff the agency from addressing uh issues as they arise.
▶ 1:43:37So thank you. And uh we've got about 25 seconds left. So, the other two that I haven't got to, I'd like to have a chance to talk to you, but do you have any any comments to add? You got about 16 seconds now.
▶ 1:43:52Maybe I'll I'll just add I agree. I think there are a significant amount of merits to the self-certification model, but I think given the number of new products that are coming to market, uh it is worth taking a closer look at
▶ 1:44:06Thank you, and uh I yield back.
▶ 1:44:08I thank the gentleman. Now, please recognize the gentleman from Alabama, Mr. Figures, for 5 minutes.
▶ 1:44:13Thank you, Mr. Chairman and ranking member. Uh, thank you to all the witnesses uh for for sitting through this. Uh, normally when you see me, it means that you're very close to the end, but given the participation today, that may not be the case as members come back and forth. So, I apologize if I'm not near the end.
▶ 1:44:30Um but uh look, it's been hit on uh pretty uh regularly here uh today and pretty consistently in terms of the staffing challenges in terms of the overall uh commission, the current structure of the commission there being down to one commissioner.
▶ 1:44:45Um and I just want to go down the line and you know just in light of uh CFTC's expanded um you know jurisdiction that we're considering here um uh expanded crypto uh market participation um do we think that given recent reductions in force that we've seen given the overall uh staffing uh situation at the commission currently do we think that the commission is best set up for success um given the current status
▶ 1:45:15of staffing and the commission structure uh where we currently are. We can just go down the line. Miss Stump
▶ 1:45:21Well, I'm not familiar with the specifics of their u staffing needs. I I'll leave that to the current commission, but I will say the CFTC has always punched above its weight. Um and I certain that they will continue to do
▶ 1:45:36Mr. Proer,
▶ 1:45:38um one commissioner is not enough. We need a we need a a a full commission with all their various uh backgrounds and interests and especially in these markets that uh continue to evolve and and innovate. Um but we would continue to encourage um even though the political process goes through however it needs to happen, we need to get a we need to get uh the commission fully staffed.
▶ 1:46:04And again, I would uh uh uh repeat the idea that we would like some of those uh to have an act background.
▶ 1:46:15Thank you. Yeah, FIA supports a fully staffed and resourced commission. We think um the diversity of expertise, the diversity of opinions, the durability of the policy that it will create is incredibly important for safety and I I will add that a fully staffed commission is not important merely to uh restrain activity in the private sector, but I I know that people in the private sector are concerned about things like
▶ 1:46:46getting new exchange applications approved and getting new clearing applications approved and without the right staff that it's it's simply not not going to be doable in in an orderly or timely fashion. It would be impossible for the CFTC to adequately regulate the crypto markets, the prediction markets, and the traditional derivatives markets with the funding and staffing it has now.
▶ 1:47:11And I also think not only is a full complement of commissioners important for bipartisanship, but it's important for the diversity of views, even if you're putting bipartisanship aside, right? As was alluded to earlier, if you just have one person, that person can't possibly have expertise in all the different areas that the CFDC has to oversee. So putting a site by partner, you need at least more than one commissioner to get all those views in the building.
▶ 1:47:34Yeah. And Mr. Shiff, how how do are we in a ticking time bomb situation given the current staffing in your view? Um or or or can things be sustained, but we're going to hit a cliff at some point.
▶ 1:47:45No, I think it's a disaster waiting to
▶ 1:47:48Thank you. Um, and also on the accessibility standpoint and and I mean accessibility through the lens of who can actually participate in and benefit uh from the markets uh that CFTC overseas. And for many rural farmers and small producers, including those in states like like Alabama that I represent, uh broadband limitations make it incredibly difficult, sometimes impossible to access pricing tools and education, risk management platforms, uh or even basic agency information. Um and these producers rely on futures markets the most. yet they face some of the steepest barriers.
▶ 1:48:19Uh, Miss Kiteton, with the current staffing, uh, shrinking outreach capacity, technology deficits, does CFTC currently have the resources necessary uh, to improve accessibility of those sort of educational materials, complaint systems, uh, market information uh, for customers with limited uh, broadband access.
▶ 1:48:37So, I would say I have uh, less of a view on that. Um, but what I can offer uh in in in terms of followup from here is both resources from an FIA and Goldman Sachs standpoint. Goldman Sachs has been investing heavily in rural communities and we'd love to follow up with you on that.
▶ 1:48:52Thank you. I I yield back, Mr. Chair.
▶ 1:48:55Thank the gentleman. Now recognize a gentleman from Indiana, Mr. Mesmer, for five minutes.
▶ 1:49:00Thank you, Mr. Chairman, and thank you all for taking time to highlight the importance of the CFTC this morning. Earlier this week, the president alongside Secretary Rollins and Betant announced bridge payments to our farmers. While this assistance is what the producers in my district need to stay in business next year, they're the first to say they would never uh wanted to take these payments, American farmers would rather rely on healthy markets that honor their investment rather than have to accept federal ad hoc assistance. Mr.
▶ 1:49:25Proser, you shared the American derivative markets are a vital tool for farmers in risk management of their of their operations. From your perspective, as a commercial end user, would could you further explain the role of futures and option markets in helping agriculture producers plan and manage uh seasons of market volatility and shrinking margins
▶ 1:49:49for the end users. The derivatives markets again are not a opportunity to speculate. We use them as risk aversion tools. When a farmer ask us to buy his crop, we will offset that risk in a futures market. Therefore, stripping off what's a flat price bat price risk and a basis risk or a freight differential to the delivery point. This allows us a lot more capacity because we're not taking the whole price risk.
▶ 1:50:17It allows us also to weather extreme price events, uh whether that be geopolitical or weather. Um the idea of having a functional derivative market in those egg commodities allows the whole industry to price farther out with more capacity to provide more price certainty not just for farmers but for consumers.
▶ 1:50:48Okay. Thank you. Uh certainly uh it is important for farm operations uh as any other certainty is important for farm operations as far as any other business. Earlier this year the committee spent months working on the clarity act to provide regulatory certainty for innovators in digital asset space. Mr. Proer, you highlight the importance of protecting marketplace for our farmers while also incentivizing innovative technologies to establish roots in America.
▶ 1:51:13Could you speak to the CFTC's unique role in ensuring that that there's both fertile ground for new industries to innovate and stable footing for commercial hedgers? Um, I think that we're most interested in the regula regulatory environment that we have for our traditional markets and protecting those to be open and There is going to be a debate about where this new innovation
▶ 1:51:44is going and how it's going to be regulated. And our initial interest is in making sure that those two ven diagrams don't necessarily intersect or the or the direct or the um the the amount that they intersect is limited to the part of the industries that work. where am I trying to go?
▶ 1:52:11So, the one I'm in the back of my mind is 247 trading. 247 trading might be absolutely adequate for some of the new innovations. We don't believe it works for our traditional markets. It's not, again, the derivative markets are a derivative cash markets. Our cash markets don't trade like that. It creates holes in liquidities.
▶ 1:52:32So having a fully funded, fully staffed CFTC would would allow us to come to our regulator, lay out the reasons why certain things that might work for crypto or events don't work for the traditional markets, and hopefully um we keep the regulatory regimen the same for the traditional markets we have
▶ 1:52:58Thank you. Uh the CFCC's work provides a foundation for the entire fabric of an American industry. Unfortunately, the absence of re reauthorization package, some of the commission's regulations have grown stale. In fact, Representative Mlan Delay and I uh just introduced the CFTC charitable organization exemption act to address regulatory issues at the CFTC that has unnecessarily plagued our churches for decades.
▶ 1:53:23Although the fix has been approved by this committee three times and passed the House floor twice, failure to reauthorize the CFTC has kept the solution uh from being implemented to exempt our churches from regulation. Miss Stump and Miss Wartz, I know there's other similar issues impacting other industries uh that could be addressed through a simple reauthorization of the commission. How is important how important is it that we reauthorize the CFTC, not just fund it, to bring substantive improvements to a variety of industries?
▶ 1:53:52I think it's very important. I think that there are a number of things since the last reauthorization that warrant improvement. Refinement is the word I would use and and this is the
▶ 1:54:03Thank you.
▶ 1:54:04Yeah. I would just add quickly that I don't think u churches and universities need to be regulated as commodity pool operators. So I I think we're in agreement on that.
▶ 1:54:14Okay. Thank Thank you. I yield back my
▶ 1:54:16Thank you gentlemen. Now recognize gentleman from California, Mr. Carbajal for five minutes. Thank you, Mr. Chairman and ranking member. Thank you to all the witnesses for taking time to be with us today. Mr. Shiffron, my office has been hearing increased concerns surrounding online betting.
▶ 1:54:33Stakeholders have warned that this emerging unregulated gambling industry, also known as prediction markets, is abusing the CFTC's selfcertification process and that the commission um has not taken sufficient action to stop illegal futures contracts. Right now, for example, individuals can put a bet on who will win the Super Bowl or whether Democrats or Republicans will take the control of the House of Representatives next November, even though we know who that will be.
▶ 1:55:03All these bets are being waged without proper oversight or safeguards in place. We have seen betting scandals in the NBA, MLB, and NCAA where bad actors were discovered as a result of information sharing, monitoring, strict regulations at the state level. However, these same protections are not in place for prediction markets.
▶ 1:55:25Given this landscape, do you believe the CFTC has expertise and experience to regulate what is effectively a multi-billion dollar gambling industry? And how would the CFTC address problem gambling, underage gambling, or cheating under this system?
▶ 1:55:44No, I don't think the CFTC has the authority or expertise to regulate sports gambling. It's the Commodity Futures Trading Commission. It's supposed to regulate the derivatives markets. And these event contracts, although they want to call them, you know, trading on um derivatives, that's not what they are. These are event contracts that essentially allow betting on sports. Take tonight's Thursday night football game, right?
▶ 1:56:07You can go on sites like Kashi and Poly Market and essentially put a bet on either of the teams, and if the team that you put a bet on wins, you get money. That's gambling. That's sports betting. and the CFTC really has no expertise or authority in that area.
▶ 1:56:22Thank you. Mr. Schwarz, you mentioned in your testimony that during your time at CFTC, you witnessed what happened behind closed doors with commissioners while they deliberated important questions before the agency. You stated that Democrats and Republicans of good faith would debate, sharpen their own thinking, compromise, and sometimes even convince one another to change their minds.
▶ 1:56:46You also pointed out that partisanship should not and typically does not dictate how the CFTC executes its mission. With there being only one sitting commissioner currently on the CFTC and a growing concern that it could stay that way, do you believe this is creating partisanship within the agency in how it executes its mission? And do you have concerns if it remains with only one commissioner in charge?
▶ 1:57:14Well, it it certainly diminishes eliminates the ability to meet and deliberate and sharpen thinking and to persuade one another. So, I think it is just inherent in only having one commissioner. Uh I'm not going to comment on anybody's partisanship, but there is currently one individual who makes the decisions for the commission and uh it's inevitably going to be that one person's decision who uh that controls partisan or otherwise.
▶ 1:57:43Thank you, Mr. Proer. As you likely know, the CFTC has seen a 20% reduction in staff. This reduction could impact the AY's ability to ex to execute essential functions of protecting customers, consumers, preventing fraud, and encouraging market efficiency.
▶ 1:58:03In your testimony, you mentioned your support for full funding and staffing of CFTC in order for it to keep up with the technological complexity, market growth, and global competitiveness. What current functions and processes at the CFTC are you concerned could be impacted by this reduction in staff? I don't have any specifics.
▶ 1:58:26Um the the thing that concerns me is markets can be mundane for long periods of time and quickly change and we don't get to understand when or the magnitude of those changes until it happens. and having a fully funded, fully staffed CFTC at the ready to for the next um market event is uh we think wise.
▶ 1:58:56Thank you, Mr. Chair. I yield back.
▶ 1:59:00Gentleman yields back. Now recognize the gentleman from Alabama, Mr. Moore, for
▶ 1:59:05Thank you, Mr. Chairman. I appreciate all the witnesses being here today and I'm happy that the committee is holding a hearing on CFTC's reauthorization and certainly our desire is that we ensure that CFTC can continue conducting oversight with stability. Uh Miss Stump, uh the CFTC is uniquely positioned to provide robust oversight um while also providing cryptocurrencies the ability to operate without overregulation.
▶ 1:59:30How do you see the pending market structure legislation advancing the priority of both conducting the oversight and allowing the market to prosper with cryptocurrency? Well, when I served at the agency, I I repeatedly raised the alarm bells that I do not believe the agency has adequate authority, nor do I think any regulator has authority to regulate um a component of the market, which is nonsecurity spot.
▶ 1:59:58And this has become a a point that has been raised repeatedly at the agency. um the marketplace is desperate to have their product regulated and so we should meet that with appropriate authority for the CFTC to regulate the spot market outside of the securities spot market.
▶ 2:00:21I would note that since that time the agency and the marketplace have found a way to um enter the CFTC space for retail commodities and the spot component. But I would also like to note that I don't think that's the cleanest approach and I think the legislation advancing would be a cleaner authority for the CFTC.
▶ 2:00:41Um I I guess I will ask this to kind of all the witnesses and give you maybe I don't know how much time I've got. I've got three minutes. It doesn't give you a lot of time but uh the rule making effect on agriculture is going to be different from for a lot of firms and from the financial institutions obviously. Um, what is the right balance for the regulatory environment when it comes to rulemaking to protect participants without being overly prescriptive? I would be a good word.
▶ 2:01:08And what is the right balance in enforcement to weed out the bad actors and not restrict normal market activity? And Mr. Proer, if you want to start, we'll work our way down. And when I run out of time, I'll just throw up my thumb and say, "Okay, go ahead, sir."
▶ 2:01:20Oh, okay. Go ahead, Miss Kite. That'll be great. Whoever's the expert, I guess you all are. So Schwarz, it's down to you now.
▶ 2:01:29Uh the right balance is spelled out in the the statement of purpose in the statute and a illustrative part of that is responsible innovation and it lists things like market integrity on the one hand uh in addition to to foster competition is one of one part of it but also to protect customers. I think uh if the agency governs according to the mandate that it'll get the right balance and I think it usually does.
▶ 2:02:00Very good. Anybody else? I'm I've still got a little bit of time, more than I thought. Y'all went fast.
▶ 2:02:04Uh Mr. Pros,
▶ 2:02:06I guess I'm just going to I don't know that we know the right balance. Um we've been talking about event contracts here and the the uh example of the day seems to be betting on the Super Bowl. What happens if we had an event contract that bet on the size of the corn carry out? Then all of a sudden I might be interested as a traditional end user.
▶ 2:02:27So the balance and where we go with the u environment I think these markets will innovate faster than than we expect them to. And having a um a CFTC that's there um to meet those challenges is terribly important. I agree. I agree. Anybody else want to Is it Shiff and I can't see your name. It's at an angle. Okay. Go ahead. Oh, Mr. Shiff.
▶ 2:02:55No, I was just going to say, look, you know, I just think it's important that the the rules innovate along with the products. And so, you talk you hear a lot about innovation and new products coming onto the market, and that's all well and good, but if you don't have the rules that innovate along with it, you're going to have um uh you know, fraud and manipulation that doesn't go
▶ 2:03:12Thank you for that. Mr. Chairman, I'm I'm out of question, so I'll yield back to you, sir. Gentleman yields back. Now recognize gentleman from North Carolina, Mr. Davis, for five minutes.
▶ 2:03:20Thank you so much, Mr. Chair, and to our ranking member. Mr. Chair, I want to start out by sharing with you I'm from Eastern North Carolina, and I believe I heard one of the witnesses today is a dairy farmer in Brooklyn. Um I I don't know that
▶ 2:03:36grandson of grandson of, but yes, there was such a thing until uh yeah, it's been a while. But being um from rural eastern North Carolina, many farmers operate on thin margins and often face severe weather and global price shocks. My value here simple. Um access to markets must not depend on zip code.
▶ 2:03:59Um so to the commissioner um my question would be uh what reforms regulatory or statutory uh would reduce barriers to prevent rural smallcale or minority farmers um from fully benefiting from derivatives markets without increasing red tape.
▶ 2:04:25I I think that the reforms that are there may not be any reforms that are necessary, maybe more direction from Congress in the way of a dialogue. The the way the statute's currently constructed, it it permits a variety of people to participate in the markets and it's designed that way very intentionally so that it's not exclusive.
▶ 2:04:47Traditionally the people who have come to the marketplace have been more institutional in nature but we are seeing um an increased participation from the retail community and and the point has been made that maybe that warrants a different conversation about protections and and that may be relevant here. So
▶ 2:05:07thank you. I've been serving as ranking member um and we've been navigating this uh cryptocurrency um digital asset space and my question is um for you also madam commissioner is if the senate and the house actually comes together and we move forward with some sort of regulatory framework agreement providing um what happens
▶ 2:05:38If then the CFTC is not
▶ 2:05:45Technically the authorities continue the the responsibilities of the agency continue and as has been apparent over the last decade the agency operates as it is intended.
▶ 2:05:57No I understand it continues but what is the net effect is what I'm getting at. I think I think the net effect is that um the commission and the staff are left to make um apply parameters of the act that may not have been designed with current markets in in mind. And so
▶ 2:06:18and and it leads to my next question then. I mean we're here having a meaningful conversation um but what steps are currently being taken um regardless of reauthorization or not? I I think the the agency at least when I was serving um had um we were able to bring in some experts.
▶ 2:06:43We have but I think the most important thing that this agency does that may be slightly different from other market regulators is we have a constant dialogue with the marketplace and um the point has been made that that is best done when you have a full complement of commissioners. I would agree.
▶ 2:06:58Um, and in the absence of updating the statute, I do think that the marketplace, the market participants should feel that there's an open door at the agency such that those who are tasked to carry out the act even without the benefit of refinements from Congress can do so in a way that is responding to
▶ 2:07:22situations. And my question um to Mr. Schwarz and I do look forward to shaking your hand too. By the way, we're here talking about reauthorization of the CFTC.
▶ 2:07:36I know there's been a lot of questions uh regarding predict the prediction market, but I just regardless of all the conversations, I'm trying to understand what are the in terms of the functions of the agency. um if there's reauthorization or not with prediction uh markets.
▶ 2:08:01Well, you know, like a broken record, agency capacity is very important. But to pick up on something that Commissioner Stump said, uh this is a statute that is aging and even the parts that were revised in DoddFrank, the statutory definition of swap includes anything that is or in the future becomes commonly known to the trade as a swap. these sports prediction markets, these these sports event contracts are undoubtedly commonly known to the trade as swaps.
▶ 2:08:31So, the CFTC has the exclusive jurisdiction, but it's obviously something that not uh not everybody I think that most people did not anticipate the way this would the way this would go.
▶ 2:08:41Well, again, thank you to all the witnesses for being here and we look forward to continuing conversation. This is a very important topic as we all know and understand. I yield back, Mr. Chair
▶ 2:08:51and the chair. Thanks Mr. Davis for his substantial leadership on the digital asset subcommittee. With that, the gentleman from Tennessee is recognized for five minutes.
▶ 2:09:03Thank you uh thank you chairman and thanks Chairman Thompson and thank you Member Craig for holding this important hearing and thank you to all of our witnesses for being with us today. Miss Stump, the whistleblower office and the customer protection fund are critical tools for the commission. Can you briefly describe how these tools help to protect customers in the marketplace?
▶ 2:09:25Yes, the whistleblower provision um incentivizes those who may have knowledge of a violation to come to the CFTC um if that information is in fact utilized in a um material way to bring an enforcement action with a um monetary sanction over $1 million.
▶ 2:09:46that money is put in a customer protection fund from which the whistleblower may be compensated between 10 and 30% of the monetary sanction. Um, at the point which the fund uh reaches $100 million, that money then begins to accumulate back to the treasury.
▶ 2:10:08Thank you, Mr. Schwarz. For the past several years, the commission's whistleblower fund has been in danger of running out of money. Can you briefly describe or briefly briefly explain the issue for us and what the consequences of that might be?
▶ 2:10:22I will try to be brief. So the customer protection fund is used for two things. One is to pay whistleblower rewards. The second is to fund the office of the whistleblower including staff salaries and it it also funds the office of consumer education and outreach. If you have a an award and this has only happened a few times and threat of it has only happened a few times that would be large enough to deplete the fund down to zero.
▶ 2:10:48Then you have to furlow the entire staff of the office of uh of the whistleblower. So the office can't function. It um the program shuts down. U the other thing that happens is typically the contributions to the customer protection fund are small. So there's these incremental additions that get out of the hole and especially if you have further debt on a large claim to a whistleblower, you it could take forever to get there.
▶ 2:11:16So it's the furlowing of of staff and the the deeply difficult task of replenishing the fund for other whistleblower awards. While you were general counsel, Congress passed legislation to try to address the issue. Please explain the current fix, if you will, and is it sufficient to address this issue for the long haul?
▶ 2:11:38Well, what it does is it creates a second account that can hold up to, I think, $10 million that can be used to fund the office operations, staff salaries, and the like. So, that's good. When these patches exist, they are not under threat of furlow. Uh, but Congress has had to do this over and over again. So that's not something that you want to do.
▶ 2:12:01I think a permanent fix would be justified and it also doesn't solve the problem of having to refill replenish the fund in these incremental amounts.
▶ 2:12:10Any any particular recommendations for what the broader fix should be? Uh yeah, I think when a large monitor or any monetary sanction that could lead to a whistleblower reward is collected, it should or at least up to 30% of it that could be the top level whistleblower award should continue to be accessible to the commission to use to to pay for awards that large so it won't hobble the
▶ 2:12:38Thank you. Uh and Mr. Schwarz, uh has the uh or uh yes, Mr. Schwarz, has the CFTC's expired authorization since 2013 created perceptions of instability that discourage international participants from listing products on the US
▶ 2:12:59Well, I I think um because of the nomenclature, it probably does make certain people nervous. It it certainly sounds like the commission is about to go out of business or is uh or is, you know, more than a decade overdue. So I I agree with Commissioner Stump when she said some other way of doing this it would probably be preferable.
▶ 2:13:20Miss Kiteon, uh in what ways might foreign regulators exploit the US reauthorization gap to attract uh swaps in futures volume such as through lighter touch rules or on clearing or data reporting thereby gaining derivatives market share from American
▶ 2:13:38Yeah, thank you. Look, I think we're well regulated in every jurisdiction in which we operate and we think the system of substituted compliance and deference works particularly well.
▶ 2:13:49Thank you. My time is about to expire. I yield back, Mr. Chairman.
▶ 2:13:52The chair threw both Mr. Harris and Mr. Rose for a loop by taking them out of order. Uh the chair begs their indulgence and will provide them both a personalized tour of the world's only corn palace uh as an apology gift. Uh with that,
▶ 2:14:06I've already been Yeah. Very good. Uh, Mr. Vinman, you are recognized.
▶ 2:14:10Thank you, Mr. Chairman, and thank you to all the witnesses for appearing here today. So, the thing I I hear most from the farmers in my district is that input costs are too high. Uh, costs for uh seed, fertilizer, repair parts are are frankly just too high. Um, they've been high for years. Um, and uh that affects prices at the grocery store. So my question for each of you and we we can go in in line starting from um Mrs. Stump.
▶ 2:14:38I'd like to ask each of you what is the single most important thing that this committee can do to lower costs for Americans at the grocery store? Well, that one may be well beyond my expertise, but I will say with regard specifically to the Commodity Futures Trading Commission, I think um your oversight is is very um important to ensure that the markets continue to function in a way that those input provide those those that um
▶ 2:15:09service your farmers are able to take advantage of the markets to um manage their own price I think I mentioned earlier that the market prices uncertainty negatively and I think that the the things that the CFTC regulates and the and the derivative markets which it oversees particularly in the things that I deal with every day, corn, beans, wheat, the things that we uh that the food and the fiber in the United States
▶ 2:15:40providing certainty in the regulatory environment, certainty for um the participants in the market would help.
▶ 2:15:52Thank you. I think to add on from my seat, the focus on margin um particularly a well-c calibrated margin regime is critically important for us to provide the services that we need to particularly to the enduser community. I will add that in the a time of rising prices because of reasons it would be uh particularly unhelpful if there were manipulation in the markets that you're describing.
▶ 2:16:21So I think ensuring that the CFTC is able uh able to police effectively its markets be it uh the enforcement program or market surveillance um I think that's the kind of thing that the agency can do and I think that's the capability that Congress should ensure that it has.
▶ 2:16:41Yes. The CFTC needs to have adequate resources and staffing to fulfill its core mission and the committee needs to ensure that the CFTC's focus is its core mission which is ensuring that prices for commodities reflect supply and demand and not excessive speculation.
▶ 2:16:55Thank you and I appreciate that and I appreciate uh your your comment on uh predictability uh Mr. proc because uh frankly I think one of the areas that we see um uh a lack of predictability is the tariff regime and the effect it's having on farmers in my district and around the country. But I do want to turn my attention briefly to prediction markets in and event market regulation. And my question is are there any topics and I'll start with Mr. Schwarz. Um are there any topics that are out of bounds?
▶ 2:17:25I mean, ultimately, or some people can certainly perceive these as as bets on just about everything, like how many school shootings there might be. As we all know, the president is both aged and infirmed. People could be betting on whether he's going to uh make it through his uh current term. Are there things that are out of bounds for these
▶ 2:17:46Well, look, I I wouldn't list those contracts if I had a futures exchange. I think it would be helpful if the CFTC it has some direction from Congress on this score. It's a delegation to examine topics like that. Uh and if the CFTC is um if the CFTC is in need of further direction on that point, then I think the policy question has to come back to Congress to to resolve.
▶ 2:18:14Mr. Shiffron,
▶ 2:18:17I I think there are at least there there should be, right? If the statute says that event contracts on things like gaming aren't permissible and the event contracts is listing um a bet on who's going to win the football game, it should be pretty easy for the CFDC to say this is not the type of event contract that is permissible.
▶ 2:18:34And when Congress was um uh debating DoddFrank, Senator Lincoln said exactly that, that that's why the language about gaming was included in the in the statutory authorization because otherwise you'd have people doing event contracts on the Super Bowl. That's literally the example that that was given, one of the examples that was given and now here we are. And so I think the CFDC needs to make it clear that that's not appropriate.
▶ 2:18:55So thank you for that. And and obviously I think this u is meant to illustrate the fact that there are and there should certainly be areas that are out of bounds for these contracts and um we've talked about gambling, we talked about predictions on some some terrible events and uh we have a role to play. So thank you for that and I yield back.
▶ 2:19:17Thank you sir. Uh Mr. Harris, you are
▶ 2:19:21Thank you Mr. chairman and thank you to all the panel for your presence and your expertise today. You know, as a pastor for the last 36 years, I know firsthand that churches oftentimes operate with very limited administrative resources. And for this reason, many churches and nonprofits use common risk management tools like swaps to help manage retirement plans and educational or charitable endowments, providing long-term financial stability for these funds.
▶ 2:19:48However, due to the broadened definitions of the DoddFrank Act in 2010, these organizations, as you know, unexpectedly found themselves swept into a regulatory category that was never intended for them. And so, Mr. Schwarz, I I just want to ask you if you can take a moment to explain how DoddFrank's broad definition of commodity pool unintentionally swept these ministry and nonprofits into a Wall Street regulatory
▶ 2:20:16Uh, yes, sir. The definition of commodity pool includes any collective investment vehicle. And so if it were pension plans and other uh entities that had an interest in the pool like you're describing, it would be a collective investment vehicle that uh includes any quote unquote uh one of a series of commodity interests. So it's um it's a low bar to clear for any investment vehicle like you're describing. And that's how that that's how it ended up in that category.
▶ 2:20:46Okay, thank you. Well, and the fact is, as I'm sure we can all agree and is already mentioned when uh my colleague uh from Indiana mentioned it earlier, uh church pension plans and charitable endowments are not the same as Wall Street hedge funds and were never intended to be affected by this law.
▶ 2:21:04And Commissioner Stump, during your time as a CFTC Commissioner, did you ever recognize the tremendous burden and uncertainty that these classifications were placing on churches, their retirees, and other nonprofit Um yes, actually when Congress asked us to um provide assistance in designing um refinements that might be necessary in the context of reauthorization, I believe all of the commissioners, while we didn't vote
▶ 2:21:34on this, we we agreed that this was probably um an unintended consequence of and and I would just like to point out again, regulating in the midst of a crisis oftent times results in these sorts of things. So, it's best to manage these things outside of a time when we are um hurried.
▶ 2:21:53Exactly. And uh prior to your time as a commissioner, the CFTC did issue a no action letter in 2014 offering temporary relief for church pension plans and a 2017 no action letter offering relief for university endowments. But these letters of course can be revoked at any time.
▶ 2:22:12So, I guess my question is, in your view, should faith-based nonprofits, which operate on long-term stewardship models, be forced to rely on temporary administrative relief instead of having clear statutory certainty from
▶ 2:22:28Oh, absolutely not. There should be in the case that no action relief is a a useful tool for the agency, it is best in if we can have Congress speak to um correcting it or have the agency and by that I mean their commissioners vote to change it. But in this case, I do not believe the commissioners can vote to change it without an act of Congress.
▶ 2:22:49Well, and I will say as Congress undertakes the CFTC reauthorization, are there any specific in the last minute we have specific recommendations that really either you or or Mr. Schwarz would be willing to offer us to ensure that religious charities, church pension plans, and other nonprofits are shielded from this regulatory requirements that were never intended for them? Either of you? Um, you could either, I guess, two ways.
▶ 2:23:15Put in a carve out from the definition of commodity pool or you could direct the commission to issue rules and regulations to ensure that that's the result that comes out of it.
▶ 2:23:28And I would expect that the agency would do so very quickly because I I am unaware of any commissioner that has felt that this was the intended result.
▶ 2:23:38Excellent. Well, thank you very much and Mr. Chairman, I yield back. Thank you very much. With that, uh, Mr. Vasquez, you are recognized.
▶ 2:23:48Thank you so much, Mr. Chairman. Uh, before I begin my remarks, I'd like to submit for the record a letter from the Indian Gaming Association. Um, I want to start by saying something that may get overlooked in this issue, but when we talk about CFTC, um, we're also dealing with tribal sovereignty. I have seven, uh, seven sovereign nations in my district. Some of them operate gaming operations.
▶ 2:24:12Um, for me being here from southern New Mexico and the tribes that are in our district, including Mescalero, Akima, uh, Hikaria, Lagona, Santa Ana, so many others, they depend on us to uphold our trust and treaty obligations as a nation to them. And that includes protecting the gaming compacts that they negotiated with the US government in good faith. Now, in New Mexico, travel gaming isn't just a business for the tribes. It's jobs for all New Mexicans. uh provides for education, funds, for housing.
▶ 2:24:41It's the foundation of the economy for rural and Native American communities. And when it comes to sports betting, uh the rules are simple. In New Mexico, it only happens at tribal casinos under tribal, federal, and state regulation with strong safeguards in place to ensure tax revenue supports state and tribal priorities, prevents underage betting, and protects those who struggle with gambling addiction. But now we're seeing that companies are trying to get around those rules by calling sports bets something else.
▶ 2:25:08event contracts or prediction markets and they're using the CFTC's process to do so. So, from where I sit um and from where New Mexico tribes sit, bets on sports, regardless if they happen inside their casino or not, should be treated and regulated as sports betting. Now, what worries me is that the CFTC allows these companies to move forward unchecked.
▶ 2:25:30And we're going to end up with unregulated and unsafe online sports betting that's offered by unlicensed operators with more with none of the protections the tribes and the states have spent decades building and have to follow. And the people who lose the most in my district are those tribes who have very little uh if no other economic means. So I want to dig into that. And Mr. Schwarz, can you help me understand why a contract on the outcome of a sporting event is not considered gambling?
▶ 2:25:58And where do you draw that It comes from the statutory definition of swap that Congress passed in the DoddFrank Act. It was not trying to be narrow or nuanced. This was coming out of the financial crisis. It felt it important to give the CFTC broad jurisdiction. But because there are not those kinds of nuances in the definition, it would sweep in uh quite a lot. As I I mentioned before, I'm not sure you were uh you were present for it.
▶ 2:26:26The definition includes anything that is or in the future becomes commonly known to the trade as a swap. And we have them listed on designated contract markets offered by futures commission merchants cleared by uh derivatives clearing organizations. If you look at the CFTC's product submission web page, you see all of the submissions on this subject and they're submitted as swap swap swap swap swap. So I I don't have any doubt that they fit within
▶ 2:26:54that definition, but that's not the same thing as what the policy should be.
▶ 2:26:59Sure. So do you agree then that the intent essentially of providing a product like this is akin to gambling and should be regulated likewise?
▶ 2:27:07I um I don't think I'm the right person to to answer that question. I prefer to leave policy to the policy makers.
▶ 2:27:15Okay. Well, you're our issue expert, so the policy experts can't make the policy without having your expertise. Yeah, I you know, I'm glad to provide whatever legal assistance that I can.
▶ 2:27:24Okay. Thank you so much. I appreciate it. Um, one other question, Mr. Schwarz. Do you believe that regulating gambling is is part of the CFTC's core mission? Is that something that you feel the CFTC is doing today?
▶ 2:27:36It um, this is an old issue. It used to be illegal in many or most states to trade futures contracts on corn or wheat. And there's just a longunning debate on where the line should be between uh gambling and uh derivatives trading and and this is just the the latest iteration of that I think and I think the policy makers should look at it through the same lens.
▶ 2:28:02Thank you Mr. Schwarz. I appreciate your answers and you know I'll just end with this. If if online sports betting uh suddenly shifts into the CFTC's purview, um the traditional system for these types of activities get bypassed along with tribal compacts that the US government has made. It's going to impact tribal revenue. It's going to have an impact on tribal authority. And in New Mexico, that's a real impact on our schools and our rural communities and those casinos that depend on that revenue. So, this has a a huge impact on rural New Mexico, has a huge impact on tribes.
▶ 2:28:32Uh, and this committee has a responsibility to make sure that CFTC is enforcing the laws Congress has passed. Uh, obviously make sure that we modify those that we we understand are outside of the law. And so, as we discuss reauthorization, I hope we're going to continue to protect consumers and that we stand with all our tribes across the country and those in New Mexico. Thank you, Mr. Chairman. I yield back.
▶ 2:28:52Thank you, Mr. Man. You are recognized.
▶ 2:28:54Uh, thank you, Mr. Chairman, and thank to all of our witnesses for being here today. Good to see you, Mr. Proer. I know we saw each other at the KState football game earlier this fall. Um,
▶ 2:29:03go Cats.
▶ 2:29:04Yes, he's precisely. He took words out of my mouth. Um, you know, the CFTC plays a critical role in the TA's economy, assuring our markets function as they should for farmers, ranchers, and egg producers in the big first district of Kansas and throughout the country. These markets are essential risk management tools that allow them to hedge a lot of uncertainty and secure prices in a very volatile environment. The CFTC's oversight helps keep those tools reliable and effective. However, it's been mentioned many times.
▶ 2:29:32The agency has gone over 15 years without a full reauthorization. It's way over past time um to to update and uh reauthorize. Just a handful of questions. Again, thank you all for being here. Um first for you, Mr. Schwarz. Um commodity futures and swaps markets are global markets. In fact, one of the largest clearing houses registered with the CFTC is located in London. Can you speak to the importance for global regulators to be able to coordinate, share information with, and learn from one another as they surveil and regulate these markets?
▶ 2:30:02Uh, yes, you put your finger on it. These markets are are global and things like systemic risk and wrongdoing don't recognize international borders. Uh, but on the other hand, there are there are differences in between the localities, right? They may have different practices in one part of the world. There's certainly different laws all over the world and the CFTC's jurisdiction is primarily domestic.
▶ 2:30:28So, it's absolutely critical that they be cooperating with foreign regulators and information sharing is inherent in that. Would in your mind would detailing staff to and from foreign regulators like the UK or EU support the global sharing of knowledge and experience and ultimately allow the CFTC to best serve the markets that at the end of the day helps our Kansas and our egg farmers?
▶ 2:30:49Yeah. Having those kinds of perspectives at the ready uh without having to engage in some kind of international process would be I I would think very helpful to the agency.
▶ 2:31:01Yeah. And at the end of the day would help our egg producers, right? I mean which is which which matters um for these markets. Thank you. Uh quick question for you uh Miss Kiteon and good good seeing you again.
▶ 2:31:11The protection of customer funds um at an FCM is one of the bedrock principles for futures regulations. Can you briefly talk about how that process works both daytoday in the event of a bankruptcy and what happens if funds are held in segregation account if those funds are insufficient um how are customers made
▶ 2:31:30Sure. Nice to see you as well and thank you for the question. You're right. I think one of the most important important principles that we focus on as an FCM is our ability to segregate assets and protect client assets. And when we think about some of the newer structures that are being proposed, these sort of direct clearing models, um, we have to take a very careful look at how are assets protected in those new structures.
▶ 2:31:52Customers move from being a customer of an FCM and having those having those protections to being a counterparty to the the clearing house where um, in the event of a bankruptcy, they become a general creditor. And so that is a very distinct difference in those two models and it's one that we have to pay careful attention to. And the customer protection regime is one that we focused on quite heavily within the FTX discussion, right? When you think of these new structures, what does that actually mean? So, um, we segregate assets.
▶ 2:32:22We hold them into accounts designated for the benefit of customers in the event that we were ever to to default. And uh if there was ever a shortage of of uh assets in those segregation funds, one of the things that we're looking for is what we call the the Griffin fix and is kind of cementing in statute the prioritization of customers in the event that there were a shortage. Um they would be prioritized over other general creditors of the FCM.
▶ 2:32:48That that's very helpful though. Thank you. Um last question to entirely different direction of for you, Mr. Proster. In your testimony, you mentioned convergence and its importance to the real world work of moving a commodities around the planet. Can you speak to what convergence is and why that is important to the work that Skooler does?
▶ 2:33:08The idea that ultimately these derivatives derive their value from a real commodity, the things we make food and fiber out of is central to why they work as risk mitigation tools. And this is why the commission has a role to play in physical markets because they do as we come into delivery um help go to a benchmark price that reflects the physical price of
▶ 2:33:38the commodities that these represent and because of that process they become integral hedge tools for producers as well as consumers.
▶ 2:33:50Great. Yeah. Well, thank you all for being here. Um, I yield back the balance of my one second, Mr. Chairman. Thank
▶ 2:33:56Very good. Thank Thank you, Mr. Man. Uh, Miss Bazinski, you are recognized.
▶ 2:34:00Thank you, Mr. Chairman. Thank you, ranking member. Um, I appreciate all the witnesses time today uh for this important discussion on reauthorizing the commodities futures trading commission. Um, I represent a district in central and southern Illinois.
▶ 2:34:15I come to this hearing really with a clear priority, which is making sure our derivatives markets continue to serve the real economy, especially the farmers, grain handlers, bofuel um, and cooperatives who rely on these markets every single day. For producers in my district, futures markets are not abstract financial tools.
▶ 2:34:37They are lifelines, riskmanagement tools that help determine whether a family farm survives in a volatile season like we have right now, whether um a grain elevator can offer competitive bids, and whether rural communities can count on stable economic conditions. Right now, we're asking the commun commodities futures trading commission to do more than ever at a time when it has less capacity than ever.
▶ 2:35:05Um, the agency has just one sitting commissioner and four vacancies. An unprecedented situation for a regulator overseeing trillions of dollars in market activity. As the Commodity Futures Trading Commission is asked to keep up with rapid changes in technology, data systems, digital assets, and increasingly complex clearing operations. I support responsible innovation, but we have to be honest about the tradeoffs.
▶ 2:35:33If growing responsibilities aren't matched with real resources, we risk weakening oversight where it matters most for my district, our agricultural markets. So, as we move forward with this reauthorization, my hope is simple. That we give the Commodity Futures Trading Commission the tools and resources it needs to keep up with today's markets. and that we never lose sight of the farmers and rural businesses who rely on these markets every day to manage real world risks.
▶ 2:36:03Central and Southern Illinois helps feed and fuel this country and our producers deserve strong, modern, and well- reggulated markets that put their needs first. Um, I appreciate our witnesses being here today and I just again I have a couple of questions. One I first I wanted to direct to Miss Kiteon.
▶ 2:36:22Um, and my question for you is, as margin and collateral requirements continue to evolve, how can reauthorization promote stability and sound risk management while also accounting for the liquidity constraints faced by smaller agricultural firms?
▶ 2:36:40Thank you for the question. Um, I'm going to separate those things a bit and I think referencing Commissioner Stump, um, I think the CFTC has the ability to act and engage with us on margin now. Um and I'll say kind of parallel to that is it is incredibly important to reauthorize right but kind of specifically on your question on margin um you know it serves as what we think of as the first line of defense it is the capital it's the collateral that sits with the FCM to mitigate uh a risk issue to be
▶ 2:37:10the protections for the ecosystem in the event of a default and when margin levels go too low and then we hit um a period of real stress what we find is an incredible stress and strain strain on the system where customers and users have to quickly source cash which can have a a broader destabilizing effect. So as margin levels continue to drift lower, one of the things that we think is most important is we think about recalibrating what those margin levels are so they don't drift so low.
▶ 2:37:39And if you have the ability for um kind of more healthy projections, you have the ability to then source more stable funding so you're not looking at sourcing additional cash when everyone else is. and cash is just more expensive. So, I don't think it's necessarily intuitive when we say
▶ 2:37:56uh higher or stronger margins, a more robust margin regime is one of the right answers, but we think it is because it gives that stability and durability of funding and so you're not raising your costs when you really don't want to.
▶ 2:38:08Okay, thank you for that. And I'm going to squeeze in maybe one more question. Um Mr. Shiffron. Um, what improvements to transparency do you think Congress can pri or should prioritize in this to better support commercial and you users understanding of market conditions and risk?
▶ 2:38:30Thank you for the question. Well, I think that if the CFTC is going to take on new found responsibilities in emerging markets, it needs to make sure that investors in those new and emerging markets have the disclosures that they need to understand the risk. So, when you're talking about things like 247 trading or prediction markets or perpetual futures, those are new and novel products that have new and novel risks and the Kimme should make sure that investors have the disclosures that they need to understand those products.
▶ 2:38:58Is there anything specifically that you might recommend that we can in the reauthorization that we should be doing to get to that?
▶ 2:39:08just to communicate more around the risks around some of these emerging
▶ 2:39:13Nothing comes to mind specifically, but I'm happy to work with your office and get back on that.
▶ 2:39:17Okay. Thank you. Thank you. I'll I'll defer back. There is opportunities to continue for the commission to uh publish data about the part market participants, who's buying, who's selling, and the cadence at which they do that. And we would encourage that to become more frequent.
▶ 2:39:35Thank you for that. Thanks,
▶ 2:39:36Mr. Taylor from Ohio. Your five minutes.
▶ 2:39:40Thank you, Chairman, and thank you, ranking member, for holding this hearing today. And thank you to the witnesses for your time and expertise and uh the sacrifices you make to be here. Don't go unnoticed. We appreciate it. Um, Mr. Schwarz, the definition of swap is rooted in a broad statutory definition uh passed as part of the DoddFrank Act, which was further defined by the CFTC and the SEC.
▶ 2:40:03Uh, what are some of the possible consequences of poorly considered efforts to narrow the definition of a Well, uh, if it were narrowed too far and financial innovation often times includes regulatory avoidance, you could get into a situation where the CFTC didn't have jurisdiction that it needed. You could have systemic risk problems. You could have anti-fraud, anti-manipulation problems.
▶ 2:40:30So, that that is something that Congress and the CFTC need to consider very very
▶ 2:40:36Okay. Thank you. And, uh, staying with you, Mr. Schwarz. It's uh it's my understanding that the environmental and energy markets advisory committee was created by the commodity exchange act while the other four advisory committees were created by the CFTC pursuant to the federal advisory committees act. Despite all being advisory committees because uh was created in a different way. EMAC is subject to different rules.
▶ 2:41:02How does administering the advisory committees according to two different sets of rules unnecessary complicate agency operations and can you talk uh more about some of the differences between the rules?
▶ 2:41:14Uh sure thank you. Uh it is an administrative burden. There is I can tell you one expert in the federal advisory committee act in the office of the general counsel. She spends probably more than 50% of her time on on this. And there's two sets of rules. doesn't need to be. So I mean some of the differences are under the under the FACA you have to submit various reports, documents, charters for approval by GSA.
▶ 2:41:44Uh you don't have to do that for for the EMAC because it's exempt from the FAA. It's created differently. There are different rules as far as number of members from each uh committee. I I don't know that there is a justification that anybody sat down and thought about before they made two different sets of rules. It would just be e easier to process if there were one set of rules for I appreciate your perspective on that.
▶ 2:42:15Um, as we work to reauthorize the uh, CFTC, we have the opportunity to make improvements to ensure maximum efficiency toward its mission to promote the integrity, resilience, and vibrancy of the US derivative markets. One area, as Mr. Schwarz spoke about, where I think we can make an improvement is streamlining the advisory committee structure so all advisory committees operate equally. By all accounts, the advisory committees serve a great purpose and provide great insight to the to the commission. and it doesn't make sense that we have one advisory committee operating with different rules.
▶ 2:42:45To fix this, I'll be introducing the CFTC Advisory Committee Improvement Act, which will eliminate the single authorization for EMAC and replace it with a generic authorization for all advisory committees. I know in DC we like to make things complicated sometimes, but I think by standardizing the operating structures, we can make things better for the American people. I look forward to continuing to work with my colleagues on the CFTC reauthorization and I'm going to let you guys off a minute and a half early. I yield back.
▶ 2:43:14Very good. Thank you, Mr. Taylor. Uh Mr. Davis, uh any closing comments for the
▶ 2:43:19Thank you, Mr. Chair. U of course when we talk about today's hearing, we've heard from um some amazing witnesses on many issues um and challenges um confronting the CFTC. Mr.
▶ 2:43:33Chair, we've received several statements from the American Gaming Association, Indian Gaming Association, the NFL um all around the issue of event contracts on sporting events and ask if it's without um unanimous consent for these statements to be entered into the record so that they could be shared with
▶ 2:43:55anything else, sir?
▶ 2:43:56Yes. And lastly, I just want to thank you again and thank our witnesses. Uh, a couple of our witnesses noted the strong tradition of nonpartisan decisionmaking at the commission. Of course, we expect that at the staff level, but that's also been true uh at the commissioner level. Just really good technical expertise. I think we've also seen that spirit of non and bipartisanship today as people talk about the importance of the CFTC.
▶ 2:44:25Uh we have had uh had words used by uh our witnesses and by members nimble, innovative, effective. And that's really why reauthorization is so incredibly important if we want to continue to have this the best little regulator that America has never heard of. As Mr.
▶ 2:44:44Schwarz said uh continue to be a a leading example of quality uh principles-based regulation, then Congress better do our gosh darn job. And I think today was a really really good additional step toward that um uh toward that goal. With that, under the rules of the committee, of course, the record's going to remain open for 10 days.
▶ 2:45:08uh so our witnesses and members uh can augment the record and unless anyone else has anything pressing the hearing on this committee on agriculture is now closed. Thanks