J. Christopher “Chris” Giancarlo was unanimously confirmed as Chairman of the U.S. Commodity Futures Trading Commission by the U.S. Senate on August 3, 2017. Prior to becoming Chairman, Mr. Giancarlo was designated Acting Chairman on January 20, 2017 and was nominated by President Trump to serve as the Chairman on March 14, 2017 to a term that expires in April 2019. Mr. Giancarlo had served as a CFTC Commissioner since his swearing on June 16, 2014, after a unanimous consent by the U.S. Senate on June 3, 2014. He was nominated by President Obama on August 1, 2013.
Before entering public service, Mr. Giancarlo served as the Executive Vice President of GFI Group Inc., a financial services firm. Prior to joining GFI, Mr. Giancarlo was Executive Vice President and U.S. Legal Counsel of Fenics Software and also served in several law firms. In addition, Mr. Giancarlo has testified three times before Congress regarding the implementation of the Dodd-Frank Act, and has written and spoken extensively on public policy, legal and other matters involving technology and the financial markets. Mr. Giancarlo received his law degree from the Vanderbilt University School of Law and has been a member of the Bar of the State of New York since 1985.
FIA Japan: You were designated as Acting Chairman in January 2017, when your predecessor Mr. Massad stepped down, and recently confirmed by the Senate as Chairman of the CFTC. How would you describe the current status of the Commission and its approach to regulation and oversight, in comparison to where we were in 2016?
Giancarlo: In addition to my confirmation as the new Chairman of the CFTC, the other significant development is that the CFTC now has two new Commissioners. The U.S. Senate confirmed Brian Quintenz and Russ Behnam in August 2017 as new Commissioners. With Commissioners Quintenz and Behnam part of the CFTC, we now have three Commissioners in office ready to consider new rulemaking and other matters of importance to the CFTC. Domestically, we have begun new initiatives to simplify the CFTC’s regulations and proactively respond to new challenges. Earlier this year, I announced the launch of Project KISS, inviting comments on four particular areas: registration of clearing, trading, data repository, and intermediary entities; swap data reporting and recordkeeping; clearing; and trade execution. The purpose is to devise less burdensome applications of existing rules while achieving the same regulatory objectives. Lessons learned from the prior rulemaking and implementation process as well as Project KISS will inform our forward-looking efforts to establish an updated framework for reform. Also in 2017, we introduced another new initiative, LabCFTC, which is designed to make the CFTC more accessible to technology innovators and gather information about innovations to enhance the Commission’s understanding of new technologies.
Internationally, I have spoken publicly and to my counterparts abroad about the importance of regulatory comity and supervisory deference in how we regulate cross-border activities and firms. The CFTC is at the forefront in implementing global swaps market reforms. As other regulatory authorities proceed with the implementation of swaps reforms in their respective jurisdictions, we are working with them to ensure that our rules do not conflict with or fragment the markets. This approach is aimed at achieving the goals of the OTC derivatives reforms originally set forth by the G-20 Leaders in 2009, while ensuring continuity of transactional flow and avoiding unnecessary friction in the markets.
FIA Japan: In a speech made in late 2015, JFSA Commissioner Mori talked about “regulation factories”, in relation to the numerous international bodies looking at introducing a number of new rules and regulations. What are your thoughts on Mr. Mori‘s comments?
Giancarlo: In his 2015 speech, Commissioner Mori cautioned against over-regulation and noted the potential for unintended consequences resulting from excessive or imprudent regulation. I am in agreement with Commissioner Mori that we must look carefully at all of the international standards that have been developed since the G-20 Pittsburgh Summit in 2009 and identify and fix unintended consequences. For this reason, I have been a strong proponent of the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO) pivoting away from development of new standards and instead looking more intensely at the effectiveness of reforms to date. The CFTC has taken a leading role in these efforts. The CFTC co-chairs the FSB’s Derivatives Assessment Team (DAT), which is conducting a comprehensive review of the incentives to clear OTC derivatives. I am pleased that one of the issues that the FSB DAT is examining is the effect of the supplemental leverage ratio on clearing. The CFTC is also the chair of the IOSCO Committee on Derivatives, which is currently considering all of the OTC derivatives reforms and whether they are achieving “efficient resiliency.”
FIA Japan: Following similar steps in Europe, Japan is on the verge of introducing its own set of regulations around HFT (or “HST - High Speed Trading” as it is known here), including a mandatory registration process for any of those firms trading the Japanese markets. What are your thoughts on these developments? What is the situation in the US and where are we heading? How can global regulators best coordinate extra-territorial issues?
Giancarlo: Japan’s initiative to embrace and adapt to the electronic and digital age is admirable and exemplary. Twentieth century analog financial markets no longer exist and existing regulation must be updated to address today’s challenges. Recently, the CFTC has begun taking steps to catch up to the electronic and digital revolution. Automated trading now constitutes about 70 percent of regulated futures markets and this is bound to increase in the future. We finalized Regulation Automated Trading (RegAT) in late 2016, which seeks to draw on industry best practices, provide flexibility in setting risk control parameters, and does not require the pre-approval or pre-testing of algorithms. However, RegAT falls short of being the appropriate response to automated trading concerns. Requiring the registration of more market participants and subjecting them to additional rules does not begin to address the complex risks associated with high frequency trading. Realizing this and other shortcomings, we are now in the process of finding new solutions to the evolving challenges.
The right approach is to keep abreast of developments in the digital transformation of the financial markets, embrace innovation, and update rules for the digital age. The CFTC and regulators in other jurisdictions are well aware of the potential benefits and risks of fintech and look to work with developers and market participants to capitalize on the benefits and monitor the risks. It is in our best interest to cooperate and coordinate with our foreign counterparts and to learn from each other’s best practices.
FIA Japan: FinTech and cybersecurity are taking more and more of a central role, which is also true for our industry. How is CFTC involved in these developments? Is this a threat or an opportunity for global financial markets? What would you recommend that market participants focus on?
Giancarlo: The CFTC embraces innovation and the digital transformation that has been taking place in our markets. We view these technological advancements as an opportunity to improve the quality, resilience, and competitiveness of global markets. Consumers, farmers, ranchers, as well as investors already have benefited from the technological innovation of the markets overseen by the CFTC. There is no doubt that the digitization of financial markets presents challenges to market regulators.
I mentioned already that we recently announced the creation of LabCFTC. LabCFTC is designed to make the CFTC more accessible to technology innovators and serves as a platform to inform the Commission’s understanding of emerging technologies and how they interact with our current rules. Additionally, LabCFTC is an information source for the CFTC regarding technology-driven innovation that may influence policy development. This two-way engagement helps innovators understand relevant regulations and our approach to oversight and, at the same time, provides the CFTC exposure to new developments in the area, including concepts that may be useful to the agency for regulation and oversight. Good regulation should not constrain technological innovation, but rather serve as a platform for such innovation.
FIA Japan: In the recent speech in Tokyo, delivered by your Chief of Staff Michael Gill, what was the main message to the FIA Japan members in attendance and to other Japanese market participants? How do you think that FIA Japan can continue to best support the development of our markets?
Giancarlo: In the speech to the FIAJ, we sought to highlight the importance of readjusting our reform work based on past and current experiences. The speech addressed my current priorities, which focus on evaluating and improving our reform efforts. It is particularly important to share our thoughts in this setting given the importance of Japan as one of the leaders in the G-20 reform efforts.
The speech discussed CFTC projects underway to secure smarter and simpler regulatory approaches where possible, better aligned to fit the needs of regulators and market participants alike. Where appropriate, we seek to make our existing regulations simpler, less burdensome, and less costly, and yet still serve the same goals. It makes sense that, as we continue to work on reforms, we want to learn from our experiences to date, and make such adjustments. The speech also addressed new challenges on the horizon, including new market technologies and cyber-attacks. My current priorities include projects to consider adjustments to our regulations where appropriate and to respond to technological changes. We must adopt a proactive approach to technological advances to combat the threat of cyber-attacks, while working to promote stability and flexibility in our financial markets. Other priorities include advancing our swaps data reporting harmonization work in a timely manner.