On 11 March, Commodity Futures Trading Commission Acting Chair Caroline Pham delivered a keynote address at the 50th anniversary of FIA’s International Futures Industry Conference – FIA Boca. Pham’s remarks come at a pivotal moment for the industry.
A rise in novel market structures has raised important questions about potential conflicts of interest. Innovation and technology have given rise to novel products, including digital assets and prediction and event contracts. At the same time, significant geopolitical changes around the world have raised new questions about the cross-border regulatory landscape.
Since taking leadership of the CFTC on 20 January, Pham announced she will “refocus and change direction [of the Commission] with new leadership to fulfil our statutory mandate to promote responsible innovation and fair competition in our markets.”
To date, Pham has made broad leadership changes and installed a slate of new division directors.
In prepared remarks, Pham highlighted one early priority of asking various CFTC divisions and offices “to provide a list of all open and pending matters at the CFTC…That exercise resulted in an inventory of over 200 open and pending matters, some dating back over 10 years, and hundreds of investigations and enforcement matters, some dating back almost 15 years.”
In six weeks, Pham said the CFTC has made progress and “completed or addressed about a fifth of our open matters and dispositioned about a third of our open investigations.”
Organisational Structure and Market Surveillance
Pham used her keynote address to outline a reorganisation of the CFTC, including “moving the [futures commission merchants] team from the Market Participants Division back into the Division of Clearing and Risk Management to better enable a holistic view of systemic risk in the clearing system across both futures commission merchants and derivatives clearing organisations.”
Pham also said she will move the Market Surveillance Branch out of the Division of Enforcement into Division of Market Oversight, where it previously resided.
Pham previewed that she would explore the procurement of a real-time trading surveillance system to bring the CFTC in line with other regulators from around the world. Pham noted the “current futures market surveillance system dates back to the 1990s and is antiquated” and that she is “pleased to start the procurement process for the CFTC to obtain, for the first time, a real-time market surveillance system, something that can be purchased off-the-shelf.”
She also discussed the importance of industry feedback, citing a previously announced series of public roundtables on evolving trends and innovation in market structure, including issues such as affiliated entities and conflicts of interest, prediction markets and digital assets.
New Compliance and Remediation Initiative
In February, Pham announced a “reorganisation of the Division of Enforcement’s task forces to combat fraud and help victims while ending the practice of regulation by enforcement.”
Continuing with this theme, Pham announced at Boca50 a new 30-day “compliance and remediation initiative or enforcement sprint” to encourage market participants to resolve open investigations regarding compliance violations that did not result in customer harm or market abuse.
She explained that the Division of Enforcement is inviting market participants that would like to self-report any compliance violations to come forward over the next two weeks to present an update on their remediation and improvement plan and a reasonable settlement offer. Through this effort, the CFTC aims to refocus Division of Enforcement resources and time on market abuse and fraud that result in customer harm.
Pham also shared that she expects additional enforcement-related guidance in the coming weeks for market participants, and that she is conducting a review of all pending enforcement-related matters before the Commission.
Predicting regulatory clarity
Prediction and event contract markets are receiving increased attention from market participants, the legal community and regulators in the US and abroad. Pham said the CFTC plans to host a previously announced prediction markets roundtable at the end April. She went on to say that she supports establishing “a holistic regulatory framework that will both foster thriving prediction markets and protect retail customers from binary options fraud, such as deceptive and abusive marketing and sales practices.”
And Pham shared that the Commission is currently deliberating whether to reopen the comment period for the 2008 Concept Release on the Appropriate Regulatory Treatment of Event Contracts. Pham concluded that “of the two dozen questions posed in 2008, all remain relevant today, particularly questions regarding the public interest in information aggregation and price dissemination, and the utility of information markets.”
Pham concluded her remarks emphasising the CFTC’s “outsized impact on the lives of everyday Americans.”
She thanked and credited CFTC staff for making the agency what it is today, stating that “as one team, we will keep writing new chapters in the CFTC’s history as we look to the future for the next 50 years.”
