“Debates about the ideal form of regulation often pose a false dichotomy, sorting regulatory efforts into two seemingly oppositional categories: governmental or private. But this division offers an overly simple account of the regulatory structures that define modern administrative law. Instead, sound regulation is, more often than not, the result of collaboration between traditional governmental functions and self-regulatory measures performed by private actors. Far from being at odds with each other, government and the private sector often work together to produce regulatory solutions that balance effective oversight with the flexibility needed to adapt to changing circumstances …

“[S]elf-regulatory organizations (SROs) play a critical role in regulating the derivatives market, subject to broad CFTC oversight. This structure has for decades combined the key contributions of both the private sector and government into an integrated regulatory system that has proven adaptable to change. Just as an accurate study of government in the United States cannot consider only the President, Congress, and the Judiciary while omitting state and local governments, so too must an inquiry into U.S. derivatives market focus on SROs …

“As members of industry, SROs raise the proverbial fox-in-the-henhouse question: does the SRO really protect the interests of the public, or is it beholden only to its industry stakeholders? Concern about an inherent ‘conflict of interest that exists when an organization both serves the commercial interests of and regulates its members’ has been long-standing. The imposition of government oversight to help ensure that SROs perform their self-regulatory duties faithfully is an effective way to address this concern …

“One especially timely example of the self-regulatory framework in practice followed the coronavirus (COVID-19) pandemic, which took hold in the United States in 2020 and produced unprecedented market volatility in March of that year. For participants in the U.S. derivatives markets, successfully navigating the effects of COVID-19 required an integrated approach that tapped the strengths of both governmental and self-regulatory measures. In responding to an economic crisis of historic proportions, the CFTC and derivatives SROs came together to foster stability through collaboration …”

The full article, which was the subject of a lecture delivered last fall by Chairman Tarbert, will be published in Vol. 41, Issue 1 of the Northwestern Journal of International Law and Business. A pre-publication copy is available here.