Today, CFTC staff issued a Request for Comment on the impact of “affiliations between certain CFTC-Regulated Entities”, specifically derivatives clearing organizations (DCOs), designated contract markets (DCMs), swap execution facilities (SEFs), futures commission merchants (FCMs), and other market participants.  I encourage all stakeholders to provide comment and address the questions presented.  I also appreciate the leadership of my fellow Commissioners in examining these issues.

As our derivatives markets continue to evolve, I would like to emphasize the CFTC’s long-standing commitment to fostering liquidity and competition through our existing regulatory framework.  Our regulations are robust and have been established to address potential issues related to affiliated entities, conflicts of interest, and impartial access.  These regulations have been in place since the 1970s and have proven to be effective in maintaining the integrity of our markets.

In particular, the CFTC is mandated to oversee an effective system of self-regulation, and it is our registered entities such as DCMs and DCOs who are at the forefront of robust market regulation, including through bringing their own enforcement actions and requirements designed to protect the independence of their regulatory oversight and enforcement functions.

The CFTC has dedicated staff who conduct Rule Enforcement Reviews of our DCMs and SEFs, and examinations of our DCOs, ensuring that registered entities and especially self-regulatory organizations (SROs) fulfill their obligations and enforce their rulebooks as mandated by the Commodity Exchange Act (Act) and CFTC regulations.  This rigorous oversight serves as a testament to the CFTC’s commitment to maintain the trust and confidence of all market participants.  I would like to recognize and commend the compliance and examination staff of the Division of Market Oversight, Division of Clearing and Risk, and Market Participants Division, in addition to the National Futures Association (NFA), our registered futures association under our Act, for their unwavering focus on upholding the effectiveness of our oversight of a system of self-regulation.

The affiliations between DCOs, DCMs, or SEFs with intermediaries, such as FCMS or other market participants, are indeed complex.  For example, FCMs act on an agency basis for customers, and therefore some concerns regarding conflicts of interest seem like they should be directed at the proprietary trading of FCM customers that are affiliated with DCOs or DCMs. Understanding the dynamics of these relationships is crucial for maintaining fair and efficient markets.  However, I’d like to note that our existing regulations are designed to address these very issues.

As we move forward, I look forward to reviewing the comment letters in response to this request.  It is through open dialogue and active participation from all stakeholders that we can ensure the continued success of our derivatives markets. I am confident that our existing regulations, coupled with the insights gained from this request for comment, will guide the CFTC to a thoughtful approach to all types of market participants to ensure the integrity of our markets and impartial access, address potential conflicts and risks, and prevent fraud, abusive practices, and manipulation.