I am grateful to the ABA Derivatives and Futures Law Committee and its members for giving me such a warm welcome over the last six months.  The last time I spoke to a room full of derivatives lawyers in April, some said that it was interesting to talk a bit about crypto, but they were most interested in my views about Commodity Futures Trading Commission’s (“CFTC”) regulation of established derivatives markets, the core of their work.  So here you go.

Today, I share my perspective as a Commissioner coming to the CFTC with a 20-year federal career, as a market regulator at the Securities and Exchange Commission (“SEC”) with an investor protection mandate, and at the Treasury Department as the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”), helping our government and nation build a stronger and safer financial system after the financial crisis in order to protect Main Street.  By Main Street, I mean those hardworking American families and small and mid-sized businesses who drive our nation’s economy.  Who support our communities.  Whose logos are on the backs of little league and soccer jerseys.

Having spent the last 12 years at Treasury, ensuring that our economy is financially stable for hardworking American families and small and mid-sized businesses is a guiding force for me.  Wall Street institutions regained financial stability by 2009 after taxpayers provided billions in TARP bailouts.  But it would take 10 years for American families and small and mid-sized businesses to recover from the crisis – truly an outsized impact from a crisis that they did not cause.

It is these hardworking families and little league-and-soccer-sponsoring businesses who will suffer again if Wall Street’s risk taking is unchecked, if regulators are kept in the dark, and risk is allowed to rise to systemic or sub-systemic levels.  Their voice informs my actions.  Those who often have no voice in the room.  No high-priced law firms or DC lobbyists.

These families and businesses depend on the CFTC, as a market regulator and member of the Financial Stability Oversight Council (“FSOC”), to responsibly monitor, identify, and respond to systemic risks and emerging threats to financial stability.  They depend on the CFTC to reign in risks seemingly removed from their day-to-day lives—but that can jeopardize their livelihoods.  This is why regulatory reporting is so critical – it brings transparency to risk previously hidden and promotes the CFTC’s ability to monitor and identify risk.  This summer, I supported the Commission, jointly with the SEC, in revisiting the reporting framework for private funds to understand evolving market risk.[1]  I also recently issued a public statement called “Systemic Swap Reporting Violations Harm Market Transparency and Integrity.”  I called out swap dealers and swap execution facilities with systemic violations of swap reporting laws.[2]  These are not “technical” violations, but serious illegal conduct that allows unchecked risky exposures to increase and evolve in the dark.  Some reporting failures also harm market transparency and integrity, imposing costs on the very families and businesses the derivatives markets are meant to serve.

Post-crisis reforms related to capital and central clearing also remain important for financial stability.  Regulators should require appropriate buffers to absorb shocks to our financial system.  I will continue to advocate for sufficient amounts of high-quality capital in our financial system, just as I have for more than a decade.[3]  Strengthening the resilience of clearing houses to risk will ensure that post-crisis reforms for central clearing can also achieve financial stability goals.[4]

With financial stability always top of mind, my highest priority at the CFTC is making sure that derivatives markets are working well for hardworking families, farmers like the Crumbaugh family, and small businesses like the Star of the West Milling Company in Frankenmuth, Michigan, both of whom I recently visited.  They told me how important derivatives markets are to hedge risk when they have extremely tight margins, and how important it is for the CFTC to root out manipulation or other wrongdoing.

It is families and small and mid-sized businesses who can suffer the most when markets are stressed with high prices and high volatility, as we have seen with the pandemic, supply chain disruptions, and Russia’s invasion of Ukraine.  It is these families and businesses who stand to lose everything from a catastrophic storm or other climate event, just as we saw with Hurricane Ian.[5]

With commodity markets under stress, the CFTC has an important responsibility to monitor commodity markets to ensure that derivatives markets are functioning well – fair, orderly, liquid, and driven by market fundamentals of supply and demand.  In June, I spoke to the Chicago Bar Association about how CFTC economists provide Commissioners daily information on the commodity markets, along with color.  I talked about how in some cases, CFTC staff conducts deep dives into particular market activity, and our role to have a deep understanding of market activity and the reason for that activity.[6]

I have been so impressed by CFTC staff’s monitoring of markets that I want to enhance it, formalize it, and share it with the public.  Last month, I proposed that the CFTC conduct deep dive studies in trading in commodity markets under stress – starting with oil, natural gas and wheat – to study whether prices are being determined by market fundamentals, and are not subject to manipulation, excessive speculation or other distortions.[7]  Public reporting on these studies would lead to greater public and market confidence.  These studies would prioritize the interests of farmers, ranchers and producers, and would ensure that American families and those small and mid-sized businesses sponsoring little league and soccer teams are not paying artificially increased prices.

The CFTC is uniquely positioned in its authority, data, and expertise to fulfill this important responsibility of monitoring commodity markets through deep dive studies as part of monitoring derivatives markets.  It’s the right thing to do, and the right time.  Most importantly, it’s at the core of the CFTC’s mission and the American economy.  So, thank you to derivatives lawyers for reminding me as a CFTC Commissioner about the Commission’s core responsibility.

Thank you, and I hope that you have an enjoyable conference.