Commodity Futures Trading Commission (CFTC) Chairman Christopher Giancarlo was confirmed unanimously by the Senate in August 2017 after being nominated by President Donald Trump. Giancarlo has served as a CFTC commissioner since June 2014, after being nominated originally by President Barack Obama to fill a Republican vacancy at the agency.
Giancarlo, who spoke at NGFA’s 2017 Annual Convention, has discussed removing regulatory barriers for agriculture as well as improving the efficiency of the CFTC. In an exclusive interview, he answered some of NGFA’s questions about the process:
Question: What do you most look forward to accomplishing once the Commodity Futures Trading Commission (CFTC) has a full set of commissioners?
Giancarlo: Let me begin by thanking you for this opportunity to talk with your readers. Your members are foundational to our economy, and, the world.
At the CFTC, currently, there are three commissioners at the agency; there should be five, appointed by the president and confirmed by Congress. The president has recently nominated two more and we hope to have them on board very soon. We will benefit from a full complement of commissioners on every issue. That is what gives us credibility and validity. We particularly need commissioners of both parties. This helps us retain support and visibility in the markets, on Capitol Hill and with the American people. Recently, we held public hearings with only three commissioners on core, fundamental issues like the Volcker Rule and procedural aspects of our work that impacts the markets. The votes sometimes were 2-1. I had wanted to wait until we had all five commissioners. Unfortunately, circumstances changed that; but we would have benefitted from the input of all five commissioners.
When you have five commissioners with deep backgrounds, the decisions reached reflect that expertise and varied viewpoints.
Question: You’ve said CFTC would do everything it could to remove regulatory barriers to agriculture’s ability to manage price volatility risks. For the agriculture industry, what are your ideas for how this can be accomplished?
Giancarlo: We must do whatever we can to expand markets, lower costs, diminish volatility and increase profitability. I have made several trips to the heartland to listen to the concern of producers and agribusinesses. And in April this year, I was there for a two-day, very informative conference the CFTC and Kansas State University’s Center for Risk Management Education and Research hosted in Overland Park, Kan., where hundreds of farmers and market participants shared their views on steps we could take. Both U.S. Senators, Pat Roberts and Jerry Moran, spoke to the group.
We vowed at that conference to listen and do more to ensure regulatory barriers do not stand in the way of long-standing hedging practices of American agribusinesses, which depend on our markets. I am dedicated to that throughout my CFTC chairmanship. We have also taken steps to make swaps trading easier, and less costly. And, in tandem with an executive order from the president, we have undertaken an agency-wide effort to eliminate unnecessary, costly, duplicative regulations.
Another action the CFTC must do for all market participants, including the agricultural community, is to keep up with the pace of technology, which is leading us into a world that is much different than the world we knew five or 10 years ago, much less when the Commission was created in 1975. Much of our world today – from information to journalism to music to manufacturing to transportation to commerce to agriculture, even legal services – is undergoing a digital transformation. It, therefore, should be no surprise then that our agricultural markets are going through the same digital revolution.
Technology is impacting trading, markets, and the entire financial landscape, with far-ranging implications for capital formation and risk-transfer. These technologies include machine-learning and artificial intelligence, algorithm-based trading, data analytics, “smart” contracts valuing themselves and calculating payments in real-time and distributed ledger technologies, which over time may come to challenge traditional market infrastructure.
Our task, as market regulators, is to set and enforce rules that foster innovation while promoting market integrity and confidence. To do so, we must have the resources and tools to keep pace with rapid evolution of the markets we oversee. Our budget request provides those resources and tools.
Hope you don’t mind if I provide some history of derivatives and the United States.
The derivatives market has been good for the nation. For more than a century, Americans have relied on U.S. derivatives markets to stabilize the cost of living. These markets allow farmers and ranchers to hedge production costs and delivery prices so that consumers can always find plenty of food on grocery store shelves. They are the reason why American consumers enjoy stable prices, not only in the supermarket, but in all manner of consumer finance from auto loans to household purchases. Derivatives markets influence the price and availability of heating in American homes, the energy used in factories, the interest rates borrowers pay on home mortgages, and the returns workers earn on their retirement savings.
And not just consumers, more than 90 percent of Fortune 500 companies use derivatives to manage commercial or market risk in their worldwide business operations. These markets allow the risks of variable production costs, such as the price of raw materials, energy, foreign currency and interest rates, to be transferred from those who cannot afford them to those who can.
Even Americans not actively participating in commodity derivatives markets are affected by the prices generated by them. Commodity derivatives markets provide a critical source of information about future harvest prices. For example, a grain elevator uses the futures market as the basis for the price it offers local farmers at harvest. In return, farmers look to exchange prices to determine for themselves whether they are getting fair value for their crop. The U.S. Department of Agriculture (USDA) uses that same information to make price projections, determine volatility measures and make payouts on crop insurance.
In short, derivatives serve the needs of American society to help moderate price, supply and other commercial risks to free up capital for economic growth, job creation and prosperity. While often derided in the tabloid press as “risky,” derivatives – when used properly – are tools for efficient risk-transfer and mitigation. It has been estimated that the use of commercial derivatives added 1.1 percent to the size of the U.S. economy between 2003 and 2012.
American derivatives markets are the world’s largest, most developed and most influential. Many of the world’s most important agricultural, mineral and energy commodities are priced in U.S. dollars in the U.S. derivatives markets. Dollar pricing of the world’s commodities provides a tremendous advantage to American producers in global commerce, an advantage well recognized by competing economies abroad.
American derivatives markets are also the world’s best regulated. The United States is the only major country in the Organization for Economic Co-operation and Development to have a regulatory agency specifically dedicated to derivatives market regulation: the CFTC. The CFTC has overseen the U.S. exchange-traded derivatives markets for over 40 years. The agency is recognized for its principles-based regulatory framework and econometrically-driven analysis. The CFTC is recognized around the world for its depth of expertise and breadth of capability.
This combination of regulatory expertise and competency is one of the reasons why U.S. derivatives markets continue to serve the needs of participants around the globe to hedge price and supply risk safely and efficiently. It is why well-regulated U.S. derivatives markets continue to serve a vital national interest – dollar pricing of important global commodities.
Your members rely on America’s well-regulated derivatives markets, which are a national advantage in global economic competition. However, we must not take this advantage for granted. In order for U.S. derivatives markets to remain the world’s best, U.S. markets must remain the world’s best regulated. To be the best regulated, U.S. derivatives markets must have an adequately funded regulator. The CFTC must have adequate resources to continue to serve its mission to foster open, transparent, competitive and financially sound U.S. derivatives markets that remain the envy of the world.
Question: Thinking more broadly beyond agriculture, what has been the commission’s most important accomplishment so far under your leadership?
Giancarlo: We are proud of all our work here. It would be inappropriate and unfair to single out just one or two of our actions. But we have received the most publicity and public interest from regulating virtual currencies like Bitcoin. We are on the cutting-edge of technology and need to stay there. America cannot fall behind.
Question: You’ve said that the CFTC needs a more robust budget. How is tight funding affecting the agency?
Giancarlo: In the last four years Congress has flat-lined our budget at $250 million (annually). Last fiscal year we received a budget of $249 million. Yet, each year we have been asked to do more, in effect to regulate for pennies on trillion-dollar markets. As I have explained to Congress, we need the resources to do the job. I have asked for $281.5 million, which would give us the resources for effective oversight, enforcement and education. That is what we need, and not a penny less. Technology is creating a new, virtual world. We have to meet the challenges, not fall behind. We need to be proactive and ahead of the curve.
Question: Do you envision the CFTC operating differently by the end of your chairmanship? What big picture goals do you have for your role?
Giancarlo: The CFTC operates by statute and tradition. Within that framework I have tried to be open, respectful, collaborative and responsive. We have been timely and vigorous in enforcement. A major accomplishment has been more public education on virtual currencies. I am trying to make CFTC a help, not a hindrance, to our farmers and ranchers. We have a job to do. But, our markets must remain free, fair, stable and reliable. American agriculture and agribusiness can compete with anybody on a level playing field.
Based on direction by statute, the White House and Congress, I intend to fulfill our mandate. I would assume the same would be true for my successor.
Thank you again for this opportunity to speak to your members.