FINRA President and CEO Robert Cook Examines Self-Interest in Self-Regulation

FINRA President and CEO Robert Cook examined the advantages and disadvantages of self-regulatory organizations (“SROs”), and addressed the “core question” of self-interest in self-regulation. He delivered his remarks at the Columbia University Law and Business Schools Program in the Law and Economics of Capital Markets.

Mr. Cook argued that SROs play a critical role in the markets because they offer three distinct advantages: (i) access to expertise, (ii) the proven ability to improve industry conduct, and (iii) sustainable funding from the regulated entities themselves, which can help to finance heightened supervision. He noted that FINRA has been able to protect investors and promote healthy capital markets in more practical ways than the government has done, including through investor education initiatives and tools that support compliance efforts among members.

Mr. Cook addressed issues surrounding securities exchanges, including questions about regulatory effectiveness now that the exchanges are for-profit entities. He highlighted debates around conflicts of interest, particularly concerning exchanges tasked with supervising members that are also their competitors, and exchanges running National Market System plans. Mr. Cook said that the core question for FINRA about self-interest in self-regulation concerns industry influence and, conversely, the criticism that FINRA members are insufficiently involved in the agency’s agenda and operations. If the criticism is true, he argued, then the “lack of sufficient industry engagement in FINRA’s deliberations could mean that one of the benefits of self-regulation . . . – ready access to and use of member expertise in order to craft creative regulatory solutions – is not being fully realized.”

As previously reported, a new “Special Study” of the securities markets (which was modeled after the 1963 Special Study) will offer recommendations for financial market regulatory reform. Mr. Cook noted that the 1963 study was the “catalyst” for crucial refinements to the self-regulation framework. Although the model has been questioned and scrutinized over the years by policymakers, he said, the importance of SROs for the success of markets has always been affirmed. Mr. Cook asked the conductors of the new Special Study to consider the ways in which the self-regulation model can fulfill its mission more effectively, avoid regulatory duplication, and better allocate responsibilities between the SEC and SROs (especially when the consolidated audit trail is in place). He concluded by advising those who craft the new study to strike a balance:

“We must not shy away from changes that can improve the SRO model. But we also should be sure that any interventions are based on careful study of the different structures and features of each of today’s SROs and are well designed to better protect investors and promote safe and vibrant markets.”

 

Lofchie Comment: From the perspective of a longtime industry participant, the extent to which FINRA may be properly viewed as a “self-regulatory” organization is fair to question.

SEA Section 19 gives the SEC tremendous authority over FINRA, including the right to reject rules adopted by FINRA, but also the authority to require that FINRA adopt rules. Further, the SEC has the authority to bring enforcement actions against FINRA (and it has done so). As a result, FINRA and its employees must be concerned that, should they fail to fully enforce their own rules that regulate broker-dealers, they themselves may become subject to an SEC enforcement action. By contrast, FINRA does not have reason to fear any adverse reaction of its members to being subject to enforcement action, and it is clear that FINRA is in no way hesitant to bring enforcement actions against its members. In short, FINRA is in no way “captive” to its members. In fact, rather than describing FINRA as a self-regulatory organization, it would probably be more accurate to describe it as a non-governmental rulemaking and enforcement organization that operates through a governmentally approved system of “taxes” (fees on members) and allows for limited input from regulated entities (just as the government allows regulated firms to comment on proposed SEC rules).

This is not to suggest that FINRA’s existence should be questioned. It has been a primary direct regulator of securities firms for almost eighty years (since it was established by the 1938 amendments to the Exchange Act). Any attempt to transfer its responsibilities to the federal government would be enormously disruptive and would serve no practical result. Indeed, it would be more reasonable to ask that the role of regulated broker-dealers within FINRA be expanded, so that FINRA would become slightly less of a pseudo-governmental entity and slightly more of a self-regulatory organization.

A good amount of literature on this topic has been published over the past decade, which was when the SEC last took a fresh look at self-regulation. See, e.g., Daniel Gallagher, “Market 2012: Time for a Fresh Look at Equity Market Structure and Self-Regulation(speech at SIFMA’s 15th Annual Market Structure Conference, October 4, 2012); Roberta Karmel, “Should Securities Industry Self-Regulatory Organizations Be Considered Government Agencies?” (unpublished paper, 2008); Onnig H. Dombalagian, “Self and Self-Regulation: Resolving the SRO Identity Crisis” (Brooklyn Journal of Corporate, Financial and Commercial Law, 2006). Perhaps the SEC’s last significant statement on this topic appeared in a concept release in 2004.

Senators Ask SEC Inspector General to Investigate SEC Acting Chair Piwowar

Senators Elizabeth Warren (D-MA), Bob Menendez (D-NJ), Sherrod Brown (D-OH) and Brian Schatz (D-HI) urged SEC Inspector General Carl W. Hoecker to investigate actions taken by Acting Chair Michael Piwowar during his transitional appointment. In their letter, the Senators ask that Mr. Hoecker “determine whether [Piwowar’s actions] are legally permissible and in keeping with the SEC’s core mission.”

The Senators asserted that:

“[t]here is no evidence that any of these changes in the SEC’s course are desired, or have been sought, by the person nominated to be the next SEC Chair. At his confirmation hearing, SEC Chair-nominee Jay Clayton testified that he had not been consulted about Acting Chairman Piwowar’s change to enforcement policy, did not know enough to know whether it was appropriate to reopen the pay ratio rule, and had no specific plans to revisit any Dodd-Frank-mandated rules.”

The Senators requested that Mr. Hoecker investigate the following “questionable action[s]”:

  • January 31, 2017 – a request that SEC staff reconsider the SEC 2014 guidance on the Conflict Minerals Rule (see previous coverage) – a decision, the Senators allege, that Commissioner Piwowar made “based exclusively” on stories he heard while visiting Africa;
  • February 6, 2017 – a request for public comment on the Pay Ratio Rule (see previous coverage); and
  • February 15, 2017 – “unilateral administrative action to ‘impos[e] fresh curbs on the agency’s enforcement staff, scaling back their powers to initiate subpoenas and conduct investigations of alleged financial misdeeds,'” as reported by The Wall Street Journal.

Lofchie Comment: As to the assertions of Senator Warren and her colleagues, please note:

  • Section 4B of the Securities Exchange Act gives the SEC Chair essentially plenary power to direct the activities of SEC staff. There is no distinction in the Statute between the authority of an Acting Chair and a permanent Chair. Therefore, Acting Chair Piwowar has the authority granted to the Chair of the SEC by Section 4B.
  • Contrary to the Senators’ concern that Chair Piwowar acted exclusively on the basis of his visit to Africa, Chair Piwower has stated consistently during his tenure at the SEC that the Conflict Minerals Rule diverts the SEC from its primary mission of protecting U.S. investors and strengthening the U.S. economy. Further, there are numerous studies, including studies by the U.S. Government Accountability Office, that suggest the Conflict Minerals rule (however well intentioned) does no good.
  • Notwithstanding the Senators’ worry that Chair Piwowar’s action to reduce the subpoena powers of SEC staff reduces the powers of the SEC to conduct investigations, it in no way reduces the SEC’s authority. Rather, it centralizes the authority in more senior officers, which seems completely appropriate, given that the SEC’s issuance of a subpoena can be a material event that is very damaging to the recipient; for example, in the case of an individual, the person may be fired because that individual’s employer does not want the hassle or expense of dealing with the subpoena. Thus, Chair Piwowar acts quite appropriately in limiting the persons who have authority to issue subpoenas.

There is some degree of irony in Senator Warren’s criticism of Acting Chair Piwowar, since Senator Warren was relentlessly critical of former SEC Chair Mary Jo White. In fact, given the Senator’s former criticism of Chair White, a good argument may be made that Chair Piwowar is actually continuing, and not reversing, the policies of the prior Chair.

Historical Balance Sheets of U.S. Central Banking

Balance sheet data on two episodes of U.S. central banking are now available in spreadsheet form for the first time. Adil Javat has written a paper that digitizes data on the First Bank of the United States. The bank, established in 1791, was federally chartered and partly owned by the federal government. It was the only bank to have a nationwide branch network because states did not allow banks they chartered to branch across state lines, or in many cases even within them. The bank’s unusual attributes made in in effect a quasi central bank. The Democratic Party objected to it for that reason, and denied the bank an extension when its federal charter expired in 1811. The following year the United States became embroiled in the War of 1812 and missed the services that the Bank of the United States had provided. The U.S. Congress chartered a second Bank of the United States that began operations in 1817. It in turn was denied an extension of its charter by the Democratic Party in 1836. A fire at the U.S. Department of the Treasury in 1833 destroyed many records of the First Bank of the United States, so what remains is fragmentary, and is the fruit of searches of various archives by the 20th century historian James Wettereau. Perhaps more records are still out there, gathering dust somewhere?

Justin Chen and Andrew Gibson have written a paper that digitizes the weekly balance sheet of the Federal Reserve System (now called the H.4.1 release) from the Fed’s opening in 1914 to 1941. Their data will be of interest to anyone interested in the Fed’s behavior during the tumultuous period that included World War I, the sharp but short postwar depression of 1920-21, and the Great Depression. Previously — and surprisingly, given how much has been written about the early years of the Fed — digitized data were only available at monthly frequency. Weekly data should offer finer insights into the Fed’s behavior during episodes in which events were moving fast.

Javat, Chen, and Gibson are all students of CFS Senior Counselor Steve Hanke, and wrote their papers in a research course Hanke teaches for undergraduates at Johns Hopkins University. I read and commented on drafts of the papers.

(For the spreadsheets, see this page. There is a link underneath each paper to its accompanying workbook.)

SEC Acting Chair Piwowar Emphasizes Disclosure in Regulation of Capital Markets

Before an audience of foreign regulators at the SEC’s 27th Annual International Institute for Securities Market Growth and Development, SEC Acting Chair Michael Piwowar addressed best practices for the regulation of capital formation. He emphasized the importance of disclosure for lowering the cost of capital and for protecting investors, and asserted that a guiding principle for regulators must be to determine whether the government is facilitating or interfering with the progress of capital markets.

Acting Chair Piwowar focused on the value of the disclosure regime. He said that prudential regulation in capital markets is a “misplaced idea,” and added that “while banks are in the business of minimizing risk, the capital markets are in the business of allocating risk.” He argued that disclosure is the most effective tool for allocating capital to the most efficient industries, and suggested that a disclosure regime for banks (which he called “market-based prudential regulation”) could also benefit investors.

In addition, he stressed that a regulatory agency should not “substitute its judgment for that of the market.”

Acting Chair Piwowar also touched on the subjects of enforcement, international cooperation, and emerging issues in FinTech.

Lofchie Comment: During his interim tenure, Acting Chair Piwowar is making significant efforts to return the SEC to its historical mission of enabling investors to make investment decisions on the basis of good corporate disclosure regarding facts of economic significance. These are necessary corrections to the course of an agency that had been used since the adoption of Dodd-Frank as an instrumentality of political partisanship without regard to the economic costs or the benefits of its rulemakings.

 

SEC Acting Chair Michael Piwowar Encourages “Special Study” of Securities Market Reform

A “Special Study” of the securities markets will offer recommendations for financial market regulatory reform. In a speech at the Program in the Law and Economics of Capital Markets at the Columbia University Law and Business Schools, SEC Acting Chair Michael Piwowar called the planned analysis “comprehensive” and “long overdue.”

Columbia University spokespersons disclosed that the Special Study will be conducted in three phases: (i) the commissioning of major papers to provide a “roadmap” for the implementation of the study, (ii) a plan of action for completion of the study, and (iii) the implementation itself, including a comprehensive final report directed at federal financial regulators and the U.S. Congress. The final report has a target completion date of December 2020.

SEC Acting Chair Michael Piwowar applauded the new Special Study, and noted that the 1963 study on which it is based remains “the most comprehensive review of our securities markets that has ever been undertaken.” He urged those who will conduct the new study to approach it with open minds, particularly when identifying entirely new issues and alternatives, and to avoid tethering the project to previous market reform proposals and approaches.

In his remarks, Acting Chair Piwowar questioned the very process of enacting Dodd-Frank:

“[Dodd-Frank] was enacted before any of the official regulatory inquiries into the cause of the financial crisis had been completed. Rather than respond to acute and identifiable causes of concern, Dodd-Frank foisted upon the SEC several special-interest driven mandates that were far outside the scope of our core mission. These overtly politicized obligations have served to distract the SEC from fundamental issues – not the least of which is evaluating how our rules are actually operating.”

He added that the current “pause” in Dodd-Frank-era rulemaking has allowed the SEC to refocus on equity market structure, and that the results of the Special Study will be an “invaluable contribution to potential market structure reforms.”

Lofchie Comment: While the announcement of a study is not necessarily exciting, it is potentially very significant. For the last eight years, the regulation of the securities industry has been, as Chair Piwowar observes, heavily politicized. Interested legislators have taken the view that more regulation is inherently good, and that less regulation is inherently bad, without considering the actual cost or benefits of any particular item of legislation. If the discussion of appropriate regulation can be made less partisan, then the economy will benefit, particularly if a calmer discussion allows for the presentation of a broader range of views.

Response to WSJ Comments…”What’s Money?”

Thank you for your interest in my letter highlighting how determinants of inflation can be better understood.  To clarify, two types of money exist ‘state money’ produced by the Fed and ‘bank money’ created by the private sector.  Bank money drives growth. Today, bank money includes the service value of traditional commercial bank products such as deposits as well as shadow banking services such as commercial paper, money market funds, and repurchase agreements. In fact, what constitutes money may change over time as new financial products are introduced.

So, it is essential that the Fed, economists, and market participants measure and monitor both state and bank money.  CFS Divisia accomplishes this feat by identifying assets that serve as money.  Importantly, not all of these monetary assets provide equal amounts of service as money to the economy.

Bill Barnett uses the example of measuring the service value of transportation.  Would a pair of roller skates and a locomotive provide equal value to the economy?  No.  So, CFS Divisia derives weights that vary over time.

For the theory, history and math behind CFS Divisia, please see Bill’s book Getting It Wronghttp://www.centerforfinancialstability.org/getting_wrong.php

For a practical application of CFS Divisia see http://centerforfinancialstability.org/research/why_cfs_divisia_071316.pdf

WSJ: What’s Money?

The Wall Street Journal weekend edition printed my letter highlighting how determinants of inflation can be better understood.

CFS Divisia money growth warned about rising inflation and clearly explained why it was low coincident with QE.

To be clear, CFS Divisia money monitors the output of the financial system and its role in the monetary transmission mechanism.  It is an essential barometer of the economy, whether one is a market practitioner, Keynesian, or monetarist.

The full letter is https://www.wsj.com/articles/it-may-make-the-world-go-round-but-whats-money-1490388811

Sargen on Healthcare, the Budget, and Tax Reform

Highlights

  • Economic policies of the Trump Administration are key to assessing the economic and market outlook.  The Republican House tax bill drafted last summer and slated to be voted on later this year has been the focal point for investors. Meanwhile, they are assessing the Republican replacement plan for Obamacare and the 2018 budget proposal submitted by the Office of Management and Budget (OMB) this past week.
  • Both plans are highly controversial, and it remains to be seen what will ultimately be enacted. The proposed budget would fund a 9% increase in military and security spending via steep cutbacks in non-defense related programs that Congressional Democrats and some Republicans oppose.  The main worry for the Republican leadership, however, is that the replacement plan for Obamacare may not attract sufficient Republican support to ensure passage.
  • How these proposals play out could have important consequences for tax reform legislation.  The healthcare plan supported by Speaker Ryan will halt Medicaid expansion in 2020 and shift funding from open-ended entitlements to a per capita cap.  The Congressional Budget Office (CBO) estimates it will generate $1 trillion in savings over a decade, although it will also reduce the number of people receiving insurance substantially.
  • Prospects for enacting tax reform would be enhanced if the Congressional Republicans coalesced on a healthcare plan, whereas failure to reach agreement could jeopardize tax reform and lessen investor confidence.  The vote in the House this week will provide an early read.

Focusing on Economic Policies

One of our main messages for investors since the presidential election has been to focus on policies of the Trump Administration that will have an important bearing on the economy. They are the news that will drive financial markets, as opposed to comments and tweets by the President that many regard as noise.

Until recently, the only substantive policy proposal was the House tax reform bill drafted by the Republican leadership last summer.  It contains features that President Trump supports including: (i) a significant reduction in the corporate tax rate (albeit to 20% instead of the 15%); (ii) immediate expensing of capital outlays but no interest rate deductibility; and (iii) incentives for multinationals to repatriate profits earned abroad.

The most controversial element is the border adjustment tax (BAT) that effectively subsidizes exports and taxes imports of overseas affiliates.  The intent is to eliminate incentives for U.S.-based firms to shift production abroad, and the BAT is also estimated to create more than one trillion dollars in tax revenues over a decade.  The latter is deemed essential by the Republican leadership to ensure tax reform is neutral for the federal budget.

The prospect of significant tax reform combined with regulatory relief, in turn, has been a major driver of the stock market rally since the election.  Indeed, some surveys indicate that approximately 70% of those polled believe legislation will be passed later this year.  The principal uncertainty is whether the BAT provision will clear the final bill.  If not, prospects for the budget deficit expanding considerably are higher, as it will be difficult to make up the loss in revenues.

Beyond this, investors suspect the budget deficit is set to widen during the Trump Administration for the following reasons: (i) President Trump supports a large increase in military and security spending as well as a one trillion dollar infrastructure program; (ii) during the campaign he indicated he would not touch entitlement programs such as Social Security, Medicare, and Medicaid; and (iii)  the President has stated he would help pay for these programs by making large scale cuts in other discretionary spending; collectively, however, they account for only 15% of total federal spending.

With the House Republican leaders recently having drafted legislation to replace Obamacare and the Office of Management and Budget submitting its plan for discretionary spending in the coming fiscal year, investors are now examining details of both plans and assessing the prospects they will be enacted.


Linking OMB’s Budget Plan and the Republican Health Care Bill

The budget plan submitted by OMB and the Republican bill to replace Obamacare were submitted separately; consequently, they have each drawn considerable scrutiny.  To understand them better, however, it is important to recognize that both are key components of the FY2018 budget plan that will be enacted later this year.

The plan submitted by OMB last week, for example, applies only to discretionary federal spending, which represents about 30% of total federal spending.  Under the OMB proposal, military and security outlays would increase by 9% in FY2018, and would be funded entirely through cutbacks in other programs, of which the largest would be for social programs and the EPA.  However, because Democrats and some Republicans are staunchly opposed to large-scale cutbacks in non-defense spending, the OMB plan is widely perceived to be an opening move by the Trump Administration that lays out its priorities.

The main areas of spending that are not addressed in the OMB proposal are mandatory programs, which consist of entitlements (Social Security, Medicare and Medicaid) and net interest payments on the national debt.  Of these, the fastest growing segment is Medicaid, which was expanded as part of the Affordable Care Act (ACA) and resulted in the largest gain in insurance coverage, about 11 million people.  As currently constituted, it is an open-ended obligation of the federal government.

Robert Samuelson of The Washington Post observes (March 20, 2017) that Medicaid increasingly is another mechanism by which government skews spending toward the old and away from the young: “Although three-quarters of Medicaid recipients are either children or young adults, they account for only one third of costs.  The elderly and disabled constitute the other one-quarter of recipients, but they represent two-thirds of costs.”  Samuelson concludes that getting Medicaid costs under control is a much needed reform, considering the aging of the population, with the number of Americans 85 and older expected to increase by 50% by 2030.

This is where the Republican Health Care bill comes into play, as one of the key provisions is phasing out Medicaid expansion through 2020.  Under the Republican bill the program also transitions to a system of block grants to each state that is based on per-capita payments for the Medicaid population.  According to the Congressional Budget Office (CBO), the Republican bill cuts spending by $1.2 trillion net and it eliminates new taxes worth just shy of $900 billion through 2026, of which the vast saving is from reduced Medicare expense.

That’s the good news. The bad news is the cost saving is attributable to fewer people enrolling for medical insurance: CBO estimates there will be a decline of 14 million enrollees next year relative to the Obamacare tally and a cumulative decline of 24 million by 2026.  Even if the CBO estimates prove to be too high, they pose a political problem for the Republican leadership in Congress, who must bring the conservative wing of the Party that favors a quicker end to Medicaid expansion into the fold together with moderates in the Senate who are concerned about a voter backlash if coverage is diminished.

At this juncture, it is unclear whether the Republicans in Congress will be able to find an acceptable compromise.  The first clear indication will come this week when a voted is slated in the House of Representatives.  While conservatives favor an earlier end to Medicaid expansion or simply repealing the ACA, such action would still leave in place the expensive open-ended federal Medicaid commitment.

Thus far, President Trump has been supporting Speaker Ryan’s plan, but he could switch tactics if passage of the bill appears in trouble.  Also, if the President continues to back the plan, he will be criticized for breaking his campaign pledge of not touching entitlements and his assurance that no one will lose coverage under the Republican plan.


Implications for Tax Reform

The resolution of the Health Care bill not only matters for healthcare spending, which comprises 28% of total federal outlays, but also for the passage of tax reform.  If the Congressional Republicans are able to coalesce around a healthcare bill that can pass Congress, it bodes well for the passage of tax reform legislation that investors are counting on.

Conversely, should Republicans be unable to agree, it would damage the chances for meaningful tax reform and harm their chances for maintaining control of Congress in the 2018 elections.  Daniel Henninger of the Wall Street Journal (March 10, 2017) characterizes the Republican dilemma as follows:

            “The day the Republicans clutch on this (healthcare) reform, there will be six-column headlines across the Washington Post and New York Times: “Trump Abandons Promises on Health Care”

            “It will be a fast ride downhill from there. That is because the health-care reform bill is inextricably linked to the politics of tax reform, the second pillar of the Trump legislative agenda.”

The challenge of confronting entitlement program expansions is particularly formidable now, as the aging of the baby boomers implies a steady increase in the size of the federal budget deficit in coming decades absent any changes in current policies (see Figure 1).  Indeed, by 2025 people 65 years and older will comprise 20% of the total population.  Meanwhile, with the added pressure to increase military and infrastructure spending the inevitable question investors must ask is “who will pay the bills?”  Once market participants understand the nature of the fiscal predicament, investors may reassess the optimistic assumptions that are embedded in financial markets today.

Figure 1: CBO Projections of Federal Budget Deficit Assuming No Change in Policies  

Source: Congressional Budget Office.

CFS Monetary Measures for February 2017

Today we release CFS monetary and financial measures for February 2017. CFS Divisia M4, which is the broadest and most important measure of money, grew by 4.1% in February 2017 on a year-over-year basis versus 4.8% in January.

For Monetary and Financial Data Release Report:
http://www.centerforfinancialstability.org/amfm/Divisia_Feb17.pdf

For more information about the CFS Divisia indices and the data in Excel:
http://www.centerforfinancialstability.org/amfm_data.php

Bloomberg terminal users can access our monetary and financial statistics by any of the four options:

1) {ALLX DIVM }
2) {ECST T DIVMM4IY}
3) {ECST} –> ‘Monetary Sector’ –> ‘Money Supply’ –> Change Source in top right to ‘Center for Financial Stability’
4) {ECST S US MONEY SUPPLY} –> From source list on left, select ‘Center for Financial Stability’

Acting Chair Giancarlo Asserts “New Direction Forward” for CFTC

CFTC Acting Chair J. Christopher Giancarlo called for the CFTC to “reinterpret its regulatory mission” by (i) fostering economic growth, (ii) enhancing U.S. financial markets, and (iii) “right-sizing its regulatory footprint.” Acting Chair Giancarlo delivered his remarks before the 42nd Annual International Futures Industry Conference, on the day after President Donald J. Trump announced his intention to nominate Mr. Giancarlo as CFTC Chair (see previous coverage).

In his speech, Mr. Giancarlo called for an end to the “overly prescriptive regulation of the American derivatives markets,” which he asserted are now “more fragmented, more concentrated, less liquid, and less supportive of economic growth and renewal than in the past.” Mr. Giancarlo noted that he is not opposed to Title VII of Dodd-Frank (in which, he maintained, “Congress got much right”), but rather with the CFTC’s implementation of the market reforms.

Acting Chair Giancarlo stated that the CFTC should foster economic growth by:

  • reducing regulatory burdens through initiatives like “Project KISS” (“Keep It Simple, Stupid”), designating his chief of staff as the CFTC Regulatory Reform Officer, and reviewing all CFTC rules in order to reduce regulatory burdens and costs for participants in markets under CFTC oversight;
  • becoming a “smarter regulator” by restructuring agency surveillance organizations and appointing a Chief Market Intelligence Officer who will report directly to the CFTC Chair; and
  • embracing financial technology (“fintech”) by adopting a “do-no-harm” approach and reviewing agency treatment of fintech innovation.

Acting Chair Giancarlo also asserted that the CFTC should enhance financial markets by:

  • “calibrating bank capital charges for economic growth” as a voting member of the Financial Stability Oversight Committee;
  • reforming the CFTC’s “flawed swaps trading implementation” with a “better regulatory framework for swaps trading” that allows market participants to select the manner of trade execution best suited to their needs, rather than having specific types “chosen for them by the federal government”; and
  • improving coordination with global regulators through measures while “fully embrac[ing] the Trump Administration’s Executive Order to advance American interests in international financial regulatory negotiations and meetings.”

Lastly, Mr. Giancarlo suggested that the CFTC should obtain a “right-size regulatory footprint” by:

  • “normaliz[ing] CFTC operations” after the “era of Dodd-Frank implementation” by decreasing regulatory burdens and attending to “longer range goals,” such as leveraging diversity;
  • “eschew[ing] empire building” at the CFTC by “resetting its focus on its core mission” and streamlining the work of various divisions; and
  • “run[ning] a tighter ship” in the wake of recent reductions in the agency budget and appropriations.

Acting Chair Giancarlo concluded:

“The time has come to reduce regulatory barriers to economic growth. The American people have elected President Trump to turn the tide of over-regulation. Financial market regulators, like the CFTC, must pursue their missions to foster open, transparent, competitive and financially sound markets in ways that best foster American prosperity.”