For nearly six months following former Chairman Timothy G. Massad’s resignation from the Commodity Futures Trading Commission (“CFTC”), the CFTC operated with only two commissioners, current Chairman J. Christopher Giancarlo and Commissioner Sharon Y. Bowen. Even with only two commissioners, the CFTC was able to undertake several regulatory initiatives, including Project KISS, an effort towards simplifying the application of existing CFTC rules, and LabCFTC, an endeavor to promote FinTech innovation. However, because there were only two Commissioners, any more ambitious regulatory action has effectively been stalled. As Commissioner Bowen stated when announcing her future resignation, having “just two Commissioners makes routine business difficult, but makes important policy decisions almost impossible,” describing the situation as “intolerable.” However, that “intolerable” situation is changing.
On August 3, 2017, the Senate unanimously confirmed J. Christopher Giancarlo as Chairman (who previously had been serving as Chairman in an acting capacity), and Brian D. Quintenz and Rostin Behnam as Commissioners. Rostin Behnam, a Democrat, served as Senior Counsel to Senator Debbie Stabenow, the ranking member of the Senate Committee on Agricultural, Nutrition and Forestry. Brian D. Quintenz, a Republican, founded Saeculum Capital Management, LLC, and served as its Managing Principal and Chief Investment Officer. He was officially sworn in as a Commissioner on August 15, 2017. Although Dawn DeBerry Stump, a Republican, had her nomination as Commissioner voted out of the Senate Agriculture Committee at the same time as Quintenz and Behnam, a vote on her nomination likely will be taken up by the full Senate in conjunction with a Democratic nominee to replace Commissioner Bowen when Congress resumes its session in the fall. Thus, the CFTC may soon have a full complement of Commissioners for the first time since 2014.
With the incoming slate of Commissioners, the CFTC will be able to move forward with its regulatory agenda. Several significant rulemakings had been effectively stalled while the CFTC operated with only two Commissioners. This includes the rule on Position Limits for Derivatives (“Position Limits Rule”), which has undergone several proposals since 2012, and which was re-proposed by the CFTC in December 2016. The agenda also includes Regulation Automated Trading (“Reg. AT”), which was first proposed in November 2015, and which was supplemented in November 2016. Under the leadership of Chairman Giancarlo, it is likely that any final rules in these areas will look much different than the current proposals. As to the Position Limits Rule, for example, although he expressed general support for the proposal, Chairman Giancarlo noted that some areas of concern “have not been as well addressed” as others. As to Reg. AT, Chairman Giancarlo dissented from the issuance of the supplemental proposal. Noting that the supplemental proposal was issued because the original proposal “missed the mark,” Chairman Giancarlo took issue, among other things, with the highly prescriptive nature of the rule, the burdensome reporting requirements, and the proposed ability of the CFTC to obtain source code without a subpoena. Also looming on the horizon is the potential reduction of the de minimis threshold for determining whether an entity is a swap dealer. Currently, if an entity’s swap dealing activity has a gross aggregate notional value of less than $8 billion over the prior twelve month period, it will not be considered a swap dealer. On December 31, 2018, absent action by the CFTC, the de minimis threshold will automatically drop to $3 billion, potentially capturing many more entities. Chairman Giancarlo has previously warned of the risk of setting the de minimis threshold too low, and has advocated that the CFTC “follow Congress’s clear instruction and keep the registration threshold at $8 billion.”
Chairman Giancarlo will also soon be able to move forward with his articulated vision for regulatory reform at the CFTC. As we have noted before, Chairman Giancarlo has been a vocal critic of several aspects of the CFTC’s currently regulatory framework, noting in a recent podcast that the CFTC’s “rulebooks are still written for a 20th century analog world.” Perhaps most notably, he has long called for reform of the CFTC’s swaps framework, arguing for example, that CFTC swaps rules that limit execution methods stifle innovation and unnecessarily limit the flexibility that is a necessary feature of the swaps market. Chairman Giancarlo has also criticized the CFTC’s cross-border approach, arguing that its substituted compliance analysis improperly emphasizes identical implementation, rather than the “consistent” implementation agreed upon by the G20. Market participants can expect to see action in these, and other areas in the months and years ahead under a reconstituted CFTC.