[Senate Hearing 115-591]
[From the U.S. Government Publishing Office]
S. Hrg. 115-591
NOMINATION OF
J. CHRISTOPHER GIANCARLO,
OF NEW JERSEY, TO BE CHAIRMAN,
COMMODITY FUTURES TRADING COMMISSION
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HEARING
BEFORE THE
COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
JUNE 22, 2017
__________
Printed for the use of the
Committee on Agriculture, Nutrition, and Forestry
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COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
PAT ROBERTS, Kansas, Chairman
THAD COCHRAN, Mississippi DEBBIE STABENOW, Michigan
MITCH McCONNELL, Kentucky PATRICK J. LEAHY, Vermont
JOHN BOOZMAN, Arkansas SHERROD BROWN, Ohio
JOHN HOEVEN, North Dakota AMY KLOBUCHAR, Minnesota
JONI ERNST, Iowa MICHAEL BENNET, Colorado
CHARLES GRASSLEY, Iowa KIRSTEN GILLIBRAND, New York
JOHN THUNE, South Dakota JOE DONNELLY, Indiana
STEVE DAINES, Montana HEIDI HEITKAMP, North Dakota
DAVID PERDUE, Georgia ROBERT P. CASEY, Jr., Pennsylvania
LUTHER STRANGE, Alabama CHRIS VAN HOLLEN, Maryland
James A. Glueck, Jr., Majority Staff Director
Jessica L. Williams, Chief Clerk
Joseph A. Shultz, Minority Staff Director
Mary Beth Schultz, Minority Chief Counsel
(ii)
C O N T E N T S
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Page
Hearing(s):
Nomination of J. Christopher Giancarlo, of New Jersey, to be
Chairman, Commodity Futures Trading Commission................. 1
----------
Thursday, June 22, 2017
STATEMENTS PRESENTED BY SENATORS
Roberts, Hon. Pat, U.S. Senator from the State of Kansas,
Chairman, Committee on Agriculture, Nutrition, and Forestry.... 1
Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan... 3
Witness
Giancarlo, J. Christopher, Nominee to be Chairman, Commodity
Futures Trading Commission..................................... 4
----------
APPENDIX
Prepared Statements:
Giancarlo, J. Christopher.................................... 16
Document(s) Submitted for the Record:
Roberts, Hon. Pat:
Various organizations letter of support for J. Christopher
Giancarlo to be Chairman of the Commodity Futures Trading
Commission (CFTC).......................................... 24
Giancarlo, J. Christopher:
5-day letter, Committee questionnaire and Office of
Government Ethics Executive Branch Personnel Public
Financial Disclosure Report filed by J. Christopher
Giancarlo.................................................. 26-63
Question and Answer:
Giancarlo, J. Christopher:
Written response to questions from Hon. Pat Roberts.......... 66
Written response to questions from Hon. Debbie Stabenow...... 70
Written response to questions from Hon. John Boozman......... 81
Written response to questions from Hon. John Hoeven.......... 83
Written response to questions from Hon. John Thune........... 85
Written response to questions from Hon. Steve Daines......... 88
Written response to questions from Hon. Luther Strange....... 91
Written response to questions from Hon. Sherrod Brown........ 94
Written response to questions from Hon. Amy Klobuchar........ 100
Written response to questions from Hon. Joe Donnelly......... 103
NOMINATION OF
J. CHRISTOPHER GIANCARLO,
OF NEW JERSEY, TO BE CHAIRMAN,
COMMODITY FUTURES TRADING COMMISSION
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Thursday, June 22, 2017
United States Senate,
Committee on Agriculture, Nutrition, and Forestry,
Washington, DC
The Committee met, pursuant to notice, at 9:46 a.m. in room
328, Russell Senate Office Building, Hon. Pat Roberts, Chairman
of the Committee, presiding.
Present or submitting a statement: Senators Roberts,
Stabenow, Brown, Klobuchar, Bennet, Gillibrand, Casey, and Van
Hollen.
STATEMENT OF HON. PAT ROBERTS, U.S. SENATOR FROM THE STATE OF
KANSAS, CHAIRMAN, U.S. COMMITTEE ON AGRICULTURE, NUTRITION, AND
FORESTRY
Chairman Roberts. I call this hearing of the Senate
Agriculture, Nutrition, and Forestry Committee to order.
I welcome my colleagues as we consider the nomination of
Mr. J. Christopher Giancarlo to serve as Chairman of the U.S.
Commodity Futures Trading Commission.
Mr. Giancarlo, it was a pleasure to see you in Montana a
few weeks ago. It reminds me of a Merle Haggard song, but we
will not go there.
[Laughter.]
Chairman Roberts. I thank you for being with us here today.
I note that you have your wife, children, and other close
family and friends in the audience today. Allow me to welcome
the family and you all to the Ag Committee. Thank you for
coming.
As noted in the CFTC's mission statement, this agency is
charged with fostering open, transparent, competitive, and
financially sound markets, while working to prevent systemic
risk.
Further, the Commission is tasked with protecting market
users and their funds and consumers and the public from fraud,
any manipulation, abusive practices related to derivatives and
other products that are subject to the Commodity Exchange Act.
The services provided by the CFTC allow farmers, ranchers,
commercial companies, municipalities, pension funds, and others
who rely on derivatives to hedge commercial risk and focus on
what they do best--innovating and creating jobs and producing
food, goods, and services for the economy. I might add that is
a pretty big deal.
It is essential the CFTC have individuals in charge who
truly take its mission statement and responsibilities to heart.
Mr. Giancarlo, you have demonstrated your understanding of that
mission during your time at the CFTC. In fact--and I want to
underscore this--in fact, in 2014, this Committee voted
unanimously to advance your nomination, and the Senate
confirmed you by a voice vote.
Happy birthday Let us not forget, it was not the farmer,
rancher, rural cooperative, electric utility, nor other end
users who contributed to the financial crisis of 2008. Many
members raised concern during consideration of Dodd-Frank
effort and insisted the legislation provide flexibility to
those who rely on these markets but did not contribute to the
2008 crisis. It is important to note that this was a bipartisan
concern, yet when Dodd-Frank became law and the CFTC began
writing new regulations, limited flexibility was provided from
the heavy hand of government overreach.
Therefore, moving forward, I think it is imperative that
both Congress and our Federal financial regulators work to
provide necessary and appropriate relief to our nation's
providers of food and energy and to those who export U.S.
goods.
To do this, we need a functioning CFTC which handles
regulations practically and looks to reduce Federal overreach.
In fact, I believe the recent announcement of your initiative
to apply current rules and regulations in a less burdensome
manner is a perfect example of getting our Federal agencies
back to how they were intended to function--governing, not
ruling--and to be a true partner to our nation's market
participants.
Further, I am encouraged by the CFTC's launch of LabCFTC,
which is intended to foster financial technological innovation,
something that is happening at light speed today whether we
like it or not. I am glad you intend to stay out ahead of the
curve and engage with the modern derivatives marketplace.
Mr. Giancarlo, it is imperative all Commissioners
understand the historic nature of a portion of the markets the
CFTC regulates, which is to provide risk management tools for
producers of agriculture commodities. It is often lost on many
in Washington that these financial markets create and allow for
stability, stability that we all appreciate when we go to the
grocery store on any given day and buy food at affordable
prices.
Functioning markets benefit every hardworking family in
America. Those families would feel the effects if our
agricultural producers lacked the market's affordable and
effective risk management tools to help lock in fair and
reasonable prices. This is especially true today as the farm
economy is struggling, as we have talked about.
I am grateful you understand and are committed to fostering
a functional marketplace for all participants, and I especially
appreciate your commitment to our rural stakeholders.
Again, I thank the nominee for being here today. I look
forward to your testimony.
I now turn to my distinguished colleague and our Ranking
Member, former Chairperson, for her opening remarks.
STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR FROM THE STATE
OF MICHIGAN
Senator Stabenow. Well, thank you very much, Mr. Chairman,
and welcome again and congratulations, Mr. Giancarlo, on your
nomination. I too want to welcome your family back again. Your
secret weapon, your mom, is with you today, so we welcome her
as well.
Mr. Giancarlo, you testified last time before us in 2014 as
a nominee for CFTC Commissioner. Back then, you shared the
witness table with Commissioner Bowen and former Chairman
Massad. I think it is fair to say the three of you worked hard
to find consensus where possible in order to support the core
mission of the CFTC to maintain transparency and competitive
derivative markets.
The CFTC Chairman has a wide range of responsibilities, as
you know, that have a tremendous effect on farmers and
families. If confirmed as Chairman, the decisions you make day
to day will have a much larger impact on financial markets and
consumers both here and abroad.
As a Commissioner, I appreciate that you showed a
willingness to work on a bipartisan basis to find consensus.
I would like to also personally thank you for visiting
Michigan last summer to listen to both farmers and
manufacturers about their concerns and to discuss the
importance of the CFTC.
Having played a pivotal role at the Commission over the
past 3 years, you understand as well as anyone what work lies
ahead for the CFTC.
While Wall Street reform has brought much needed
transparency to the previously unregulated swaps market, there
is much more work to be done at the Commission.
The 2008 financial crisis exposed gaping weaknesses in our
regulatory system, left the economy in ruins, and put millions
and millions of Americans out of work.
Nearly nine years since the crisis, parts of our economy
have shown great resiliency and progress. However, we should
not be complacent with the improvements we have seen. We need
to keep moving forward, not backward.
This Committee and the CFTC must not forget some of the
Commission's crucial roles in overseeing the derivatives
market: holding bad actors accountable, surveilling market
participants, and monitoring systemic risk. From speculative
position limits to capital requirements, the CFTC has
unfinished business.
It is critical that the Commission take action quickly on
these issues to finish the rulemakings required under Dodd-
Frank. The Commission should continue to build on the progress
we have made and the progress we have seen in recent years.
Mr. Giancarlo, I look forward to learning more about your
plans for finishing this critical work. We cannot afford to
delay any longer.
Of equal importance is the CFTC's insufficient budget. Less
than 2 months ago, the White House issued a budget proposal,
which fell woefully short of what the CFTC needs to fulfill its
mission. It is something you and I talked about. I appreciate
that you courageously broke from the administration to issue
your own proposal, recognizing the CFTC must be better funded
in order to be a world-class regulator.
I commend you for this, and I think it is very important
that we work together to get the resources that are truly
needed for this Commission to be able to do its work. I am
committing my support to work with you on that.
Simply put, the Commission cannot meet its responsibilities
at the current funding level. The risks to our economy, which
directly affect thousands and potentially millions of jobs, is
too great to ignore any longer.
I also note that on Tuesday, Commissioner Bowen announced
she will be leaving the Commission in the coming months. With
this announcement, Mr. Chairman, we need to confirm nominees
for the four open Commissioner seats as soon as we can. We need
to move quickly to ensure we have a full leadership team in
place so the CFTC can do its important work. I look forward to
working with you in that effort.
Today, I look forward to learning more about your vision,
Mr. Giancarlo, for the CFTC and how we can continue to build on
the progress of reform to create more certainty for our
agricultural producers, commercial businesses, and consumers.
Whether we realize it or not, derivatives markets play an
integral role in the everyday life of Americans. We must ensure
regulators and market participants are fulfilling their
responsibilities to promote safe and transparent markets.
Thank you.
Chairman Roberts. Mr. Giancarlo, as is the tradition and
custom of the Committee, before we nominate witnesses, to
provide testimony, I need to administer the oath. Please stand
and raise your right hand. First, do you swear that the
testimony you are about to present is the truth, the whole
truth, and nothing but the truth, so help you God?
Mr. Giancarlo. I do.
Chairman Roberts. Second, do you agree that, if confirmed,
you will appear before any duly constituted committee of
Congress if asked to appear?
Mr. Giancarlo. I will.
Chairman Roberts. Thank you. Please proceed with your
testimony.
TESTIMONY OF J. CHRISTOPHER GIANCARLO, NOMINEE TO BE CHAIRMAN,
COMMODITY FUTURES TRADING COMMISSION
Mr. Giancarlo. Thank you. Thank you, Chairman Roberts,
Ranking Member Stabenow, and members of the Committee.
I am honored to testify before you. With your permission, I
would like to introduce members of my family: my wife and my
joy for 28 years, Regina; my dear brother, Dr. Tim Giancarlo;
and my son, Henry Giancarlo. My older son, Luke, and my
wonderful daughter, Emma, could not be with us this morning due
to other responsibilities. But I would also like to introduce
my wonderful mother, Mrs. Ella Jane Keegan.
Mom?
Chairman Roberts. You can stand.
[Applause.]
Chairman Roberts. Thank you, mom.
Mr. Giancarlo. Mom taught my brothers and me three simple
lessons, and that was arrive early to work, leave your
workplace better than you found it, and give thanks every night
for God's grace. I am blessed to have her as a mother and
blessed by my wonderful family. Thank you.
I thank many of you on the Committee for meeting with me
before this meeting and over the past several years. You have
all taught me a lot about the issues facing American
agriculture.
I last appeared before this Committee in 2014 upon my
nomination by President Obama. At that hearing, I presented my
professional credentials, and I also admitted my personal
shortcomings of not having been raised on a farm. Nevertheless,
I promised you that I would learn about American agriculture.
In the 3 years since, I have met with farmers, ranchers,
energy producers, and small and large manufacturers who use our
markets to hedge production and price risk.
I have been to Kansas, Michigan, Indiana, Illinois, South
Dakota, North Dakota, Iowa, Minnesota, New York, New Jersey,
Missouri, Kentucky, Ohio, Louisiana, Florida, California,
Texas, and just a few weeks ago, Montana. I am not done
traveling.
I have milked dairy cows with family farmers in Minnesota,
and I visited with grain and livestock growers in Iowa. I have
walked factory floors in Illinois, oil refineries in Texas,
grain elevators in Indiana, and power plants in Ohio. I have
been 900 feet underground in a Kentucky coal mine and 90 feet
above ground on a North Dakota natural oil rig.
In Kansas, I met with Mary and Pat Ross at their feed lot
in Lawrence, called on corn farmer Ken McCauley in White Cloud,
and harvested soybeans with Pat O'Trimble in Perry. In
Michigan, I toured the Fort Rouge automobile plant, visited the
Star of the West flour mill, and talked to grain growers at
Crop Production Services warehouse in Henderson.
Now, while these visits have been delightful in their own
right, they have made me a much better regulator of our ag
commodity markets, and I thank members of this Committee for
encouraging me to make these visits.
As you know, for over a hundred years, American farmers and
ranchers have used futures to hedge volatile commodity prices.
They are the reason why consumers enjoy stable prices in the
grocery story, whatever the conditions out on the farm.
But derivatives also stabilize the cost of heating our
homes, powering our factories, supporting residential
mortgages, and generating returns on retirement savings. In
short, derivatives help moderate price, supply, and other
commercial risk, and thereby free up capital for economic
growth, job creation, and prosperity.
When I last testified, I said that my best qualification to
serve was my expertise in over-the-counter swaps and that I was
a supporter of the reforms in Title VII of the Dodd-Frank Act.
In fact, I may well be the most longstanding supporter of
market reform from either political party to serve at the CFTC.
When Congress began drafting the bills that would become
Title VII of the law, I had already championed its three key
reforms: central clearing of swaps, swaps data reporting, and
regulated swaps trading. My support is not based on academic
theory or political ideology; it is based on my practical
experience of 14 years in the markets.
If confirmed, I have three priorities; first, to foster
open, transparent, competitive, and durable derivative markets,
free from fraud and manipulation. The day after the White House
stated its intention to nominate me, I told a large gathering
of industry executives that there would be no pause, no let-up,
no reduction in our duty to enforce the law and punish
wrongdoing, and I make that commitment again to you today.
Second, we will conduct the agency's regulatory mission in
support of broad-based economic growth. That means completing
swaps market reforms that underpin healthy, durable, and
vibrant markets, and it also means getting from where we are
today to where we need to be, and that is a 21st century
regulator for 21st century digital markets.
Finally, we will carry out our regulatory mission in a way
that respects the American taxpayer. We will get back to
regular order in our operations, carefully manage appropriated
resources, and apply our existing rules in ways that are
simpler and less burdensome to the economy.
Chairman and Ranking Member, this Committee has a strong
tradition of bipartisanship, and I believe that practice--I
have followed that practice at the CFTC by working
constructively with my fellow Commissioners. I have voted with
the majority in over 95 percent of the matters before the
Commission over the past 3 years, and if confirmed, I will
continue to act without partisanship. I will work with each of
you with candor and promptness in our common purpose of serving
the American people and the agricultural producers on which we
all rely.
Thank you. I look forward to your questions.
[The prepared statement of Mr. Giancarlo can be found on
page 16 in the appendix.]
Chairman Roberts. Thank you, sir.
Not long ago, you announced the launch of an agency
initiative to review CFTC rules, regulations, and practices
furthering the President's executive order to reduce excessive
regulatory burdens. I understand your initiative is meant to
identify existing rules and apply them in a less burdensome
manner.
In addition to this initiative, how do you plan to address
regulatory reform, and what limitations might you encounter?
Mr. Giancarlo. Thank you very much, Chairman.
The CFTC has been in operation for almost--over 40 years
now, and over the course of time, it is no surprise that
regulations that have built up over time in some cases conflict
with one another and other cases are out of date and in some
cases just need a revisit and a refresh.
I will give you an example. We recently revised a rule that
at the time it was adopted years ago, it was considered to be
very forward-looking in its technology application; that is, it
required filing of information by fax. Here we are in 2017, and
few people have fax machines anymore.
So, over time, technology changes, market conditions
change, and if rules are not occasionally and from time to time
brought up to date and relooked at, they become stale and they
become burdensome on the market as a whole.
So what we have done with our Project KISS is to look at
our existing rules, not the policies behind them, but the rules
themselves, the practical application of the rules, and see
whether they can be applied in ways that are simpler, less
costly, and more straightforward and still achieve our policy
objectives.
Chairman Roberts. Thank you for that.
Senator Stabenow.
Senator Stabenow. Thank you very much, Mr. Chairman, and
welcome again, Mr. Giancarlo.
As you and I have talked about, the Commission at this
point has had multiple efforts to complete the position limits
rule that was mandated by Congress as part of Wall Street
reform to protect families from spikes in food and energy costs
that are caused by speculation. Will you commit to completing
this critical rule as CFTC Chairman without further delay?
Mr. Giancarlo. Yes. If I could add----
Senator Stabenow. Yes.
Mr. Giancarlo. --I think it is very important. I think the
opportunity is at hand. As you know, I voted for the most
recent iteration of this rule, the most recent proposal. The
comment period is now closed. We are going through those
comments, and I believe we can get a position limits rule done.
Senator Stabenow. Thank you.
As I said in my opening comments, you recently stepped
forward with a different budget proposal than what was proposed
by the White House. The question that I have is even though
your proposal was better in my judgement, there are still
additional resources beyond that that are needed. What market
oversight and personnel risk will the Commission face if its
budget is not increased?
Mr. Giancarlo. You know, before going into government, I
spent 30 years in the private sector and most recently 14 years
as an executive of a public company. I will work with whatever
budget the appropriators give us, and I will make sure the
mission is done. However, we have put forward a budget that
does have some new elements in it, some elements as the markets
have evolved, elements that I believe are necessary for us to
keep pace with the market.
So I will be making my case next week in front of Senate
appropriators for our budget, which as you know is more than
last year, and I am hoping they will see their way to the
money. But whatever appropriators give us, we will do our
mission with it.
Senator Stabenow. I understand. I mean, that is what the
CFTC has been doing and the Chairman has been doing for years
which is, unfortunately, in my mind, limping along and not
having the resources to fully do what is needed to really
enforce the laws of to gain the confidence of those who count
on the Commission to be able to do its job.
So you will be advocating for the number that you have
proposed, then----
Mr. Giancarlo. Yes.
Senator Stabenow. --as opposed to what the White House has
proposed?
Mr. Giancarlo. We have put forward the number of $281.5
million, which is an increase of $31.5 million over the prior
year's appropriation.
I believe the number we are asking for is the right number
for the CFTC with the mission it has before it today.
Senator Stabenow. Thank you.
The Chairman talked about and you have talked about what
you call Project KISS----
Mr. Giancarlo. Yes.
Senator Stabenow. Keep It Simple Stupid. We all appreciate
that, reducing the regulatory burdens.
But at the same time, we have the White House signing an
executive order aimed at rolling back the Wall Street reforms.
Mr. Giancarlo. Yes.
Senator Stabenow. So how do both of those proposals relate
to each other? Please speak about whether the intention overall
is to roll back critical reforms to Title VII and to the
derivatives.
Mr. Giancarlo. So let me----
Senator Stabenow. --markets.
Mr. Giancarlo. Let me--thank you. Let me be very clear.
Project KISS is not about rolling back Dodd-Frank or Wall
Street reforms in any shape or fashion. I am a supporter of
Title VII, of Dodd-Frank, which has amended the Commodities
Exchange Act with regard to the swaps that we oversee. I
support those reforms, and so we are not looking to use Project
KISS in any way to address that.
Project KISS is a complete approach to our--the way that
our agency applies reforms to see if we can do that in a
simpler, more straightforward fashion.
Senator Stabenow. Thank you.
Then, finally, as Chairman, knowing what we know now about
the enormous risk of cyberattacks----
Mr. Giancarlo. Yes.
Senator Stabenow. --in terms of national security, what are
your intentions to address this growing challenge. Do you
believe that our Committee needs to provide additional
authority to the CFTC to better protect the financial markets
it oversees?
Mr. Giancarlo. Thank you very much.
I have said before and I share with former Chairman Massad
the view that cyber risk is the number one threat to the
markets that we oversee, and therefore, it has to be a priority
in everything we do.
Since I have stepped in as Acting Chairman, our head of
cyber security now meets with me monthly and reviews not only
all the attacks we have seen in the markets as a whole but
every attack that we receive at the agency itself.
I believe that the approach to cyber needs to be both a
public and private approach, and that is because the nature of
the threats we face are both from private actors and from state
actors. So I think there is a very vigorous role for us at the
agency. We work with U.S. law enforcement agencies. We work
with regulatory agencies abroad as well as self-regulatory
organizations as well as all of our major market participants.
Cyber is a critical priority and will remain so.
Senator Stabenow. I agree.
Thank you, Mr. Chairman.
Senator Stabenow. Senator Klobuchar.
Senator Klobuchar. Thank you very much.
Mr. Giancarlo, congratulations. Congratulations to your mom
and your family.
I think we talked before about this, and I know you talked
about it at your last hearing. The commodity markets you have
oversight of involve essentially two kinds of participants, the
commercial end users who base their trades on actual physical
products and then financial institutions, like hedge funds and
investors who base their derivatives trades, of course, on
fluctuations in prices or the index. So that is a particular
concern of mine, just because we have a lot of products and
grouping of people who fall into the first category.
I know you visited Mackinson Dairy Farm, Blue Diamond
Dairy.
Mr. Giancarlo. Yes.
Senator Klobuchar. I am very impressed you milked a cow.
Your mom raised you well.
[Laughter.]
Senator Klobuchar. But what did you learn about the
importance of the CFTC to these economic sectors, and what is
going on with these sectors? How do you think that the CFTC
could be responsive?
Mr. Giancarlo. Thank you for that. I mean, you are
absolutely right. I mean, my experience with that family dairy
near Melrose in your state was formative. I often think about
the Frericks family when I think about really the most basic
element of our market participants, and that is some of our
America's small-family farms. That even if they do not use
these hedging instruments, they rely on the price signals that
come from these futures markets to determine whether they are
getting a fair price from their distributor. So that family,
when they sell their milk, they are relying on price signals
that come from our markets to know whether they are based on
market fundamentals and not distorted by algorithms or
speculators in the market.
So that brought that very much home to me, and so our role
as an agency is to make sure that the give-and-take of all the
different market participants in our markets results in a fair
price.
Senator Klobuchar. Exactly.
Mr. Giancarlo. It is a challenge in a world today that is
increasingly dominated by these algorithmic traders.
Senator Klobuchar. Exactly.
You mentioned that issue of speculation, and we have spoken
about that before. I know in high-frequency trading, the CFTC
has been working on this regulation, automated trading, and I
think those best practices are a good first step. What other
steps do you think the CFTC can take to ensure that the pricing
is accurate and it is not influenced by things it should not be
influenced by?
Mr. Giancarlo. Thank you.
You know, when I talk to farmers and ranchers and they ask
me questions about what is the role of high-frequency trading
in the markets, I hear a lot of anecdotal concerns, but what we
do not yet have is the--we are getting the data, but we do not
have the analytical tools to really know whether the role in
the market of these traders is harmful or benign or what
mixture of the two.
They do provide important liquidity in the markets. You
could not have a market of just naturals. You would not have a
market. So what I have asked for in our budget request is 12
additional economists, because what we really need to do is go
beyond anecdotal concern and get to--and to take our data and
bring it down to really hard analysis so that will drive our
policy decisions. If we need to make policy decisions that
might restrict some participation in the market, it needs to be
based on hard data, and so I am looking to really beef up our
analytical capability.
Senator Klobuchar. Back to some of the product issues, in
your testimony you note that the derivatives markets are not
just useful for ag producers but impact many consumer issues
like home heating fuels and propane. What steps are you
currently taking to prevent the type of price hikes that we
have seen in the past in the Midwest when it comes to heating?
Mr. Giancarlo. So we have got to get our position limits
right.
I will tell you a story about a visit I made to First
Energy in Akron, Ohio, and they told me that--it does not
happen often. They have a small trading desk. I actually met
with the person who does their energy trading. They only do
about six or seven trades a day. They never speculate. If they
are buying forward, it is to protect a position.
They say a couple of winters, when you have got a polar
vortex, if one of their generators goes down, they need to go
into the market and they need to buy forward. They may have to
break a position limit, and they need to know that they can do
that. Otherwise, they are going to turn off the lights in some
homes and turn off some heat. So we have got to make sure we
have the flexibility built into our limits, yet at the same
time, we are all concerned about the role of excessive
speculations. So getting that balance right is vitally
important.
Senator Klobuchar. Very good.
On the speculation front, what do you think needs to be
done there? Then I will end.
Mr. Giancarlo. Well, Congress has said that we should use
position limits as appropriate to address the issue of
excessive speculation, and as I said in response to the Ranking
Member, I think we can get this done, provided that we address
the concerns that have been raised by our energy providers and
by our agriculture producers.
Senator Klobuchar. Thank you very much.
Mr. Giancarlo. Thank you.
Chairman Roberts. Senator Gillibrand.
Senator Gillibrand. Well, thank you so much for being here,
and thank you for your dedication to serving others. Thank you
for visiting my state. I am very grateful that you were able to
spend some time in New York.
In March of this year, you gave a speech where you remarked
on your intention to comply with President Trump's executive
order. This was your Keep It Simple Stupid deregulation view,
and you mentioned that this is not an exercise in repeal or
rewriting rules but rather streamlining. Has President Trump or
anyone in his administration identified CFTC regulations they
would like to eliminate or rewrite under the executive order or
under your program?
Mr. Giancarlo. No.
Senator Gillibrand. One of the strengths of the CFTC's
regulation is the U.S. person rule or cross-border jurisdiction
rule, which provides the CFTC the power to guard against
financial risk around the world.
It is clear from the 2008 financial collapse that pooled
risk anywhere in the world can cause significant problems at
home. How often have you heard from market participants on
reforming or curtailing the current U.S. person rule
specifically for U.S.-based entities?
Mr. Giancarlo. Well, I support it, the rule on capital for
swap dealers, and I think Chairman Massad and I came to the
right place on that rule. So I was proud to support him on
that.
I do not recall specific concerns raised on that in
particular that has come to my attention.
Senator Gillibrand. Do you foresee any changes to the U.S.
person rules for the European or UK markets, especially as
Brexit continues and you negotiate directly with the UK?
Mr. Giancarlo. So this is an area where I actually agree
with Chairman Gensler in that when it comes to our rules that
concern our swaps rules, that concern a systemic risk, we do
need to take the view that risk that builds up anywhere in the
globe can come back to the United States.
When it comes to issues of mechanics, then I am in favor of
a more territorial approach and not exporting our mechanical
approach to, say, swaps execution abroad. But on systemic risk
concerns, then I think we have to take a global approach.
Senator Gillibrand. Do you believe that you will rewrite
these rules, or do you anticipate any actions to dilute the
CFTC's jurisdiction?
Mr. Giancarlo. No, no actions to dilute the CFTC's
jurisdictions.
I did propose in 2015--in fact, I wrote an 89-page white
paper saying where I think the CFTC mis-implemented its swaps
execution rules, and I said I think we got it wrong primarily
because we did not follow Congress' stated prescription in the
law itself that swaps executions should be done through any
means of interstate commerce. That is the area where I have
been very clear that I think the rule is in need of a rewrite.
I think the law is correct.
As I said before, Congress got it right. I think the CFTC
got the swaps execution rules wrong. When it comes to swaps
clearing, I have said we have got it right, and swaps
transparency in terms of swaps reporting to swap data
repositories, I believe we have got that right as well. The
disappointment is we still have not realized it, 9 years after
the crisis.
Senator Gillibrand. One of the things President Trump
campaigned on and members of his economic team actually
endorsed, the idea of separating commercial banking from
riskier financial activities. Has President Trump or anyone in
the White House, including his economic team or the National
Economic Council, spoken to you or anyone at the CFTC about
reinstating an updated version of Glass-Steagall or any action
that would divide commercial banking from riskier financial
activities?
Mr. Giancarlo. No.
Senator Gillibrand. Have you examined how the CFTC may be
employed through regulation and enforcement to separate
derivatives dealing from commercial banking under that kind of
framework?
Mr. Giancarlo. I am not aware of any.
Senator Gillibrand. Okay. The U.S. derivatives market is
approximately worth $300 trillion. That includes $34 trillion
worth of futures and options and $270 trillion in swaps. There
are approximately 750 people that work at the CFTC. Currently,
the budget, as the Ranking Member mentioned--currently, the
CFTC budget is $250 million, far below other prudential
regulators with similar regulatory responsibilities.
Previous budgetary requests asked for a 30 percent
increase, while your request is closer to 13 percent, and the
President's budget has flat funding. Don't you think that
Congress should look at how other prudential regulators like
the SEC use mandatory funding mechanisms to provide a more
reliable and standard funding source for the CFTC?
Mr. Giancarlo. So I know this is a conversation that has
been going on for a long time, and I know that senior people,
including presidents of both parties, have called for a funding
mechanism. Yet, at the same time, we have self-funding in our
markets and through our self-regulatory organization, NFA,
which charges fees.
I have been concerned and have been raising concerns for
the last 3 years about the changing nature of liquidity in our
markets.
Last week, I had breakfast with some of America's most
prominent corporations, their corporate treasurers, including
from Hershey's chocolates to General Motors, and they raised
with me their decreasing ability to access liquidity in the
market. So I do not advocate transaction fees for the reason of
trading liquidity in the markets. I am concerned about that
impact, but ultimately, this is a decision for our
appropriators and our authorizers, and if they were to see fit
to provide this mechanism, then we clearly would work within
it.
Senator Gillibrand. Thank you, Mr. Chairman.
Chairman Roberts. I thank the Senator.
I wish to thank Senator Gillibrand, Senator Klobuchar for
appearing in person. This is--I think this is the latest
women's movement here that we have on the Committee. I do not
know what happened. Well, never mind. We are not going to go
down that----
Senator Stabenow. You should be worried, Mr. Chairman.
Senator Klobuchar. Very, very worried.
[Laughter.]
Chairman Roberts. It is no problem.
That will conclude our hearing today.
In closing, I would like to bring attention to a letter
from a coalition of nearly 20 agriculture groups in support of
Mr. Giancarlo's nomination, and that list includes some of the
largest councils and cooperatives and associations in the ag
sector. I am grateful to them for voicing their support.
Without objection, the letter will be entered into the
record at this point.
[The letter can be found on page 24 in the appendix.]
Chairman Roberts. Thank you, Mr. Giancarlo, for taking time
to address this Committee and to answer the Committee's
questions. It is clear that you are abundantly qualified to
lead the CFTC and motivated to tackle the challenges that lay
ahead.
To my fellow members, I would ask that any additional
questions you may have for the record be submitted to the
Committee Clerk by 5:00 p.m. tomorrow, June 23. We look forward
to receiving your responses, Mr. Giancarlo, and to further
considering your nomination.
The Committee is adjourned.
Mr. Giancarlo. Thank you.
[Whereupon, at 10:23 a.m., the Committee was adjourned.]
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DOCUMENTS SUBMITTED FOR THE RECORD
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QUESTIONS AND ANSWERS
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