[Senate Hearing 115-595]
[From the U.S. Government Publishing Office]
S. Hrg. 115-595
NOMINATION HEARING:
ROSTIN BENHAM, OF NEW JERSEY,
BRIAN D. QUINTENZ, OF OHIO, AND
DAWN DEBERRY STUMP, OF TEXAS,
TO BE A COMMISSIONER OF THE
COMMODITY FUTURES TRADING COMMISSION
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
JULY 27, 2017
__________
Printed for the use of the
Committee on Agriculture, Nutrition, and Forestry
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov/
__________
U.S. GOVERNMENT PUBLISHING OFFICE
29-641 PDF WASHINGTON : 2019
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
DaNita M. Murray, Majority Chief Counsel
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
----------
Page
Hearing(s):
Nomination Hearing: Rostin Behnam, of New Jersey, Brian D.
Quintenz, of Ohio, and Dawn DeBerry Stump, of Texas, to be a
Commissioner of the Commodity Futures Trading Commission....... 1
----------
Thursday, July 27, 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
Witnesses
Behnam, Rostin, of New Jersey, to be a Commissioner of the
Commodity Futures Trading Commission........................... 5
Quintenz, Brian D., of Ohio, to be a Commissioner of the
Commodity Futures Trading Commission........................... 7
Stump, Dawn DeBerry, of Texas, to be a Commissioner of the
Commodity Futures Trading Commission........................... 9
----------
APPENDIX
Prepared Statements:
Behnam, Rostin............................................... 30
Quintenz, Brian D............................................ 33
Stump, Dawn DeBerry.......................................... 35
Document(s) Submitted for the Record:
Roberts, Hon. Pat:
Ag Coalition, letter of support for nominees................. 38
U.S. Cattlemen's Association, letter of support for nominees. 40
5-day letter, Committee questionnaire and Office of
Government Ethics Executive Branch Personnel Public
Financial Disclosure Report filed by Rostin Behnam......... 41
5-day letter, Committee questionnaire and Office of
Government Ethics Executive Branch Personnel Public
Financial Disclosure Report filed by Brian D. Quintenz..... 68
5-day letter, Committee questionnaire and Office of
Government Ethics Executive Branch Personnel Public
Financial Disclosure Report filed by Dawn DeBerry Stump.... 90
Question and Answer:
Behnam, Rostin:
Written response to questions from Hon. Pat Roberts.......... 120
Written response to questions from Hon. Steve Daines......... 122
Written response to questions from Hon. Debbie Stabenow...... 123
Written response to questions from Hon. Sherrod Brown........ 130
Written response to questions from Hon. Kirsten Gillibrand... 131
Quintenz, Brian D.:
Written response to questions from Hon. Pat Roberts.......... 134
Written response to questions from Hon. Steve Daines......... 139
Written response to questions from Hon. Debbie Stabenow...... 141
Written response to questions from Hon. Sherrod Brown........ 150
Written response to questions from Hon. Kirsten Gillibrand... 151
Stump, Dawn DeBerry:
Written response to questions from Hon. Pat Roberts.......... 154
Written response to questions from Hon. Debbie Stabenow...... 157
Written response to questions from Hon. Sherrod Brown........ 165
Written response to questions from Hon. Kirsten Gillibrand... 166
NOMINATION HEARING:
ROSTIN BENHAM, OF NEW JERSEY,
BRIAN D. QUINTENZ, OF OHIO, AND
DAWN DEBERRY STUMP, OF TEXAS,
TO BE A COMMISSIONER OF THE
COMMODITY FUTURES TRADING COMMISSION
Thursday, July 27, 2017
United States Senate,
Committee on Agriculture, Nutrition, and Forestry,
Washington, DC
The Committee met, pursuant to notice, at 9:30 a.m., in
Room 328A, Russell Senate Office Building, Hon. Pat Roberts,
Chairman of the Committee, presiding.
Present or submitting a statement: Roberts, Boozman, Ernst,
Thune, Daines, Perdue, Stabenow, Brown, Klobuchar, Bennet,
Gillibrand, Donnelly, Heitkamp, and Casey.
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 thank the distinguished Ranking Member for being here.
We have two. Senator Ernst, Senator Heitkamp, thank you for
coming.
I have six grandkids. If Nina--if you want to bring her up
here, we will be----
[Laughter.]
Chairman Roberts. --happy to try to do that.
Senator Stabenow. I think we can handle that.
Chairman Roberts. I welcome my colleagues as we consider
the nominations of Mr. Russ Behnam, no stranger to this
Committee; Mr. Brian Quintenz; and Ms. Dawn DeBerry Stump to
serve as Commissioners of the U.S. Commodity Futures Trading
Commission.
Senator Stabenow, this is a little unique that we are
trying to move three----
Senator Stabenow. Yes, yes.
Chairman Roberts. --of our Commissioners, and hopefully
down the road, we can get a full Commission for the first time
in--I do not know how many years.
It was a pleasure to meet all of--with you all earlier this
week, and I thank you for appearing before the Committee today.
I recognize you all have close family and friends in the
audience today. Let me welcome all of those guests and everyone
here to the Committee.
As I have noted in previous hearings regarding the CFTC,
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, consumers, and the
public from fraud and manipulation and abusive practices
related to derivatives and other products that are subject to
the Commodity Exchange Act.
The regulation and oversight provided by the CFTC allows
end users, such as farmers, ranchers, commercial companies,
municipalities, energy companies, pension funds, and others to
hedge commercial risk by and through the derivatives market.
These markets allow companies to generate jobs and produce
goods and services for our economy.
I have said it before and I will say--and I will continue
to say it again and again. It was not the farmer, not the
rancher or the rural cooperatives or the electric utilities or
other end users who contributed to the financial crisis of
2008, yet oftentimes these folks are the ones shouldering the
heaviest burden when regulators decide what rules to impose.
A few weeks ago, we heard from Acting Chairman Giancarlo
about his vision for the CFTC, and I was encouraged by his
passion for the work of the agency and his plans going forward.
Today we will hear from three other nominees who I believe
also have a proper appreciation of the turmoil of the 2008
financial crisis and what that crisis imposed and the
comprehensive congressional response which followed.
Mr. Quintenz was working in the financial industry at the
time. Ms. Stump helped craft Title VII of Dodd-Frank, and Mr.
Behnam has been assisting this Committee in overseeing its
implementation for the past 6 years.
Discussions with the nominees have shed light not only on
their policy positions regarding immediate, specific high-
profile issues, such as the de minimis limit, but generally on
their collective future visions for CFTC work. Nominees also
provided insight on their views of the agency's continued role
regarding its exclusive jurisdiction over futures and swaps and
an outlook on the changes that have occurred since the
inception of Dodd-Frank, and that will most certainly continue.
Whether it is market participants who rely on the CFTC to
provide regulatory certainty or consumer financial advocates
who highlight the need for robust oversight of the market, I
think everyone can agree that we need a functioning commission.
I am confident the nominees we have today are well qualified
and can further this mutual objective.
Again, I thank all of the nominees for being here today. I
look forward to your testimony.
I now turn to my distinguished colleague and our Ranking
Member, Senator Stabenow, for her opening remarks.
STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR FROM THE STATE
OF MICHIGAN
Senator Stabenow. Well, thank you, Mr. Chairman. This is a
very important hearing.
Congratulations to all three of our distinguished nominees,
and welcome to their families.
Ms. Stump, welcome back to the Committee. I know you have
previously served honorably on the Ag Committee staff,
including your diligent work to draft Title VII of Dodd-Frank,
which made, as we know, critical reforms to the CFTC.
Mr. Quintenz, welcome back to you as well. President Obama
nominated you to be a CFTC Commissioner last Congress, and it
was not long ago that you were sitting in that very seat, so
welcome back.
Finally, Mr. Behnam, I have to say it is a little odd
seeing you at that end of the table. I am normally turning to
you and asking for your advice and input, but welcome.
Obviously I am very proud to have you sitting there, and
welcome also to Dinah and Nina, who I heard about before she
was even born. We are glad that they are here with you today.
So welcome to all of your families.
As a member of my staff, Rostin, you have done excellent
work for this Committee and provided valuable insight on a
variety of issues, including the CFTC, over the past 6 years. I
thank you very much on behalf of the Committee for your work. I
am very happy that you have been nominated for this important
position.
As all of you know, Acting Chairman Chris Giancarlo sat in
this room just a month ago and pledged to continue the progress
of Wall Street reform and uphold the CFTC's mission to foster
open, transparent, and competitive financial markets.
If confirmed as CFTC Commissioners, it is essential that
you work together on a bipartisan basis to make the best
decisions possible for our farmers, our businesses, and our
consumers.
You should also keep in mind the impact your decisions will
have on the economic health of our whole nation.
It has been nearly a decade since our country experienced
the worst financial crisis since the Great Depression. We all
remember the devastating impacts of that disaster: 8 million
American jobs were lost, many farmers and homeowners faced
foreclosure, and countless businesses went bankrupt.
Last week marked seven years since the passage of the
historic Dodd-Frank Wall Street Reform and Consumer Protection
Act. While this important legislation has brought greater
transparency, there is still much work to be done to implement
further improvements.
The CFTC has unfinished business on key rules that must be
completed to ensure our markets are not at risk. For example,
we need a meaningful position limits rule, as called for in
Dodd-Frank. The Commission must also move forward to establish
important capital requirements for swap dealers. It is critical
that the Commission take swift action on these issues.
The CFTC must also have the resources to effectively
monitor and oversee our markets, especially as we face new
challenges with cybersecurity.
The current CFTC budget is clearly insufficient. Less than
2 months ago, the White House issued a budget proposal that
severely underfunds the Commission.
I applaud Acting Chairman Giancarlo for offering his own
proposal to show what the Commission needs to keep our
derivatives markets strong and competitive.
I have said that I will fight for the funding the CFTC
needs to meet its responsibilities, and I hope all of you share
that commitment.
As you know, CFTC has had vacant Commissioner positions for
too long, and I am pleased that we are considering the three of
you today. Now that the last remaining Commissioner, Sharon
Bowen, has announced plans to leave the CFTC, there is one
additional Commissioner slot that needs a nominee.
It is essential that the administration moves quickly to
nominate a qualified candidate for this seat, so that we can
have a full commission. Our farmers, ranchers, and consumers
deserve to have a full slate of leaders at the CFTC to continue
making improvements to our financial markets.
Mr. Chairman, I appreciate you holding this hearing, and I
know that once we have a nominee for the final slot that we
will move forward quickly as well to seat the full commission.
Thank you.
Chairman Roberts. I now welcome our panel of nominees this
morning. For our first nominee, we have already turned to the
Ranking Member for the honor of introducing him, but let me
just say that he has worked for the Ranking Member since
joining the Committee in May of 2011, and he has been
an advisor to Senator Stabenow and the Committee on all
policy and legislative issues regarding ag, biotech, crop
protection, CFTC, and executive nominations.
So, Russ, you are fully qualified, and I look forward to
your testimony.
Next, we have Brian Quintenz, who was nominated for the
term vacated by Commissioner Scott O'Malia. Prior to his
nomination, Mr. Quintenz was the founder and managing principal
and chief investment officer of Saeculum Capital Management
LLC, a commodity pool operator here in
Washington, DC Prior to forming Saeculum in late 2013, Mr.
Quintenz worked as an outside consultant to Merrill Lynch, and
from 2009 through 2012, he was a senior investment associate
for Hill-Townsend Capital during the 2008 crises. There he
focused solely on U.S. financial company investment
opportunities. Prior to working in the financial markets, he
was a senior policy aide for Congresswoman Deborah Pryce, a
dear friend of mine. Mr. Quintenz graduated Magna Cum Laude
from Duke University.
Were you part of those crazy Dukies in the----
[Laughter.]
Mr. Quintenz. I was.
Chairman Roberts. With a major in public policy studies and
received an MBA from Georgetown. Welcome, and thank you for
participating in today's hearing.
Nina has just heard that you were part of the crazy Dukies.
[Laughter.]
Chairman Roberts. Our next witness, Ms. Dawn DeBerry Stump,
was nominated for the term left by former Chairman Timothy
Massad. Most recently, Ms. Stump served as president of Stump
Strategic, a consulting firm she founded in 2016. Prior to
that, she served as an executive director of America's Advisory
Board for the Futures Industry Association, and a vice
president at the New York Stock Exchange. She has served in
senior staff positions of both the House and Senate Agriculture
Committees, where she was involved in matters pertaining to the
oversight of the CFTC, reauthorization of the Commodity
Exchange Act, and negotiation of the derivative components of
Dodd-Frank. While a staffer on the Senate Ag Committee for
Senators Cochran and Chambliss, she focused on various farm
policy matters and the CFTC. She represented the Committee
during the negotiation of complex financial derivative policies
in the aftermath of the 2008 financial crisis, and assisted the
crafting of Title VII of Dodd-Frank. Ms. Stump is from Olton,
Texas, and grew up working in the ag sector. She holds a degree
in agriculture economics from the Texas Tech University, Red
Raiders.
Welcome, and thank you for your willingness to serve as a
Commissioner.
Now, as is the tradition and custom of the Committee,
before Committee witnesses are to provide testimony, I need to
administer the oath. If all of you could please stand and raise
your right hands.
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. Behnam. I do.
Mr. Quintenz. I do.
Ms. Stump. 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. Behnam. I do.
Mr. Quintenz. I will.
Ms. Stump. I will.
Chairman Roberts. Thank you.
We look forward to your testimony.
Russ, why don't you kick it off.
TESTIMONY OF ROSTIN BEHNAM, NOMINEE, TO BE COMMISSIONER OF THE
COMMODITY FUTURES TRADING COMMISSION
Mr. Behnam. Absolutely.
Chairman Roberts, Ranking Member Stabenow, members of the
Committee, it is an honor to sit before you this morning as a
nominee to serve as a Commissioner of the Commodity Futures
Trading Commission.
I would like to take a brief moment to express my
appreciation and thanks to Minority Leader Schumer for
recommending me to this position, President Trump for the
nomination, and Chairman Roberts for holding this hearing.
I would like to recognize and thank my wife, Dinah Bengur,
and our daughter, Nina, for being here today. Also, I would
like to thank my parents. Their patience, guidance, and support
have been a bedrock and a platform for me to think big and
pursue my dreams.
I would like to recognize my colleagues on the Agriculture
Committee staff. This Committee is known for its bipartisanship
and its ability to get things done. I have had the privilege to
work with Republican, Democratic, and non-designated staff,
both past and present. There are too many to name, but many
have been a significant part of my career and personal life in
the Senate. I call many close friends, and I hope I will be
able to do so for many years to come.
Finally, I would like to thank Senator Stabenow. For more
than 6 years, I have had the great privilege of serving the
people of Michigan and advising Senator Stabenow in her roles
as Chairwoman and Ranking Member of this Committee. Senator
Stabenow has a boundless energy driven towards a simple goal:
helping others. This energy and discipline are contagious and
serve as a challenge to fulfill the great responsibility of
public service.
These are virtues that most people can only aspire to, but,
if confirmed, it is these virtues, manifested through your
dynamic character, your balanced judgment, and your integrity
that I will endeavor to use as a compass to guide my own
decisions, both professionally and personally.
I joined the Agriculture Committee staff more than 6 years
ago, only a few years removed from the financial crisis, the
U.S. economy struggling to find footing, and Wall Street reform
just beginning to take shape. Coming from New York City, my
professional experience as an attorney was narrow relative to
the true breadth of the CFTC's jurisdiction. But, after a few
short months, this would all change.
During what became this Committee's first attempts at
piecing together the 2014 Farm Bill, I had the opportunity to
add two issues to my portfolio: biotechnology and crop
protection. Since that time, I have committed to learning these
two issues wholeheartedly--the complex regulatory field, the
diverse viewpoints, and most importantly, meeting agricultural
producers from across the country, many from States represented
on this Committee.
It is within the context of my exposure to agricultural
policy that the CFTC's history and core mission have become
clearer to me. I believe the strength and vibrancy of the
futures market, which serves as a critical price discovery and
risk management tool for end users, is a testament to the
creative and entrepreneurial spirit of the American farmer.
In 1974, this Committee authorized the establishment of the
Commodity Futures Trading Commission as an independent agency,
understanding that the quick pace of innovation in the
derivatives space demanded a dedicated regulator with exclusive
jurisdiction and separate from the Department of Agriculture.
With each new year, market participants developed new
products to help producers, manufacturers, and financial
institutions lay off risk. Today the derivatives market is
largely comprised of products derived from financial
instruments, like foreign currency, interest rates, and market
indices; a much more complex, global, and diversified market
than what existed even 10 years ago.
Reforms established in 2009 by the G20 leaders and later
included in Title VII of Dodd-Frank have made significant
changes to the CFTC's regulatory canvas, shedding much needed
light on the previously unregulated swaps market, which played
a significant role in the financial crisis.
Title VII has improved transparency through mandatory
clearing and exchange trading of standardized swaps and
comprehensive recordkeeping and reporting requirements. These
core reforms will protect against many risks that undermine the
ability of global--the stability of global financial markets
prior to 2008.
But there is more work to be done. If confirmed, I commit
to working with the CFTC Chairman and my fellow Commissioners
to ensure that the balance of Title VII is completed in its
entirety.
Sitting here, nearly 7 years to the day since the enactment
of Dodd-Frank, I believe the Commission must aim to finalize
outstanding Title VII work in a thoughtful and expeditious
manner. Completion will allow the Commission to shift its
limited resources towards new challenges financial markets face
today.
In addition to the constant need for strong enforcement of
Commission rules and regulations, advancements in technology,
cybersecurity threats, and regulatory coordination, both
domestically and internationally, present real challenges for
the CFTC and market participants.
Finally, as this Committee shifts focus to the 2018 Farm
Bill, I commit, if confirmed, to working with each
member of this Committee, both here in Washington, DC, and
back home, to ensure the CFTC, particularly at this time of
persistently low commodity prices and economic headwinds in the
farm economy, remains both a desirable and cost-effective risk
management and price discovery tool for agricultural producers
and the entire value chain.
Thank you for your time, and I look forward to your
questions.
[The prepared statement of Mr. Behnam can be found on page
30 in the appendix.]
Chairman Roberts. Mr. Quintenz.
TESTIMONY OF BRIAN D. QUINTENZ, NOMINEE, TO BE A COMMISSIONER
OF THE COMMODITY FUTURES TRADING COMMISSION
Mr. Quintenz. Thank you, Chairman Roberts, Ranking Member
Stabenow, and members of the Committee. It is an honor to be
with you this morning.
I would like to thank President Trump for nominating me to
serve on this important Commission, and I am very appreciative
of the support I received from many different parties during my
prior nomination, including the unanimous support of this
Committee.
I am deeply grateful for the love and encouragement of my
parents, Kenneth and Susan; my brother, Darren; and my two
children, Connor and Vivienne. None of them happen to be here
today, as they are all enjoying much cooler weather up in
northern Wisconsin for a family reunion, but my children
assured me that had this hearing occurred on a school day, they
would have insisted on attending.
[Laughter.]
Mr. Quintenz. Mr. Chairman, I am a Midwesterner. I am a
first-generation Ohioan whose mother and father grew up in
Wisconsin, which is also the home of my extended family, and I
am a firm believer in the Midwest values of hard work, honesty,
and community.
I come from a family of entrepreneurs and small business
owners. My grandfather on my mother's side, after serving in
World War II, returned home to northwestern Wisconsin and
purchased a Ford car dealership. His wife, my maternal
grandmother, was raised on a family dairy farm in Chetek,
Wisconsin. My paternal grandmother owned and operated a
restaurant on the east side of Milwaukee, putting her three
sons through college. My father started his own business, my
brother started his own business, and I founded my own
business, Saeculum Capital Management.
Until I closed it at the end of last year, Saeculum was an
investment firm registered with the CFTC as a commodity pool
operator. As the sole proprietor of the firm, it was my
responsibility to effectively and meticulously manage risk as
well as compliance. I am, therefore, very familiar with the
CFTC's investor protection rules, disclosure requirements, and
recordkeeping obligations.
I began my career in finance in 2008 during the financial
crisis. Working directly under the CEO at an investment firm
focused on the banking sector, I performed detailed valuations
on financial institutions of all sizes and complexities. I
became an expert at reading banks' balance sheets and income
statements, understanding their accounting rules and financial
disclosures, and forecasting their capital levels and quarterly
earnings.
In this position, I depended on the accuracy and
accessibility of publicly available information and became a
firm believer in data and transparency. Transparency increases
market efficiency and can provide important checks on risky
behavior.
However, my professional career did not begin in finance.
It began in public policy. After graduating from Duke with a
degree in public policy studies, I joined the Office of
Congresswoman Deborah Pryce, who represented Ohio's 15th
District, an area that included my hometown of Columbus.
Ultimately, I became her senior policy advisor with an issue
portfolio that included agriculture.
In meeting agricultural constituents and personally
visiting some of the over-1,000 family farmers in our Ohio
district, I developed a strong appreciation for the work ethic
and sophistication of America's farmers and ranchers, as well
as for the pressures and the costs and the risks that they
face.
Should I be confirmed, I pledge to ensure the market
concerns of the agricultural sector are recognized and to
continue developing a firsthand knowledge of the agricultural
community.
The financial crisis scarred every sector of our economy.
It hurt individuals, families, and communities, and it exposed
the deep flaws in our markets. It deserved a legislative and a
regulatory response. As that response is calibrated,
regulations meant to address those flaws should not spill over
to harm the normal activity of ordinary businesses and end
users. When costs are added without targeting risk, poor
outcomes ensue. I will work to ensure that regulations and
their burdens are tied to the risks being mitigated.
It would be an honor to bring my public policy background,
my expertise in finance and risk management, my knowledge of
derivatives and my respect for the agricultural community to
the CFTC. This is a crucial time for our financial markets and
for the people that depend upon them. It would be a privilege
to serve at this agency.
Thank you very much, and I would be pleased to answer your
questions.
[The prepared statement of Mr. Quintenz can be found on
page 33 in the appendix.]
Chairman Roberts. Thank you for your statement, Mr.
Quintenz.
Ms. Stump.
TESTIMONY OF DAWN DeBERRY STUMP, NOMINEE, TO BE A COMMISSIONER
OF THE COMMODITY FUTURES TRADING COMMISSION
Ms. Stump. Chairman Roberts, Ranking Member Stabenow, and
members of the Committee, thank you very much for the
opportunity to return here to the Senate Agriculture Committee.
It was a privilege to work here for 6 years as a legislative
staffer, and today I am pleased to appear before you as a
nominee to serve as Commissioner on the Commodity Futures
Trading Commission.
Should I be confirmed to the position, I know the standard
of collaboration to which this Committee and its staff
subscribe will assist me in contributing to the effectiveness
of the bipartisan Commission.
I would also like to take the opportunity to thank my
family in Texas as well as my husband, Jeremy, and my children,
Ethan and Abigail, who are here with me today.
I have spent my entire professional career working in and
around agriculture. This background is what motivates my
conviction for well-functioning commodity markets. I grew up in
the agricultural sector during the farm crisis of the 1980s. My
hometown of Olton, Texas, is almost exclusively dependent upon
production agriculture. I have seen firsthand the need for
access to a variety of effective risk-management and price-
discovery tools, including the futures market where the
industry can hedge against the inherent risk of the business
that they run.
Earlier in my career, I worked as a market analyst for a
group of U.S. wheat farmers seeking to market their crops
around the globe. In our effort to promote U.S. ag products
abroad, I provided our marketing teams around the world with
information on the market fundamentals, the futures prices, and
the cash markets at various export points.
A more somber experience was my work at the Texas
Department of Agriculture during a period of extreme drought.
Seeing firsthand this sort of devastation and helping to
coordinate a response further solidified my view that access to
functional risk management tools in various forms is crucial to
the agricultural industry.
Notably, though, the application of the markets regulated
by the CFTC extends beyond agriculture to manufacturers,
utilities, and even retirement pension plans. Futures, options,
and swaps are important tools for managing risk associated with
price fluctuation, energy production disruptions, retirement
savings loss, and interest rate variability.
My background is in agriculture, but my experience is
further informed by the various energy and financial market
initiatives I worked on during the time here as a staffer on
the Agriculture Committee.
In 2008, I helped negotiate a bipartisan effort to ensure
that the CFTC had proper oversight authority over principal-to-
principal transactions executed on electronic trading
facilities. Our efforts ensured that when these contracts were
performing a significant price discovery function, they would
be subject to transparency and position management comparable
to those of similarly designed futures contracts. At the time,
this was particularly applicable in the energy markets.
Later in 2009 and 2010, the Committee was involved in
responding to the financial crisis and specifically tasked with
examining how to regulate over-the-counter swaps. I spent
countless hours hearing from end users who utilize these
markets to hedge their risk and discussing with colleagues from
the Agriculture and the Banking Committee how to appropriately
oversee the products, the market participants, and the
infrastructure that would support such a newly regulated
market.
The circumstances of the recent financial crisis taught us
that the markets are constantly changing, and regulators must
be nimble enough to respond accordingly. During the 10 years
that have passed since the onset of the crisis, the OTC swaps
market has undergone a tremendous transformation, with 80
percent of such transactions being cleared today, as compared
to only about 15 percent in 2007.
The pace of change in the markets regulated by the CFTC
will continue. To avoid complacency, we must be vigilant about
ensuring that regulations are properly calibrated for the
inevitable market evolution ahead.
In closing, I would like to note that the recently expanded
portfolio of products and market participants under the CFTC's
oversight requires the agency to expand its expertise, without
losing sight of its legacy mission of ensuring that the futures
markets are performing price discovery functions void of
manipulation.
My background is in agriculture, and my professional
experience extends to the energy and financial futures markets.
I am honored to be nominated alongside individuals with
complementary credentials, and I genuinely believe that our
collective knowledge will yield optimal coordination for better
regulatory developments and oversight.
Thank you, and I would be happy to answer any questions.
[The prepared statement of Ms. Stump can be found on page
35 in the appendix.]
Chairman Roberts. Thank you very much, Ms. Stump. I thank
you all for being on time. We have a rather hard-to-understand
de minimis rule of 2 hours with regards to this hearing, so
thank you for being on time. Just a bit of information for all
Senators, including myself.
[Laughter.]
Chairman Roberts. Last Congress, we moved the CFTC
reauthorization package out of this Committee in an effort to
address some of the most pressing issues for market
participants, such as setting an appropriate de minimis level
and defining what constitutes a bona fide hedge.
Can each of you briefly discuss your views on these two
issues?
Russ.
Mr. Behnam. Mr. Chairman, with respect to bona fide hedge,
I would take a step back. I do support position limits, and I
support a quick and thoughtful completion of the position
limits rule. That said, I fully appreciate that.
I think the relevant question is not whether or not
position limits should be completed, but how they should be
completed. I think this goes to your point, thinking about a
proper bona fide hedge definition, proper deliverable supply
numbers, and proper aggregation definition also are very key to
that rule to get it done right. I do believe it is the law, and
I think it needs to be implemented and finalized as soon as
possible.
With respect to de minimis, I support the current rule at
the Commission, which would require the Commission to drop the
$8 billion level to $3 billion in December 2018. That said, if
confirmed I commit to working with you, this Committee, and my
fellow Commissioners and the Chairman at the CFTC to make sure
the current rule reflects the most recent and relevant data to
ensure that the policy objectives of the registration regime
are met, specifically reducing systemic risk and promoting
market participation.
Chairman Roberts. Mr. Quintenz.
Mr. Quintenz. Thank you, Mr. Chairman.
With regard to the de minimis threshold level, I think when
this threshold was set originally, it was really done without
the benefit of a lot of data. I think if there is a scenario
where this threshold reduces from $8 billion to $3 billion and
instead of increasing registration, it would drive participants
out of the market or force them to reduce their activity
because of the costs that would be imposed upon them, that
scenario would not serve the three stated policy goals in Dodd-
Frank of swap dealer registration, which are systemic risk
reduction, counter-party production, and market integrity.
As such, I think it is very important that the Commission
analyze a robust set of data around this issue. I know Acting
Chairman Giancarlo has called for a fresh look at data on this
issue, and I would like that data to inform my opinion as to
what the appropriate level of a de minimis threshold should be.
Regarding position limits, I think it is absolutely
imperative that end users and farmers and ranchers that have
been able to hedge in these markets continue to be able to
hedge in the bona fide way that they historically have.
Chairman Roberts. Ms. Stump.
Ms. Stump. I will start with position limits. Can you hear
me? I will start with position limits.
First of all, I would like to commend the Acting Chairman
for his commitment to putting forward a final position limit
rule. I think that the discussion on the proposals and the
supplements to this rule have been going on for quite some
time, and I look forward to helping him to finalize this rule.
With regard to bona fide hedging, the agricultural industry and
the markets that they utilize have had position limits for
quite some time, and my priority will be to ensure that the
strategies they use to hedge are not prevented in the future
due to unworkable bona fide hedging restrictions.
With regard to the de minimis levels, having been here
during the development of Dodd-Frank, I can absolutely attest
to the fact that registration of swap dealers was a very
important component of the reforms that were included in Dodd-
Frank, and certainly, those reforms should be implemented
aggressively. The de minimis threshold for the de minimis
exemption was also a part of Congress' direction to the CFTC.
Given that the agency has struggled to obtain good
information relative to swap transactions, I believe the
Commission made a determination that they needed to delay the
implementation of the threshold until such time as they could
have better data, and I look forward to looking at that data
and reviewing it as the schedule comes due again.
Thank you.
Chairman Roberts. Thank you for that.
In the 26 seconds that I have left, I am going to submit
two questions for the record, but one is in regard to our folks
on the ground who are trying to hedge their agriculture or
commercial risk, and they need to be able to focus on the
business of what they do best for America. The question
concerns what is your position on rules and regulations and the
negative impact on our farmers and ranchers and other end users
and how you would address those concerns, and I am sure you all
can respond to that.
The other one is the--we hear rumblings about whether it
makes sense from a budgeting perspective to combine the SEC and
CFTC. Any comments you may have on that? You obviously are
opposed to that and----
[Laughter.]
Chairman Roberts. --you can express that in one simple
paragraph.
Senator Stabenow.
Senator Stabenow. Thank you, Mr. Chairman, and I too share
your interest, obviously, in the position limits rule.
I think it is clear. I think I heard all of you say that
you want to get that rule done. Is that right? Rostin, is that
right?
Mr. Behnam. Correct.
Senator Stabenow. Yes. Brian?
Mr. Quintenz. Yes. I would commit to finalizing the
position limits rule.
Senator Stabenow. Dawn?
Ms. Stump. Yes.
Senator Stabenow. Okay. We also have work to do on the
swaps de minimis threshold. I am not going to talk about this
issue now, but I do want to be clear on the budget. You all are
walking into a situation where there has been dramatic
increases in responsibilities without adequate resources now
for years. We are all concerned about important new issues that
pose as threats to the markets, like cybersecurity and so on.
I am wondering if each of you would indicate whether or not
you would support increased resources for the CFTC, and at a
minimum, would you support the Acting Chairman's efforts to
increase the budget?
Rostin?
Mr. Behnam. Senator, I do not think the budget increases
that the CFTC has received since the financial crisis, to use
your word, are commensurate with its new oversight
responsibilities, thinking about the swaps market, which is
estimated at about $500 trillion notional value.
Then, again, to your point, cyber threats and the advent of
automated trading, these are all very resource-intensive
challenges that the CFTC faces. So, yes, I do support an
increased budget. I do support Acting Chair Giancarlo's
proposal.
I would also add that I think it is important that this
Committee consider the Division of Enforcement and the actions
it has taken at the Commission. Over the past 5 years, it has
returned billions of dollars to the Treasury, and I think it is
important to view funding the CFTC in an appropriate way as an
investment in safe and stable markets.
Senator Stabenow. Thank you.
Yes, Brian.
Mr. Quintenz. Thank you, Senator.
I think there are a number of different ways to ball-park
or handicap the new responsibilities that the agency has
received. From the outside and as a nominee, I am not
necessarily privy to the same type of information that I could
be as a Commissioner on resource utilization and allocation or
need, but I have a tremendous amount of respect for and
confidence in Acting Chairman Giancarlo and would compliment
him on the diligence, the honesty and the forethought that he
put into building his budgetary submission. It is my
understanding that the increase that he is seeking would go
towards increasing the number of economists in the chief
economist office and providing more oversight over central
counterparties. Both of those are priorities I would support.
Senator Stabenow. Great. Thank you. Dawn?
Ms. Stump. Like Mr. Quintenz, I would like to commend the
Acting Chairman for doing a top-to-bottom review of the
Agency's resource needs. I think that was overdue, and he was
very thoughtful, I think, in putting forward an alternative
budget relative to the gaps that he found and the need for
increased efficiencies.
I look forward to having the opportunity, if confirmed, to
review that information and contribute to future budget
discussions.
I would like to also, in the context of this conversation,
commend the staff that were tasked with implementing Dodd-Frank
at the CFTC. They did a remarkable job and, frankly, were one
of the first agencies to implement most of the responsibilities
under the Dodd-Frank Act, with the limited resources they had.
Senator Stabenow. I agree with you. I think there has been
tremendous work done, given the importance but also the limited
resources.
Let me ask about cybersecurity because we know it is an
enormous risk, not only to national security, but also to our
markets and our economy. This is something we must take
seriously as we move forward.
Financial markets are as vulnerable as any institution, and
an attack on markets would have catastrophic repercussions for
our nation's economy.
If confirmed as a CFTC Commissioner, what are your
intentions to address this growing challenge? Do you believe
the Committee needs to provide additional authority to the CFTC
to better protect the financial markets it oversees?
Mr. Behnam. Senator, I think the thing that pops into my
mind when I think about cyber is coordination and collaboration
among financial regulators. There are obviously a lot of
financial regulators that oversee very discrete parts of the
financial system.
That said, the one priority that I hope I would contribute
to my fellow Commissioners and the Chairman is working with
other financial regulators, specifically thinking about the
Financial Stability Oversight Council, which was authorized in
Title I of Dodd-Frank, excellent opportunity for Acting Chair
Giancarlo to be sort of the face of the CFTC and work with
other financial regulators to have an across-the-board
coordination with all regulators so that everyone is working on
the same page and sort of living up to the same standard,
because you could have nine out of ten financial regulators
doing and having the best cyber defense, but if one, to your
point, is not strong, that one leak can have a systemic issue
across the board.
Senator Stabenow. Thank you.
Yes, Brian.
Mr. Quintenz. Yes. I would like to echo those comments.
I think about cybersecurity from an internal perspective
and an external perspective, the internal perspective meaning
protecting the CFTC's own data and its digital infrastructure
from attack. I know that it is implementing the NIST
Cybersecurity Framework, and it is also subject to the Federal
Information Security Modernization Act and the annual audits
that it requires. Then there is the external component of
ensuring that the financial institutions that it regulates are
held to the highest standards, and I know that there has been a
unanimous rule to address those issues.
Senator Stabenow. Yes, Dawn?
Ms. Stump. I agree with everyone. Cyber is a serious threat
to the market and the infrastructure that supports it, and you
all putting forward core principles under the Commodity
Exchange Act expect that the system safeguard core principle be
adhered to.
The Commission recently improved upon the systems safeguard
core principle regulations to ensure that the clearinghouses
and the exchanges that support these markets are, in fact,
conducting the necessary internal and external test to ensure
that cyber threats can be managed and detected.
So I certainly will be vigilant in ensuring that those
regulations are complied with, if confirmed.
Senator Stabenow. Thank you.
Mr. Chairman, I know I have gone over, but I want to stress
that there are folks working at this moment to undermine U.S.
financial systems as well as the rest of our economy. So I hope
that each of you will take this threat seriously moving
forward.
Thank you.
Chairman Roberts. They were good overtime questions.
Senator Ernst.
Senator Ernst. Yes. Thank you, Mr. Chair, and welcome to
each of you, your families, and your colleagues. It is nice to
have you here, and congratulations on your nominations.
We all know that folks within the ag industry face
tremendous risk and operate in a uniquely volatile marketplace.
Risk management is essential to their business operations,
especially as we continue to experience a downturn in our ag
economy.
From the entire panel, if you would, as you all know, there
is a big difference between an Iowa farmer hedging against
commodity market risk and a Wall Street investment banker
writing credit default swaps. How would you ensure that we
avoid unintended consequences of a one-size-fits-all regulation
on families and businesses who are involved in agriculture?
We will reverse the order this time. Ms. Stump, if you
would start, please.
Ms. Stump. Certainly.
I absolutely understand what you are saying. The CFTC is
tasked with regulating a number of different asset classes and
market participants, and certainly, given my background, I am
familiar with the different risks that agricultural producers
face and energy producers also face. All of the commodity
market participants need to have access to markets where they
can hedge against the volatility that is always going to be
present in their business.
Relative to the financial products that the CFTC oversees,
some of those are also necessary hedging tools. For example,
CoBank probably uses the interest rate swap market to hedge
against their risk, and we have to make sure that those tools
are available to them as well.
On the other side, there are participants in the market
that are not hedgers. They are liquidity providers. They are
often speculating in the market, and we do need to address the
concerns relative to the different market participants in
different manners. I look forward to doing that, if confirmed.
Senator Ernst. Very good. Thank you.
Mr. Quintenz. Thank you, Senator.
I think that these markets need to work for the people and
the farmers and the ranchers and the businesses that have a
natural exposure to commodity risk because they depend upon
them, and when the Commission loses sight of the risk that its
rules are trying to mitigate or the market flaw that its
regulations are trying to address, that is when costs get added
and regulations end up burdening ordinary businesses and the
end-user community.
So I would pledge to make it a focus of mine to ensure that
the regulations and the rules that the CFTC considers,
proposes, and finalizes target risks specifically.
Senator Ernst. Thank you.
Mr. Behnam. Senator, echoing everything my fellow nominees
said, I will add, though, I think constant communication with
stakeholders. Obviously, the stakeholders of this Committee is
important to ensure that they are able to use the derivatives
market in a cost-effective way as a risk-management tool.
So, if confirmed, I pledge to continue working with the
Aggies to make sure that they are able to use the markets in
the way they were intended to be used.
Senator Ernst. Thank you very much. I appreciate it.
In his testimony, Mr. Quintenz discussed the danger of
rules that treat low-risk behavior the same as high-risk
behavior, and for all of you as well, to what extent do you
think CFTC regulations currently do this? Are there any steps
that Congress should be taking in this process?
Yes, Mr. Quintenz.
Mr. Quintenz. I guess I will start since it was in my
testimony.
Senator Ernst. Yes.
Mr. Quintenz. I think that----
Senator Ernst. Thank you.
Mr. Quintenz. --there are areas where the Commission has
issued rules on thresholds or definitions that do not
necessarily fit the risks that are being mitigated.
I think one example could be in the de minimis threshold
and using notional value as a way to measure activity. Notional
value, I believe, is a poor measure of activity and is a
meaningless measure of risk, but yet that is what the
Commission has chosen to impose all of these costs upon smaller
firms that would have to register as swap dealers; also, in
regulations defining who is a bone fide end user in position
limits; Also, in defining who is an algorithmic or a high-
frequency trader, where in past iterations it could have
applied very broadly to even the farmers and the ranchers of
this country; I think they need to make sure they are focused
on targeting the rule specifically.
Senator Ernst. Very good.
I only have 30 seconds, if there is a differing opinion,
either one.
Ms. Stump. I have no differing opinion.
I would just like to point out that you all have given the
Commission a principle-based roadmap for these regulations,
such that I think that indicates that one-size-fits-all was not
your intention, so----
Senator Ernst. Right. Correct. Thank you.
Mr. Behnam.
Mr. Behnam. I would just add that it is important as an
independent agency that the Commission have the flexibility to
constantly adapt to the current marketplace, given its quick
pace of evolution.
Senator Ernst. Absolutely. Thank you very much.
Thank you, Mr. Chair.
Chairman Roberts. Senator Donnelly.
Senator Donnelly. Thank you, Mr. Chairman.
Thank you all for being here.
I have consistently argued that position limits should be a
tool in the CFTC's tool box that helps the Commission fulfill
its mission to promote transparent open markets and to protect
the public from fraud and manipulation.
I would like to go down the line. If confirmed, will you
work to finalize the position limits rule in a timely manner?
Mr. Behnam.
Mr. Behnam. Senator, absolutely. I support position limits,
and I will work with my fellow Commissioners and the Acting
Chair to ensure that the rule is done as quickly as possible.
Mr. Quintenz. Thank you, Senator. Yes, I would commit to
finalizing a position on this rule.
Senator Donnelly. Okay.
Ms. Stump. Yes, I would.
Senator Donnelly. Great. One of CFTC's continual challenges
is securing appropriate funding to make sure that operations
are full capacity. That has continued to be a challenge on a
regular basis.
I am also interested in learning more about the possibility
of creating a self-funding mechanism for the Commission that
provides you with the resources needed without restricting
access for market participants.
Mr. Quintenz, starting with you, would you commit to
getting back to this Committee in the coming months with your
thoughts and ideas for appropriately funding the Commission for
the work that you have to do?
Mr. Quintenz. Absolutely.
Senator Donnelly. Ms. Stump?
Ms. Stump. Yes. I would be happy to.
Senator Donnelly. Mr. Behnam?
Mr. Behnam. Yes, Senator Donnelly.
Senator Donnelly. Great.
Thank you, Mr. Chairman.
Chairman Roberts. Senator Boozman.
Senator Boozman. Thank you, Mr. Chairman, and thank you and
the Ranking Member for getting this together in a timely
fashion.
I guess I would like to talk a little bit about harmonizing
the swaps rules to ensure that U.S. firms are operating on a
level playing field with their international competitors.
In your opinion, how important is this work--international
regulators harmonizing their swaps rules? What are the biggest
harmonization challenges that we are facing in the coming
years, and how do you think we should tackle these challenges
again? Talk a little bit about how that affects the ability of
United States entities to complete overseas.
Mr. Quintenz. Thank you, Senator.
The swaps market is a global market, and I think that
presents two somewhat opposing challenges in harmonization
efforts.
The first is that, as the financial crisis showed, a
buildup of excessive risk anywhere through derivative exposure
can be a buildup of excessive risk everywhere, and we have to
be vigilant that we are not importing risk into the United
States through lax comparability determinations.
But the second aspect of a global swaps market is that if
costs or regulations are added in one jurisdiction that do not
compare to other jurisdictions, that activity can move
overseas, and it could be detrimental to the liquidity and to
the ability of end users.
Senator Boozman. You actually lose control somewhat?
Mr. Quintenz. To some degree, you could, yes, Senator. So I
think that those are things that the Commission needs to keep
in mind in making comparability determinations.
Mr. Behnam. Senator, I think one of the most important
lessons from the crisis was how global and interconnected the
financial markets are. You could have a transaction, to Mr.
Quintenz's point, take place far beyond our borders and it have
a profound effect on our domestic institutions, our domestic
markets, and most importantly, the American taxpayer.
With that, I think it is critical that when the CFTC
enforce its cross-border guidance and related rules and
regulations, it have appropriate oversight over transactions
that have significant nexus to the U.S.
With that, to the extent that it is my responsibility, if
confirmed, I will work with the Chairman to continue working
with foreign counterparts to make sure that there is a level
playing field and that there is not a regulatory race to the
bottom.
Senator Boozman. Very good.
Ms. Stump. I would just--I agree with everything that has
been said, but I would like to point out that never was it any
more apparent than during the financial crisis that these are
global markets. What started in one jurisdiction quickly bled
into another, and I think that is why the global regulators
came to terms with a three-part approach relative to
derivatives regulations--transparency, reducing systemic risk,
increase clearing. All of those things were supported in a
bipartisan manner.
But what is unique about the United States is that the CFTC
has for over 30 years been a leader among their global
regulators, and I believe that has continued. They were one of
the first movers implementing many of these reforms, and so we
saw that at the time, when various jurisdictions were
implementing the regulations at different times, that there
were gaps. But now most jurisdictions have taken steps to put
in place regulations, and it is incumbent upon all regulators
to coordinate and ensure that they are not stepping on each
other but at the same time ensuring that the prevalence of
these problems does not bleed from one jurisdiction to another.
Senator Boozman. Well, we have the harmonizing the rules.
We have the cross-border situation, but domestically, what will
you do to reduce the unnecessary redundant burdens, such as
inspections, filings, and information requests on regulated
entities?
In other words, right now the feedback that we are getting
is that we need good information, but we do not need regulation
for regulation's sake.
The other problem with that is that as you acquire this
information--and it is not just the CFTC--it is all of our
financial regulators. It seems like there is a move for more
and more information, but as we talked about the cyber security
component, you have the responsibility then of securing this
information, which is very, very difficult to do.
So can you comment on what do we do about getting rid of
some of the redundant stuff that is going on?
Mr. Quintenz. Thank you, Senator.
I think this is an opportunity to applaud Acting Chairman
Giancarlo's efforts. He has announced something called Project
KISS, which stands for ``Keep it Simple, Stupid,'' to review
all of the regulations that are currently on the books and try
to find areas where there may be duplicative regulations or
unneeded regulations. I would support his efforts in that
regard.
Senator Boozman. Very good.
You all certainly support that, I assume?
Mr. Behnam. Absolutely.
Ms. Stump. Yes.
Senator Boozman. Very good. That is a great slogan for all
of us.
Thank you, Mr. Chairman.
Chairman Roberts. Senator Klobuchar.
Senator Klobuchar. Thank you very much, Mr. Chairman.
Welcome, all of you. This hearing is a little more less
intense than the Judiciary hearing I just came from on Russia,
so I will try to adjust my tone.
[Laughter.]
Senator Klobuchar. Mr. Quintenz, you have a strong
background----
Chairman Roberts. Welcome back home.
[Laughter.]
Senator Klobuchar. Thank you. Thank you. It is great to be
here.
Mr. Quintenz, You have a strong background with the
financial markets. You have been a participant in financial
markets as part of your business.
You and I met, and we talked about the differences between
speculation in areas like gas, oil, wheat, where there are
physical commodities, and pure financial speculation. Could you
talk about how you consider this and what you see as the
similarities and differences?
Mr. Quintenz. Yes. Thanks, Senator.
It was a pleasure to meet you, and it was very kind of you
to spend some time talking business during that--during that
event.
Commodity markets evolved completely separately from the
equity markets for completely different purposes. Whereas the
equity markets were designed for companies to raise capital
from the public and to provide an avenue of wealth creation
through the ownership of future cash flows, commodity markets
evolved so that individuals, farmers and ranchers, and
businesses that have a natural exposure to commodity risk could
hedge that risk and transfer that risk.
Currently in the commodity markets, there are two
classifications of participants. Those that have that natural
exposure and hedge that exposure are considered hedgers, and
that impacts things like reduced margin requirements, because
of their ability to perform on these contracts; Everyone else
is lumped into the role of a speculator. That could be an
individual, it could be a small financial firm, it could be a
large financial institution, regardless of whether or not they
are speculating for their own account or providing
intermediation for their client. But it is the functionality of
these markets to the end user for the purposes of price
discovery and risk mitigation that is at the core of the CFTC's
function, which is what I would vow to protect.
Senator Klobuchar. Okay. Thank you.
As you know, we are facing a big time of declining
commodity prices and in all the areas that I mentioned,
including in agriculture, and big moves in market prices, as
you know, can create an incentive for speculation and abuse,
people placing bets on the way the market moves and who do not
have a stake actually in the commodities being produced. The
CFTC enforces the rules that prevent abuses that led to the
2008 market crisis, and since then, cases of note that we have
discussed in this Committee--MF Global and Peregrine--I
actually have someone, a constituent in my State, an
agriculture person who is a victim of both of those rip-offs.
So I guess I will ask the other two nominees here, Ms.
Stump and Mr. Behnam. In your work on the Agriculture
Committee, you saw how the ag sector was also impacted by the
collapse of MF Global and other abuses. Could you talk about
how you would work with the CFTC to protect consumers and
investors, and are there other steps that we can take to
protect consumers and investors from these types of abuses?
I guess, Mr. Behnam and then Ms. Stump.
Mr. Behnam. Senator, like you pointed out, my work on the
Committee has been super helpful in sort of informing me about
the risks that growers take on a daily basis, and having worked
on the MF Global and Peregrine hearings when we had them back
in '11 and '12, having an opportunity to meet these growers
firsthand and the risks they take, and really the unacceptable
abuse of their sort of--their assets and their personal
belongings that these companies did was egregious. To that end,
I think the Commission and this Committee has reacted well, but
the core priorities of the Commission have to be customer
protections.
To Mr. Quintenz's point, these markets were created for end
users to manage risk and for price discovery, but we have
small, large farmers and ranchers and manufacturers and other
end users using these markets. The priority for the Commission
must be customer protections.
To that end, if confirmed, I will continue working with
stakeholders, both ag and otherwise, to ensure that they feel
comfortable using the markets for risk management and price
discovery.
Senator Klobuchar. Thank you.
Ms. Stump?
Ms. Stump. Absolutely, I think that the customer protection
measures that the CFTC is responsible for are the bedrock of
what makes these markets appealing to people and encourages
them to hedge against their risk. If their collateral cannot be
protected, they will have no incentive to be operating or
hedging against the risk.
Certainly, the failures of MF Global and Peregrine resulted
in a review of what could be done and what could be made better
and what could be improved upon relative to protecting those
assets, and I am very pleased to have worked with a coalition
of agricultural producers and the clearing members that support
them at that time to review those improvements and to have
provided input into how they would be workable or not. Going
forward, if confirmed, this will be especially important to me,
because I am from the agricultural industry, and we want to
encourage those folks to be in the markets hedging.
Senator Klobuchar. Okay. Thank you.
Chairman Roberts. Senator Thune.
Senator Thune. Thank you, Mr. Chairman, Senator Stabenow,
for having the hearing. It is nice to welcome Ms. Stump and Mr.
Behnam back to the Committee, and I know that with your
experience here, you understand the complexities of the ag
commodity markets and how important they are when it comes to
keeping functioning smoothly and without risk. So we look
forward as well, Mr. Quintenz, to having you all there and
bringing your backgrounds to bear and to serve at the CFTC.
Just a question having to do--we have heard complaints,
especially from our livestock producers, that the Chicago
Mercantile Exchange, or CME, is not performing as it should,
which they say is negatively impacting cattle prices. Can you
kind of tell me just maybe what your thoughts are on that, and
perhaps even more specifically, with your future potential
oversight of CME at CFTC and based on what you know now, are
there any CME activities that concern you regarding
transparency or price manipulation?
Mr. Behnam. Senator, I am not aware of any actions that the
CME has taken that would disrupt the cattle markets.
That said, I am very well aware of this issue. I have met
with stakeholders, some from South Dakota in the past year or
two, and appreciate their concerns about the volatility in that
market.
That said, if confirmed, I fully commit to working with
you, your staff, and this Committee to ensure that measures
that both the CFTC have taken and the CME has taken as well
continue to address the problem and resolve the issues, so that
the livestock industry can use the markets for risk management.
Mr. Quintenz. Thank you, Senator.
I think, ultimately, these markets need to work for the
farmers and ranchers that depend upon them, and when a contract
is trading at lock limit for a significant number of days, like
the cattle futures contract has in 2015, to a lesser extent
2016, but still somewhat in 2017, I think it is indicative of
some type of problem with the market, whether it be contract
design, whether it be market participants, or whether it be
supply and demand and balances. It is important for the
Commission to answer those questions.
I know that the Commission has been looking into this and
has been working with all the stakeholders, including the CME
and ranchers that have exposure to this, and I would pledge to
look into this issue and give you any of my thoughts and
findings.
Senator Thune. Thank you.
Ms. Stump?
Ms. Stump. I agree with everything that has been said. The
only thing I would add is that anytime one of the commodity
markets is not performing a price discovery function or
convergence is not occurring or volatility that is
unprecedented is present, it is incumbent upon all of the
stakeholders to come together and address or at least explore
that there might need to be changes, including the exchanges,
the end users, the liquidity providers, and certainly the
regulators. I am committed to doing that if confirmed.
Senator Thune. Well, we look forward to working with you on
that. As you noted, we hear a lot of that--and I am sure you do
as well--from people who are out there raising cattle and
trying to use the markets in an effective way.
Past several years, we have been informed that resources,
including personnel at the CFTC, are insufficient to meet
required operations and oversight. Based on what you know now,
what are your thoughts on staffing and resources, and do you
expect to be requesting additional staffing and resources in
the future?
Ms. Stump. I will start. I think that the Acting Chairman
has done a remarkable job of evaluating the resource needs of
the CFTC, and that was probably overdue. I think he has
identified some increased efficiencies as well as some gaps
that need to be filled, and in doing so, he has put together
some analysis that I have not yet seen, but, if confirmed, I am
committed to reviewing, especially in the context of the new
responsibilities that the Commission has under the Dodd-Frank
Act.
Mr. Quintenz. Thank you, Senator. I would completely agree
with Ms. Stump.
While it is hard as a nominee to have the same type of
information as we would have as Commissioners to answer the
resource question, I am well aware of the review that Acting
Chairman Giancarlo has put together in his request for
additional resources and would look forward to working with him
to ensure that the Commission has what it needs to operate and
fulfill its obligations.
Mr. Behnam. Senator, I agree with my fellow nominees in the
sense that we cannot properly evaluate the needs of the
Commission in these seats, and we would need to be down there
examining the books to see what the true needs are.
That said, as I pointed out earlier, I would say given the
increase in oversight responsibility that the Commission
received through Title VII, relative to the funding increases
it has received since the financial crisis, I would think that
the funding increase is important to ensure and preserve market
integrity.
Senator Thune. My time has expired. Thank you, Mr.
Chairman.
Chairman Roberts. Senator Perdue.
Senator Perdue. Thank you, Mr. Chairman, and thank you for
holding this critical meeting. In my opinion, it is very
important we get these Commissioners confirmed so they can go
to work.
I just have a couple of quick questions for all three. The
first is on the derivatives markets globally. Since the crash
in '08 and '09, as jurisdictions around the world move to catch
up and progress towards implementing their own reforms in the
derivatives markets, coordinations with those regulators around
the world to me seems like it has never been more important for
our CFTC to be engaged with that.
Would you just briefly--because I want to get on to another
issue here as well, quickly--would you talk about your views
regarding how the CFTC can better coordinate with these other
regulators around the world to ensure that we do have a robust
global swaps market? I mean, this is not just an isolated
regional market, as I am sure you are aware, so that U.S.
companies can, in fact, hedge their risk. As many of you know,
most of our U.S. players are in that global market every day,
anyway. So would each of you--Ms. Stump, would you start. Thank
you.
Ms. Stump. Certainly.
I agree with everything you have said. These are global
markets, and the coordination is essential.
Post Dodd-Frank, I think all of the regulators around the
world moved at different paces, and so there were times at
which there might have been gaps, but I think that has been
less so in recent years, such that the regulators have come to
terms with the fact that they are all pulling the wagon in the
same direction.
So going forward, though, I think regulators need to be
focused globally on new threats. How are we going to coordinate
relative to a cyber incident? How will we coordinate relative
to new technologies being present in the marketplace?
I said in my testimony that I think it is really important
that we consider that--that we will need to calibrate the
regulations going forward. That is not just in the United
States but around the world.
Senator Perdue. Thank you.
Mr. Quintenz. Thank you, Senator. You are exactly right.
The global nature of the swaps market means that if costs are
imposed in one jurisdiction that do not match up to costs in
other jurisdictions, that activity will move, and it will
disadvantage that home country in terms of a liquidity and its
smaller market participants.
Senator Perdue. Do you think that we are in that situation
today?
Mr. Quintenz. I think it is possible.
I think the Commission needs to do a very thorough job of
understanding how the costs that it is imposing are affecting
the global marketplace. Ultimately, that comes down to a
process perspective and ensuring that the Commission looks at
this on an outcomes-based process. Everyone is going to have
different opinions as to specific requirements, how much to
hair-cut collateral, et cetera, but if the Commission focuses
on the outcomes, I think it will make for a much smoother
process. It also comes down to relationships, having good,
positive, trusting relationships with international regulators,
and from what I am aware, those have been improving in recent
years.
Senator Perdue. Thank you.
Mr. Behnam. Senator, I would echo some of the statements
that my fellow nominees have said.
I would add that I think it is important, given that we are
now 10 years past the financial crisis, that we not forget what
happened and what the results were. With that said, it is
important that regulators continue to work together
individually on a one-on-one basis but also use entities like
Basel and IOSCO as sort of measures to convene global
regulators.
Additionally, it is critical that we do not have a race to
the bottom. Given the sort of transportability of these
products and financial markets generally, it is not difficult
for even some of our domestic financial institutions to just
pick up and move to different jurisdictions. So it is important
that everyone work together and work on a level playing field.
Senator Perdue. Very quickly, I will just throw this out,
and you can voluntarily answer this quickly. But Dodd-Frank
imposed so many regulations, it required mountains of
additional information being collected. I hear this more than
any other complaint about the regulatory environment today, is
that how much unnecessary information--unnecessary, in their
definition, information, additional information is being
collected today.
In your opinions today, do you believe the CFTC collects
too much information for firms under its jurisdiction?
Mr. Quintenz. I believe that the agency needs to make sure
that the information it is collecting and the burden that it is
placing on end users and farmers and ranchers corresponds to a
risk or a market flaw that it is trying to address.
Ms. Stump. I do believe that the information that the CFTC
requires needs to be more targeted. In fact, I think it could
be improved. The information that is being currently collected
relative to swap data is not necessarily in a format that is
effectively digested, and so if we could find a way--and I
believe the Acting Chairman has committed to doing so, and I
certainly have confirmed, would love to help in this effort, to
make the information more usable, such that we can properly
target those who need to be supplying it.
Senator Perdue. I am out of time, but quickly, the source
codes that are used in the algorithmic trades, is that
something that CFTC is capable of collecting, protecting, and
then using properly?
Mr. Quintenz. It is my understanding that the CFTC has in
the past issued subpoenas for source code, and I believe that
the subpoena process provides an important protection for that
intellectual property.
Senator Perdue. Thank you. I am out of time. Thank you.
Thank you, Mr. Chairman.
Chairman Roberts. Senator Daines.
Senator Daines. Thank you, Mr. Chairman, and thank you to
the witnesses, nominations for coming before this Committee and
for your willingness to serve.
I want to thank Chairman Roberts for holding this hearing.
I also want to continue to work with you, Mr. Chairman, Ranking
Member Stabenow, in moving forward these nominees through this
Ag Committee and on the Senate floor as quickly as possible.
When I am asked what is the largest industry in Montana, it
is an easy answer. It is agriculture, and the CFTC's role in
ensuring that agricultural derivative markets are priced
fairly, I have heard a lot of concerns from these producers out
in Montana that sometimes wonder if it is a casino anymore
versus just working back on the fundamentals of supply and
demand.
We want to make sure that agriculture derivatives, the
markets are priced fairly, they are priced efficiently, and
ensure they are free of collusion.
Should you be confirmed as Commissioners, you will be
charged with policing these markets while protecting against
price spikes caused by lack of liquidity as well as by
manipulation.
Acting Chairman Giancarlo joined the Chairman and myself in
Montana just last month for our Ag Summit, and he was able to
visit a grain elevator, met with farmers that rely on the
futures market. I certainly want to extend a warm invitation to
each of you to come out to Montana and see it for yourself.
Let me start with market volatility. One of the recent
initiatives we have been focused on was to remove the ban on
U.S. beef imports into China. That stood for 14 years. Many of
us had concerns it really was not warranted, but nonetheless,
it was the reality. We have been working hard to get that ban
lifted. It is the second largest beef import market in the
world.
As the ban has been lifted just in the last month, prices
are finally starting to increase. That is a good sign, and
there are a multitude of factors that go into cattle prices.
So, again, we are glad that prices are going up.
But I am concerned about these price shocks and market
volatility, and the question is, to Mr. Behnam, do you believe
the current regulatory framework is capable of soundly
accommodating the market volatility that we see as well as the
price shocks?
Mr. Behnam. Senator, first off, I look forward to visiting
Montana when----
Senator Daines. So I will take that as a commitment.
Mr. Behnam. Commitment, absolutely.
[Laughter.]
Senator Daines. All right. Thank you.
Mr. Behnam. Second, CFTC has a fairly robust regulatory
regime in terms of collecting data. I think to the question
earlier, we need to make sure that the data and the information
collected is pointed and has purpose, so that we are not
putting an undue burden on stakeholders and market
participants.
That said, the types of data continue to evolve and change
with technology advancements and just market changes. So if I
am confirmed, I commit to working with CFTC staff and Acting
Chair Giancarlo to review the data requirements, the data rules
and regulations, to ensure that whatever is being collected is
relevant and is also appropriately measuring what the markets
reflect in terms of prices.
Senator Daines. So along that line--and, again, one of the
great mysteries at times for our producers in Montana is these
dislocations that occur as relates to market volatility between
supply and demand. So my question is, What would be your
expectations for managing these market dislocations between
supply and demand?
Mr. Behnam. I think some of the concerns in the livestock
futures contract, I think, are sort of parallel to some of the
concerns you raise. I know that the CME took actions to resolve
some of the issues, which include changing delivery locations
and delivery times of the cash market and also changing trading
hours. I think those are the types of sort of remedies and
solutions that both exchanges and the CFTC have to look into in
order to resolve distortions in prices between the futures
market and the cash market.
Senator Daines. Let me shift gears here. Ms. Stump, you
mentioned in your written testimony, and I quote, ``The
derivatives markets are dynamic, ever changing, and constantly
evolving.'' I understand that the LabCFTC has been established
to provide regulations alongside the emerging fintech firms to
help them navigate this legal gray. The question is, Do you
support the LabCFTC initiative to enhance the efforts of a
growing industry?
Ms. Stump. Yes, I absolutely do. I think the market has
actually benefitted over many years from the various
innovations that have come forward, but at the same time, it is
incumbent upon the regulators to be taking a forward look at
the things that are coming and to ensure that we properly
understand them and, if need be, can regulate them.
Senator Daines. So along that line, if confirmed, will you
recommend any changes to the LabCFTC as we think about going
forward?
Ms. Stump. If confirmed, I would commit to helping the
LabCFTC evolve.
For now, I think it operates as a forum for fintech
providers and regulators to come together and think through and
learn about what may be coming. Beyond that, I think that there
are steps that could be taken to build that out, such that it
becomes a forum for regulatory building around some of those
things.
I am not sure we are there yet, but I do think that it will
evolve into something much bigger than it is today.
Senator Daines. Thank you.
Mr. Chairman, I am out of time. Time flies when you are
talking about agriculture, doesn't it, Mr. Chairman?
[Laughter.]
Chairman Roberts. Yes, that is correct. I just hope the
other side listens.
Senator Stabenow. That is right.
Chairman Roberts. Unless there are further questions--and
we have all had the opportunity to submit questions for the
record, as I will indicate here in just a moment, the Ranking
Member and I were discussing this while contentedly listening
to the testimony as well. This is a unique opportunity. We have
three, if I can say, very bright, experienced nominees here,
and whether we can dub you the Three Musketeers--where is
d'Artagnan? I guess that is the next person coming up. But this
is a unique opportunity. We have three very good nominees,
outstanding nominees for the Commission. We also have an
opportunity to have a full Commission working for the first
time in quite a few years. It is a wonderful opportunity and a
message to rural America and to our farmers and ranchers and
growers and to everybody that I mentioned in my statement that
we can have a full Commission working on their behalf and
protecting them as well.
I am going to yield to you for any further comment.
Senator Stabenow. Well, Mr. Chairman, I completely agree,
and I think it is, frankly, a breath of fresh air to have
nominees that want to serve, that are knowledgeable about the
subject matter that they will be serving in and committed to
focus on making sure that this part of the economy works.
By the way Rostin, Nina is responding to that.
[Laughter.]
Senator Stabenow. She concurs in that as well.
Chairman Roberts. She agrees.
Senator Stabenow. Yes.
Again, I want to thank all of you for being willing to
serve. This is not easy work, I am very pleased to be able to
support all of you.
Chairman Roberts. I may add that Nina's comments will be
submitted for the record.
[Laughter.]
Chairman Roberts. That will conclude our hearing today. I
thank the nominees for taking time to address this Committee
and to answer the Committee's questions. It is very clear that
you have all exhibited that you are qualified to join the CFTC
as Commissioners and work on the complicated market issues that
impact all of us.
In closing, I would like to mention that I have received
multiple expressions of support for all of our nominees from
both the ag and financial market sectors. Some have sent
letters, including some of the largest organizations in our ag
sector. I am grateful to all of the groups for voicing their
support for these nominees.
Without objection, the letters will be entered into the
record. It is so ordered.
[The letters follow:]
Chairman Roberts. We learned a great deal today from the
nominees. Their testimony provides us significant information,
a solid basis upon which to report them favorably out of
Committee per our rules. We cannot do so today, unfortunately,
but we will endeavor to do so in the very, very near future.
To that end, I would request my fellow members that if they
have any additional questions for the record, that they be
submitted to the Committee Clerk by 5:00 p.m. tomorrow, July
28th. We look forward to receiving your responses and to
further considering your nominations.
The Committee stands adjourned, Nina.
[Whereupon, at 10:49 a.m., the Committee was adjourned.]
=======================================================================
A P P E N D I X
JULY 27, 2017
=======================================================================
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
=======================================================================
DOCUMENTS SUBMITTED FOR THE RECORD
JULY 27, 2017
=======================================================================
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
=======================================================================
QUESTIONS AND ANSWERS
JULY 27, 2017
=======================================================================
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[all]