CFTC Commissioner Brian Quintenz addressed ISDA’s Unlocking Value in Derivatives Markets conference in London yesterday and a few timely remarks were included (as well as some shout-outs to Galileo and Prometheus…).
Regarding the crypto elephant in the room
Of all the aspects of the Commodity Exchange Act (CEA), Quintenz brought up the provision that exchanges “may not list a contract that is readily susceptible to manipulation.”
Ink has already been spilled on how thin some of the closing cash auctions can be on the crypto exchanges which these prospective bitcoin futures contracts will use in determining the underlying’s price. With the above comment from Quintenz, it is clear this pricing mechanism is of some concern, regardless of today’s announcement from the CFTC.
Concerning clearing obligations, Quintenz said, “If the Commission determines that the margin the DCOs hold against bitcoin futures positions is inadequate, it can take measures to require that the initial margin levels be increased.”
This is not something the CFTC has really put into action historically speaking, but again, Quintenz saw fit to mention it. The prospect could be a big curveball if the heavy hitters have been prepping for nothing but four-seamers.
DLT holds promise
Quintenz pointed to an initiative that hold great promise for the financial world. DTCC is in the middle of transferring records regarding some $11 trillion of credit derivatives transactions to its own DLT platform – an effort expected to go live in early 2018. But Quintenz cautioned that full adoption of distributed ledger technology is predicated on market participants digitizing ALL aspects of their transactions. The industry is clearly headed in that direction, but how much time will it take?
More on LabCFTC
Quintenz said LabCFTC might not have the authority to “establish regulatory sandboxes in the U.S. markets, but “LabCFTC plans to host a series of prize competitions in 2018.” Ooo lah lah!
(LabCFTC is the commission’s new internal fintech initiative. For more on LabCFTC, see JLN’s short videos – Part 1 and Part 2 – with CFTC’s Chief Innovation Officer Daniel Gorfine.)
Towards the end of his speech, Quintenz took an overall regulatory potshot, saying, “The CFTC and the European Commission are on track to issue their respective comparability and equivalence determinations regarding trading venues in early December — ahead of the January 3 deadline. That may be a first for the CFTC and the EU, a standard I hope we can match in the future.” Hah!