CFTC Commissioner Speaks on Derivative Reform after Dodd-Frank

On Nov. 14, Commissioner Russ Behnam spoke at Georgetown’s McDonough School of Business about the history and structure of the U.S. Commodity Futures Trading Commission (CFTC) and its new expanded responsibilities following the financial crisis and the implementation of the 2010 Dodd-Frank Act. The event was hosted by the school’s Center for Financial Markets and Policy and Stanton Distinguished Leader Speaker Series. It was the latest installment of the Leaders in Global Finance Speaker Series.

Behnam, a Georgetown graduate, began by giving a brief history of the CFTC. The CFTC is an independent federal regulatory agency responsible for overseeing the trading of swaps, futures, and options on futures. At its inception, the CFTC was part of the Department of Agriculture, but as exchange traded futures expanded beyond agricultural products, Congress passed the Commodity Futures Trading Commission Act of 1974, which established the CFTC as a stand-alone, independent agency. 

Congress’s response to the financial crisis, the Dodd-Frank Act, addressed four primary goals for regulating over-the-counter derivatives: moving standardized contracts to exchanges or electronic trading platforms, mandatory central clearing for most bilateral contracts, reporting executed trades to trade repositories, and instituting higher capital requirements for non-centrally cleared contracts. Behnam called the initiatives “bold, but appropriate, given the circumstances leading to the financial crisis and the aftermath that laid bare many weaknesses in the global regulatory system.”

Although Behnam agrees with the new initiatives, he also encourages thoughtfulness. “It is critical that the CFTC continue to support the key Dodd-Frank reforms in a manner that is both reflective and forward looking: reflecting on the success or failures of policy changes that have been made to date and always keeping an eye on new challenges, innovations, and threats to the financial markets,” he said.

Behnam also recently announced two key priorities for his time as commissioner. The first is his sponsorship of the CFTC’s Market Risk Advisory Committee (MRAC). The MRAC will allow Behnam to “engage directly with key industry representatives, fellow regulators, consumer groups, and academics in an open forum to examine risk across broad swaths of the markets, with the goal of informing and making recommendations to the commission.”

Behnam’s second priority is to embark on a listening tour, meeting with commercial manufacturers, financial institutions, and farmers and ranchers to “get a better understanding of the risk management challenges each faces.”

Overall, Behnam’s outlook on the CFTC’s ability to uphold new financial regulations is optimistic.

“The CFTC’s responsibilities have grown, but I am confident its staff and leadership will guide the agency to maintain its position as a premier, world class regulator,” Behnam said. “With limited resources, the agency’s work is often curtailed because its budget has not rationally expanded to meet its growing jurisdiction. But as always, we will hone our expertise, prioritize where we need to, and continue to demonstrate our proficiency as a premier regulator.”

Read Behnam’s full remarks.