Earlier today, CFTC Commissioner Brian Quintenz spoke at a conference hosted by ISDA in London. His remarks focused on the central theme of that conference – the power of technology to transform financial markets. In this posting, we will provide highlights from Commissioner Quintenz’s speech, as we believe that this speech addresses several key concepts related to FinTech initiatives in the derivatives markets.
By way of background, the ISDA conference was held in the East End of London near Spitalfields market, which Commissioner Quintenz aptly described as a “center of commerce and trade for hundreds of years”. Therefore, we will refer to today’s comments as the “Spitalfields Speech” for ease of reference.
Commissioner Quintenz began the Spitalfields Speech with his personal observations about the enormous potential for improvements to the efficiency of trade execution, processing, and reporting and recordkeeping of derivatives that could result from the use of distributed ledger technology (“DLT”). As an editorial aside, we share this sentiment and believe that our financial markets are at an inflexion point: the reforms that began at the 2009 “G-20 Pittsburgh Summit” have almost been implemented, yet the resulting market infrastructures appear to be ready for an overhaul from DLT and FinTech developments. (Swap reporting is one obvious example, since the existing “data push” model is much less efficient than a “node view” model based upon DLT.) As a related item, we have attached presentation materials that we recently prepared on the topic of “DLT and Derivatives Processing,” and note the timeline of ISDA-related initiatives over the past four months alone in further support of the idea articulated by Commissioner Quintenz in the Spitalfields Speech. Developments in DLT_Derivatives Processing 30 November 2017
Commissioner Quintenz then discussed the CFTC’s approach to the regulation of digital market developments, including the LabCFTC initiative and its three core components:
- GuidePoint, which in the Commissioner’s words, “[Aims] to make the CFTC more accessible to FinTech innovators by providing them with a direct point of contact for timely and meaningful feedback on new ideas”;
- CFTC 2.0, which represents the CFTC’s efforts to “understand, stimulate, or adopt technologies that are beneficial to the derivatives markets or the way the CFTC oversees them”; and
- Coordination with other U.S. and international regulators
In connection with this last component, Commissioner Quintenz remarked about LabCFTC’s upcoming 2018 “prize competition” initiative, whereby LabCFTC will host a series of prize competitions that are meant to “encourage the development of beneficial technologies within the private sector”.
The Spitalfields Speech also provided insight into developments with respect to bitcoin futures contracts and the certification process by which exchanges make a new futures contract available to market participants in the near future. As further background, the Chicago Mercantile Exchange and the CBOE Futures Exchange have plans to self-certify and list bitcoin futures contracts, and to that end have voluntarily provided the staff of the CFTC with information about these new products.
Finally, Commissioner Quintenz addressed the importance coordination by the CFTC with other international regulators. This portion of the Spitalfields Speech did not focus on FinTech developments per se; although, it did conclude with the following comment, which we believe applies equally well to FinTech developments:
Trading counterparties seek neither the least nor the most regulated marketplaces, but rather that have the best balance of sensible, objective, and reliable regulation.
The entire Spitalfields Speech is available here.