Rostin Behnam, currently the acting chairman of the US Commodity Futures Trading Commission, testified before the US Senate Agriculture Committee on 27 October in a hearing that is part of his nomination to become permanent chairman of the agency.
The hearing was a key step in the confirmation process, providing members of the Committee an opportunity to question Behnam about key issues and to provide the nominee an opportunity to outline his priorities if confirmed. Among other topics, the hearing focused on issues including climate related risks to financial markets, voluntary carbon markets, the regulatory environment for digital assets, and balancing legacy areas of CFTC oversight like agriculture and energy derivatives with these emerging areas.
The next stage in the nomination process is a vote by the Senate Agriculture Committee.
Having a formally confirmed chairman is important to providing certainty and long-term strategy for the CFTC, as acting chairs face several challenges that prevent them from exercising the full authority of a of federal agency. For example, it can be difficult to hire senior staff and fill division director vacancies without certainty around how long an acting chair might serve in that role. For more information on the nomination process and potential challenges, FIA has prepared a primer on the topic.
Behnam was nominated by President Trump as a commissioner of CFTC in July 2017 and was unanimously confirmed by the US Senate in August 2017 and was sworn in that September. Since 21 January, Behnam has served as acting chairman of the CFTC after former Chairman Heath Tarbert stepped down.
A graduate of Georgetown University, Behnam began his career working as a proprietary equities trader in New York City before pursuing a Juris Doctorate at Syracuse University. Behnam has extensive public and private sector experience, working in the New Jersey Bureau of Securities within the state's Office of the Attorney General, practicing corporate law in New York City, and serving for six years as senior counsel to Sen. Debbie Stabenow (D-Mich.), the Senate Agriculture Committee's Chairwoman, focusing on issues related to the CFTC and Dodd-Frank implementation. Read Behnam's complete bio here.
Committee Chairwoman Stabenow congratulated Behnam and expressed her excitement about his nomination to serve as chairman of the CFTC. Stabenow noted that Behnam "will oversee the CFTC at a time when our markets are undergoing a significant evolution," including the growth of digital assets and other financial technologies. Stabenow expressed her desire for Behnam to "thread the needle to ensure this industry can continue to innovate, in ways that are smart while posing less risk to consumers," and committed to working with the CFTC in this effort as Congress considers whether additional legislative authorities are needed. Stabenow highlighted her concerns that the CFTC is underfunded and that she would support instituting user fees to ensure adequate funding. In closing, Stabenow expressed her belief that the CFTC needs a full slate of Commissioners to accomplish its mission and that she looks forward to holding an additional hearing for nominees for the outstanding commission seats "as soon as possible."
Committee Ranking Member John Boozman (R-Ark.) congratulated Behnam on his nomination noting that he looked forward to hearing about his "vision for leading the CFTC, particularly as it pertains to any upcoming rulemakings related to climate change," and how he plans "to engage with other financial regulators to preserve the CFTC's jurisdiction over derivatives, including digital currencies." Boozman concluded that he feels "confident [Behnam] will be confirmed to be the next chairman of the CFTC."
Acting Chairman Behnam acknowledged that the although the Covid-19 pandemic had a profound impact on global financial markets, he was "proud to report that the US derivatives markets performed very well during the pandemic's early 2020 onset," crediting post-financial crisis reforms, including the benefits of "central clearing, capital and margin requirements, data reporting, and increased transparency." Looking forward, Behnam identified several priorities he is concerned with, including domestic and global regulatory coordination, a continuous discussion about emerging risks and evolving market structure including a focus on clearinghouses, promoting efforts related to customer protections, cybersecurity, playing a role in market-based climate solutions, and ensuring the benefits of emerging digital assets "can be harnessed without undue harm to customers and financial market stability." In closing, Behnam highlighted his commitment to working with the committee "to reexamine – and, if appropriate, expand – the CFTC's authority" in the digital asset space.
Highlights of topics raised during the hearing
Senators including ranking member Boozman questioned Behnam about the transition risk of moving to a more sustainable economy. Behnam acknowledged that it was the most important challenge we will face, and repeatedly stressed his support for "market-based solutions" including voluntary carbon markets across the hearing.
Behnam expressed his support of innovation in digital assets but noted that it is important for the potential of this emerging area "be harnessed without undue harm to customers and financial market stability." Behnam testified that the CFTC has limited statutory authority related to anti-fraud and anti-manipulation and, at the same time, "the total size of the digital asset market was $2.7 trillion. And among that 2.7 trillion, nearly 60% were commodities."
Senators also focused on enforcement, agriculture and energy markets, and tax related issues.
The following is a detailed summary of hearing questions:
Sen. Debbie Stabenow (D-Mich.)
- What should the CFTC do to protect customers and promote transparency in the digital asset space?
- Behnam: We have been pursuing enforcement cases in the digital asset space for years. This is the tip of the iceberg. The digital asset market was valued at $2.7 trillion and nearly 60% are commodities. The committee should consider expanding the scope of the CFTC to allow us to be the primary cop on the beat.
- Are agricultural futures still an effective risk management tool? How would you engage with producers to prioritize issues of importance to them?
- Behnam: The markets are working well for producers, but we need to address price transparency.
- What role should the CFTC play in the emerging voluntary climate market?
- Behnam: Regulators must be a part of the market formation conversation to address core components of pre- and post-trade transparency, clearing, settlement, and best practices.
- What improvements would you like to see in the CFTC?
- Behnam: We are facing so many new risks that do not fit into our regulatory structure. That is why a conversation about derivative market adaptation is necessary.
Sen. John Boozman (R-Ark.)
- Can you speak to the risk of transitioning to a clean climate plan?
- Behnam: Transition risk requires moving forward towards carbon neutrality without upsetting the balance of energy market. Consumer demands for clean energy must also be met. My fear is that weather events will become more frequent and more severe, which could cause crises for the financial system.
- Do you have concerns about the financial risk associated with unrealized gains tax proposals?
- Behnam: I have to look into this issue more, but it would likely impact valuations and potentially instability.
Sen. Sherrod Brown (D-Ohio)
- How does CFTC balance cooperation with good enforcement to ensure compliance?
- Behnam: Having the right balance is critical for credible programs. The reporting of intentional or unintentional violations should be met by determent-focused penalties to cut recidivism.
- Are there additional tools that CFTC could use?
- Behnam: Digital assets require a conversation about market regulation and the exchange, purchase, and sale of digital assets, in a regulatory structure for both the securities and the commodities.
- What have you been able to do about improving diversity in the CFTC?
- Behnam: We have expanded positions for diverse recruitment at all levels in the CFTC. We are behind on diversity, but we are looking to expand our hiring pool to represent a fuller picture of America.
Sen. Tommy Tuberville (R-Ala.)
- Q: What have you done to get yourself associated with rural communities?
- Behnam: I travelled across the Midwest to recognize challenges with crop production and harvesting. Direct engagement is a tool, guided by experience, that allows for me to get a clearer image of the struggles in rural America.
- Q: What do you view as the agency's role in climate change?
- Behnam: We are a risk management agency. We have looked at weather for decades as a predictor of crop yields and transition risks. We as an agency must keep up with the most pressing issues to crops, and in the decades to come this will be a critical issue. We must support market-based solutions of innovative futures and derivative products which can hedge risk.
- Q: Do you foresee adding climate scientists to your staff?
- Behnam: We do not have any scientists on staff. We have always been in tune with weather and climate and will continue to use it to guide our practices.
Sen. Kirsten Gillibrand (D-N.Y.)
- Q: What are your plans to implement challenges of climate change into risk evaluation?
- Behnam: Risk can be compounded with long-term weather patterns such as droughts and natural disasters like wildfires and hurricanes.
- Q: How would you leverage your experience to further realize the goals of the executive order to address climate risk in the financial system?
- Behnam: We have gotten better at managing climate risk. We also have to guide our net zero carbon target throughout the transition.
Sen. Mike Braun (R-Ind.)
- Q: What can be done about a player that is out of bounds with the way most other countries operate? Would you hold them accountable if they are doing something to pricing rather than the market controlling pricing?
- Behnam: There would have to be some tie with our law and enforcement authority. We would likely look into pursuing penalties in this scenario.
- Q: What do you intend to do to get authorization for CFTC?
- Behnam: I hope to work with Congress closely to achieve passage of a reauthorization bill.
Sen. Tina Smith (D-Minn.)
- Q: What do you see as risks in the digital asset space?
- Behnam: Emerging technology regulation will hopefully address these risks, but as with all commodities there is risk of volatility.
- Q: How do you view financial innovations aimed at dodging federal regulatory frameworks?
- Behnam: Innovation will change market structure over time. Decentralized finance also means that the points of access become more direct.
Sen. Roger Marshall (R-Kan.)
- Q: How do you see carbon taxes and the carbon market interact with derivatives?
- Behnam: We are seeing carbon offset products, natural resource scarcity markets, and far more innovation. The CFTC can play an important role in empowering these markets through risk mitigation.
- Q: How do we remain inclusive of sources of carbon emissions?
- Behnam: The CFTC will be one spoke in the wheel, sharing our information for an all-of-government approach to climate change.
- Q: What can we do about natural disasters affecting commodities?
- Behnam:: We are always looking at market disruption events. Although we are not a price-setting agency, we do have fraud and manipulation authority. This becomes important if there is suspicion of violation in a natural disaster.
Sen. John Hoeven (R-N.D.)
- Q: What do you see as the primary role of the CFTC?
- Behnam: There are emerging risks that we are not accustomed to. We must be nimble and focus on our constituency. We are a customer protection agency that must balance historical responsibility with these new emerging risks.
- Q: What role can CFTC play in a market-based approach to providing carbon credits for agriculture?
- Behnam: We have decades of experience in regulating commodity markets. We can always contribute by means of price transparency, risk management, and the structure of an operational well-run market.
- Q: What can be done about supply chain and labor shortage issues?
- Behnam: The CFTC must identify, observe, and manage from a markets perspective. It could be a risk point in this country if natural disasters persist and worsen.
- Q: Is it possible to make it easier and more transparent for smaller farmers to hedge their risk?
- Behnam: The differences between small and large producers must be recognized for a better evaluation of solutions whether that be contracts, transparency, or another form. Exchanges must be innovative and creative to promote equity and transparency.
Sen. John Thune (R-S.D.)
- Q: What oversight action have you taken to promote transparency in livestock markets?
- Behnam: The agency created a livestock taskforce in 2020 to address transparency. I fully commit to working with you, the value chain, and the exchanges to reach equitable solutions.
- Q: What action would you take to ensure CFTC cooperation with the US Securities and Exchange Commission related to digital asset space?
- Behnam: Our action will be measured. I will work with SEC Chairman Gary Gensler to divide jurisdiction across thin lines. The potential risks of digital assets down the road begs for transparency and federal protections.
- Q: What can we do to ensure this technology remains a U.S. asset?
- Behnam: We have thoughtful regulatory regimes, viewing this technology as a job creation tool, but making sure that it does not cause risks to the financial system.
Sen. Amy Klobuchar (D-Minn.)
- Q: How would you balance the oversight of hedge funds and investors with food producers and farmers?
- Behnam: We have a set of rules and a market structure in place to ensure commercial end users have fair and equitable access to these markets.
- Q: How do you detect and monitor illegitimate futures in an attempt to manipulate the market?
- Behnam: We communicate with technologists and app providers to ensure their services do not violate the law and are not putting investors in a position with limited transparency.
- Q: Will you commit to monitoring and acting on potential market manipulation in commodities such as heating and propane?
- Behnam: I can commit to that.
- Q: What steps can be taken to minimize exorbitant price spikes in the future?
- Behnam: We are limited in our capabilities but we will certainly monitor this issue and take into account the perspectives of end-users and other stakeholders.
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