Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision and global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs and harness the engine of capitalism. Right here, right now at the NYSE and at ICE's 12 exchanges and six clearinghouses around the world. Now, welcome inside the ICE house. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
Whenever I take the Acela down to Washington, DC, I'm always reminded of America's unique recipe for alphabet soup, the acronyms for federal government agencies born out of President Franklin Roosevelt's new deal. Those agencies like the FCC, the FDIC, the FHA, the SEC and USHA, were originally meant to combat and help with economic recovery in the wake of the great depression. But many of them were eventually merged with other agencies, abolished, or their constitutionality was challenged in court. When it comes to the financial sector, the CFPB, FRB, FDIC and SEC take center stage, along with the CFTC, the Commodity Futures Trading Commission, which is our focus today with Commissioner Dawn Stump.
Josh King:
Before becoming an independent agency in 1974, the CFTC's regulatory authority fell under the Department of Agriculture oversaw commodities futures markets, these markets include such staples as cotton, corn, and wheat. And today these commodities futures markets are known as designated contract markets, DCMs, and have grown to include energy and metals commodities, such as crude oil, heating oil, gasoline, copper, gold, and silver and overseas DCMs for financial products such as interest rates, stock indexes, and foreign currency and digital currencies. ICE Futures US, ICE's futures exchange, is a designated contract market regulated by the CFTC. Given the CFTC's roots in agriculture, it's fitting the Dawn Stumps story began in the Texas Panhandle and eventually brought her to Capitol Hill where she worked as a legislative assistant to former Texas Senator Phil Gramm, and as a senior staffer for the Senate Committee on Agriculture, Nutrition, and Forestry. Our conversation with Dawn Stump on political and regulatory trends, shaping the derivatives industry, emerging regulatory challenges, and what the second half of 2019 holds for listed and clear derivative markets in the US. That's all right after this.
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Josh King:
Our guest today, Dawn Stump, was nominated by President Trump to serve as a commissioner of the CFTC on June 12th, 2017. She was unanimously confirmed by the Senate last August, and following that standing here in Lower Manhattan next to the iconic Fearless Girl statue, she was officially sworn into office by former CFTC commissioner Jill Summers. Prior to her appointment, Dawn was president of Stump Strategic, a consulting firm she founded in 2016. A native of Alton, Texas, and a graduate of Texas Tech University, Dawn stands at the intersection of agriculture, economics, and regulation. Welcome back to the New York Stock Exchange Dawn.
Dawn Stump:
Thanks for having me Josh, happy to be here.
Josh King:
What was it like that day you were sworn in next to Fearless Girl?
Dawn Stump:
It was a little surreal. We chose Fearless Girl because, as you know, she was created to highlight the fact that corporate entities can benefit from gender diversity. I, quite frankly, didn't anticipate the emotion of it all, I was fortunate enough to have a number of friends come and join me, Commissioner Summers is a dear friend of mine for us. It was more about highlighting the fact that all decision making bodies can benefit from diversity, not only gender diversity, but cultural diversity and racial diversity. I am the only female that serves on the CFTC, but that's not to suggest that it's a man versus woman situation. All of my male colleagues are quite capable and I appreciate their perspectives. I benefit from their perspectives. I just think that the ideas that I present are somewhat different because I am a woman. So we just wanted to highlight that this diversity is the best way for decision making bodies to arrive at the best outcomes. So I think we achieved that.
Dawn Stump:
It's been quite interesting to work at the CFTC during this time. Many of my male colleagues and I've worked together previously, we worked together in other professional capacities, and I think it's been really telling that those relationships have benefited us in the past. Republican, Democrat, male, female, there's always been a willingness among the five commissioners, whether today or in past roles to hear each other and understand the other's perspective. I have a daughter, I always say that I hope by the time she enters the workforce that the gender situation is not a statistical one. But I also have a son and I like to tell him that if everyone around you is saying the same things you are and agreeing with everything you say, you probably should broaden your circle a bit. Because he does have very worthwhile ideas, but they're always made better by a different viewpoint.
Josh King:
And we're going to get into some of that in a little bit later in our conversation. You had worked here at NYSE when it was NYSE Euronext, you're no stranger to Lower Manhattan and the financial district, but what brought you back up this week to New York?
Dawn Stump:
I'm here, I was giving a speech earlier this morning with the International Swaps and Derivatives Association, sort of a state of play speech relative to what we're working on at the commission. I've always viewed our commission's role to be a reevaluation of all the reforms that were put into place. Previous commissions were tasked with designing an entirely new market structure post crisis and after the Dodd–Frank Act was passed. Our role is somewhat different, we are there to evaluate based upon time and the data that we have now and ensure that we're achieving the intended goals that were set forward by not only the United States Congress, but the Group of 20 nations that during the crisis determined that there needed to be a response or it's change to the manner in which OTC derivatives were regulated. So I was here speaking to that.
Josh King:
So before we get into your career journey and what the issues are before the CFTC today, where does this building, the New York Stock Exchange, fit into your career arc?
Dawn Stump:
I was just fortunate I believe. I've had a great career. I spent most of my early career working on Capitol Hill as a legislative, staffer drafting legislation-
Josh King:
We're going to get into that.
Dawn Stump:
After the Dodd-Frank Act was passed I was ready for a new challenge. I was presented with an opportunity to come support the New York Stock Exchange's futures business, which was both located in New York and in London at the time. It was a really interesting time because the OTC derivatives reforms were taking hold in the United States and still being developed in Europe. I was very close to the manner in which those regulations would be applied to an institution that was regulated in both jurisdictions, and the practical application was really important to me. I think it also made me realize that I had more to give on the policy making front. I'm just very fortunate, again, to have had the opportunity to be nominated to go back to the regulatory agency. I hope, and I believe, that my experience in the regulated market space is a benefit to the commission. As is having worked on Capitol Hill, where I had the opportunity to work on the authorizing legislation that dictates what we're actually obligated to do from day to day.
Josh King:
Red Raiders and Texas is in your blood. On a recent episode, we had ICE's CFOs Scott Hill, who grew up in East Texas in the city of Longview. You grew up in Alton, which is just south of the Texas Panhandle and smack in the middle of the state's cotton growing region of the state. What was it like growing up in a town of less than 2,000 people?
Dawn Stump:
Yeah, I wouldn't trade it for any amount of money in the world, to be frank. I can't even describe what I fear my children are missing out on by not having that experience. I grew up in a community that was almost exclusively dependent upon agriculture, cattle feeding, crop, grains, cotton, more recently dairy operations. I grew up during the credit crisis of the 1980s, so it was quite a difficult time. It is when I determined that I wanted to understand the economics of agriculture. My father was quite adamant that my brother and I understand business side-
Josh King:
Was he in the business?
Dawn Stump:
He is. My dad was a farmer when I was growing up.
Josh King:
What did he raise?
Dawn Stump:
Mostly grains and cotton. We did not have a livestock operation, but we were very close in proximity to various livestock operations. He wanted us to understand the economics, he wanted us to understand that the production was only one facet. So for me when I went to college, what I really enjoyed was the risk management side, that was the futures industry, the hedging opportunities. Whether it's crop insurance or hedging your price risk through the futures market, I believe that is our most fundamental job at the CFTC is to preserve those hedging opportunities for those who actually harbor the risk and must be able to lay that risk off because farmers and ranchers take a tremendous risk every single day. It is incumbent upon us to ensure that they have the best resources to manage that risk.
Josh King:
You've got two kids growing up in Washington, DC, which, last time I checked there, weren't a lot of farms in the nearby proximity. So how do you instill some of those values that you and your siblings had, and get them out into the country and understand what it means to have dirt under your fingers?
Dawn Stump:
Right. We spend a fair bit of time in Texas, or my husband is from Illinois, we spend time in Illinois as well. That said, as I mentioned the day to day work that I was able to do growing up is just not something that's available to that. I mean, our operation was a family operation. My summers were rarely spent at the swimming pool, they were often spent on a combine. We contemplate as my children get older sending them to Texas for an extended period of time, because I do think it is a work ethic unlike any other.
Josh King:
At Texas Tech in nearby Lubbock, you majored in agricultural and applied economics, and certainly it's the right preparation for your role at CFTC. Those college years, how did your sort of views on agriculture as it meets economics begin to gel?
Dawn Stump:
I think that, for me, it was trying to determine what I would do next. And the plan was that I would be a grain trader. I ended up being a CFTC commissioner, I think that has worked out just fine. But the reality is had I been a grain trader, it would certainly inform my position even better than I am now, just based upon my production background and my markets background. But I feel as though having come to Washington right out of college, shortly after college, to be, I was a market analyst for a group of farmers who sought to sell wheat-
Josh King:
This is the US Wheat Association.
Dawn Stump:
Us Wheat Associates. They sought to sell wheat to foreign markets, and my job was to monitor the markets and explain to various foreign potential buyers, how they would go about doing that, what the price was, how it was set based upon our futures market basis and those sorts of things. I did struggle initially because my very heavy Texas accent was not well understood by many foreign buyers, but in the end I'm very happy that I had that opportunity. Which led me to Capitol Hill eventually and I found my real passion, which is the policy making. I feel as though I was presented with opportunities, many of which grew out of crisis. Up until that point, my experience and background had only been exclusively in agriculture, there was the summer of extremely high gas prices when we dealt with a host of questions relative to the energy markets and how the futures markets were performing, 2008.
Dawn Stump:
Then later in 2008, 2009, the financial crisis where both the banking committees and the Ag committees were faced with the responding to how the OTC market could be better regulated. I hope to never experience either one of those situations again, but they do inform my thinking a bit. The OTC market was something that prior to the crisis, the CFTC was actually not able to regulate. It is now a very large part of what we do. In a very short number of years, 10 years, our mission has changed considerably, but our legacy mission also still exists and I always think it's my role to remind we can certainly walk and chew gum at the same time, we can't be distracted by the new, new mission at the expense of the former mission to regulate the futures and the commodity markets.
Josh King:
I still want to hang out on those early years for you in Washington, DC, this journey from the Texas Panhandle to the nation's capital. You're working as a legislative assistant for another great Texan, Senator Phil Gramm. He co-sponsored the Commodity Futures Modernization Act of 2000 that was signed by President Clinton. What did you learn from Senator Gramm as a mentor?
Dawn Stump:
I came to work for Senator Gramm when he was chairman of the banking committee. I did not work on the banking committee, I worked in his personal office as a legislative staff primarily tasked with handling the agricultural and immigration portfolio. However, because Senator Gramm was a teacher by trade, he was a college professor at another institution in Texas, he always was interested in ensuring that we received the proper education. And he asked me once what I was interested in and I explained to him that I had enjoyed the economics and taking courses in college on futures trading. He very quickly allowed me to participate in meetings that were well outside of the task that I was primarily responsible for.
Dawn Stump:
I would've never imagined at the time that understanding how the banking committee worked would be so beneficial to me because as we moved to the crisis and I was working for Saxby Chambliss, from Georgia, I spent considerable amount of time working with the banking committee, even though I was an agricultural committee staffer. The two committees devoted day and night, weekends and very long hours to trying to come to resolution on the best path forward for the derivatives markets. I learned a lot in that context, in that I understood how the banking committee worked, I had known some of the players prior to the situation. But at the same time, working for Saxby Chambliss was very different. I learned something different from him, his thinking was that you should always listen to the other side, you never know when they're going to have the better idea. Don't be dismissive of the other side.
Dawn Stump:
So I think that all of these things trained me to eventually do what I'm doing today. Although, none of them were ever part of the plan, they were circumstantial. And I'm grateful that both of the senators provided me with an opportunity and a tremendous learning experience.
Josh King:
I mean, if I've got my history right after working for Senator Gramm, you moved over to the House Committee on Agriculture and later the Senate Committee on Agriculture, Nutrition, and Forestry, where you helped negotiations on two farm bills. President Trump in 2018 signed the 2018 Farm Bill into law at the end of December, it's an 867 billion dollar package. I want to hear a little bit from Agriculture Secretary Sonny Perdue, another recent guest on this show, at the signing of the legislation.
Agriculture Secretary Sonny Perdue:
It is a great birthday president, not only for me, but for all of agriculture to give the producers, the ranchers and farmers across America the peace of mind. Going forward they can make their plans in 2019, make their blenders and bankers proud of what they can plan for. The underpinning of the safety net of crop insurance, those kind of things is a big deal for agriculture, it's a big deal for the US economy, the Ag economy, for food security and for national security.
Josh King:
Dawn Stump, you don't have to look too far to see stories of what farmers are facing today, floods and other issues related to weather and climate. And given your experience in crafting legislation and for those who don't follow agriculture issues closely, how does the Farm Bill give farmers what secretary it Perdue just outlined?
Dawn Stump:
The Farm Bill is one of those unique pieces of legislation, it is rarely debated on politics, it is not a Republican versus Democrat issue. And I'm very grateful for the opportunity to have worked on several farm bills because oftentimes any controversy stems from region differences and regional priorities. But the reality is that it is also one of those unique pieces of legislation that almost always reaches the finish line, because it is so important. Most people believe that the Farm Bill, because it is called a farm bill is almost exclusively about production agriculture. The Farm Bill, an energy title, which I actually helped craft the first renewable energy title in the Farm Bill in 2002. It has a conservation title that helps producers best manage the resources, it has a nutrition title that is there designed for assisting with feeding programs and such.
Dawn Stump:
The production title, what we would call the commodities title, is extremely important in that it does provide a safety net. It also updates as necessary the crop insurance program to ensure that it provides a complimentary risk management tool to the futures market. I mean that is, in fact, a risk manage tool for loss of production, typically, although, there is, in fact, a price risk program as well. But they work hand in hand with the futures market in that our markets are designed to ensure that the market risk is able to be hedged. But the reality is all of are necessary, the commodity programs have been called into question before, and they've been adapted as necessary. But as secretary Perdue said, the American agricultural producer is one of the great American innovations. They do so much with frankly so little and they take on risk every day, and unfortunately right now, their risks are completely out of their control. I think that it is incumbent upon us to ensure that whether it's the market regulation or the implementation of the Farm Bill, makes that easier.
Josh King:
Focusing on the Senate Committee on Agriculture, Nutrition, and Forestry, what we've been talking about, which has jurisdiction over the CFTC, Kansas Senator Pat Roberts, the chairman of the committee, said last April, and I'm going to quote him here, "Like the Farm Bill, any CFTC reauthorization will not be revolutionary, but evolutionary and an effort to provide long term certainty to producers and other market participants. Any reauthorization should also include an update and authorization of an appropriate level of funding for the CFTC that is necessary for the agency to function as a 21st century regulator." Reauthorization discussion stalled last year, any hope that discussions resume in the 116th Congress toward making it truly that 21st century regulator?
Dawn Stump:
Yeah, I think that it is an area of focus for both the Senate Ag Committee and the House Ag Committee to reauthorize the CFTC. The CFTC's authorization lapsed in part due to the fact that it expired shortly after the Dodd-Frank Act. And so typically the agency can function without an authorization, but the reauthorization is an opportunity for Congress to reevaluate how our statute is operating the Commodity Exchange Act and reevaluate and tweak where necessary. But the Dodd-Frank Act made so many tweaks of our statute that it's taken this amount of time to really, I think, get our hands around what might need to be revisited, what might need to be recalibrated. So I think the time is right to consider if there are even minor things that could be bipartisan. I think there are a number of bipartisan issues that could be taken up in a reauthorization package.
Dawn Stump:
I hope that Congress is able to reauthorize the agency simply because it's necessary that we have that endorsement, that our authorization is current. So I do have a fair bit of hope that this will be dealt with in this Congress. And particularly now that the Farm Bill is dealt with, and some of the other priorities that the Ag committee is tasked with dealing with, perhaps the will be more time for these.
Josh King:
Talking about the Dodd-Frank Act and your work on title VII, which addresses the gap in US financial regulation of OTC swaps by providing a comprehensive framework for the regulation of the swaps markets. How does the implementation of this framework now help you and your duties as a CFTC commissioner?
Dawn Stump:
Well, I always say that it's time to contemplate recalibration, and when I say that oftentimes people believe I mean to the domestic regulations. Much of what we need to reevaluate is how we treat foreign regulates because the CFTC was the first mover in implementing the regulations under Dodd-Frank, we had to have quite an, I considered an overreach now, but an expansive reach into foreign jurisdictions because they had yet to implement some of the reforms. But the reality is in 2009 most of the jurisdictions committed to a new set of principles, and most of those jurisdictions have now implemented such. So I believe it's time for us to recalibrate how we treat foreign jurisdictions. I believe we could afford a bit more deference, particularly with Asia and Europe, relative to how we regulate, whether it's clearinghouses or swap dealers or reporting entities that sit in those jurisdictions that we now know are implementing comparable regulations to our own. I spend a fair bit of time in my role, I sponsor the Global Markets Advisory Committee at the CFTC, so I spend a fair bit of time contemplating how best to streamline things with our international colleagues and what would work.
Josh King:
And we're going to get into a lot of that in a little bit later in our conversation. Now, heading toward your service on the commission, you were nominated by President Trump to serve as a commissioner on June 12th, 2017 and unanimously confirmed by the Senate on August 28th, 2018. So there's a big gap of time there. For anyone who's ever waited to hear back in a new job opportunity, several weeks can be grueling, let alone over a year. Explain for our listeners what the process for becoming a CFTC commissioner entails.
Dawn Stump:
Yeah, I think whether it's a blessing or a curse, because I worked in the Senate and I handled nominations I knew exactly what I was getting myself into. However, you never know, it could take a matter of weeks, it could take years. And for us as an independent agency oftentimes that's predicated off of the fact that we are often paired with somebody from the other political party. Shortly after I was nominated for one of the Republican slots or what we call the majority slots, one of the sitting commissioners who was from the other party departed the agency. So it took a bit of time for the, at the time, the minority leader of the Senate to recommend somebody for that position. So it took a year.
Dawn Stump:
The first time in over 20 years I had not worked every day, it was difficult but at the same time it gave me a fair bit of time to think about what I wanted to focus on, what I wanted to devote my time and attention to when I arrived at the agency. The reality is I have a five year term by the time I was sworn in, there are four years remaining. And I feel as though there's time to contribute in a meaningful way. So while I would've preferred to have been confirmed and sworn in much quicker than the time that it took it did afford me a lot of contemplation on how best I could serve the agency.
Josh King:
So thinking about that four year span that you have to serve. Throughout your career you've worked closely with the CFTC helping to draft regulation on Capitol Hill. How has your work changed now the table is turned and you're sitting at the commission table?
Dawn Stump:
I think that the biggest change for me, or frankly the most unexpected thing of coming to work for the commission, my focus prior to arriving there had been almost exclusively on the policy setting side. And that's how I had interfaced with the agency, the policy surrounding the regulations that dictate the most robust and safe markets. I didn't fully anticipate how much time I would be devoting to enforcement actions, and enforcement is a very key component of what the CFTC does. I've come to appreciate greatly our enforcement staff and the job that they do. And certain only I knew prior to arriving at the agency that this would be something I devoted time to, but I don't think I fully appreciated the robustness of our enforcement division. Even with limited resources they do a phenomenal job. We've had a very active enforcement situation under current leadership, I anticipate that will continue. We've made many improvements in the enforcement space. We try to allow folks who want to cooperate to receive the benefit of the doubt, folks who we might find duplicative enforcement actions with other regulators, we try to ensure that that is reasonable.
Dawn Stump:
So I'm quite proud of what the enforcement division is doing, but what I love is the policy side. So nothing has really changed except that now I'm much more focused on the granular details of the policy, as opposed on the legislative side we have principles that are put forward. But reality is the CFTC, that we're a little different from other regulatory agencies in this regard, our regulatory mandate suggests that we are supposed to have principle based regulation. Our markets are very dynamic, they're always changing, if our regulations are too prescriptive, they'll never be fit for purpose two years down the road. So I always view it as my personal obligation to remind everyone that our regulations are principal based, they're not prescriptive, and our statute actually calls for that.
Josh King:
We talked a little bit about this earlier in our conversation, but as you noted you're currently the sole female commissioner at the CFTC and your expertise in financial services, agriculture and energy aren't industries that we typically think as being dominated by women. As you pave the way for other women in financial services, what was it like for you break into this club? And what advice do you give to women that you meet, who are just starting their careers on the Hill?
Dawn Stump:
I think that the most important thing for women is to trust your instinct, and I know that sounds very simplistic. But if you are the only woman sitting at the table and you do view things differently than others at the table, it oftentimes can result in you questioning your instinct. And I think it's really important for women to maintain the fact that we have good instincts, we're really good multitaskers, we don't have to subscribe to the way everyone else is doing it. But it's hard to maintain that level of confidence when oftentimes you feel as though you're misunderstood, simply because you approach things very differently than the others who sit around the table. I feel like the most important thing is to continue to remember your why. I always say that, remember your why, why are you here? Don't conform. It's so easy to conform to the way other people do it because of it's the path of least resistance. Take credit for what you're doing, and that's really hard. It's hard for anyone, but it's particularly hard for women.
Josh King:
After the break we'll talk with Dawn Stump about the many issues currently before the CFTC. That's right after this.
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Josh King:
Back now Inside the ICE House with CFTC Commissioner Dawn Stump. Before the break, Dawn and I were talking about her journey from the Texas Panhandle to the corridors of power in Washington, DC. And now we're going to dive into issues before her commission.
Josh King:
Now, we officially have a new incoming 14th chairman of the CFTC Dawn, Heath Tarbert was confirmed by the Senate on June 5th and is expected to begin his term as chairman on July 15th. Previously Tarbert was serving as the acting Under Secretary of the Treasury for International Affairs. I want to hear a little bit from Senator Pat Roberts, chairman of the Senate Agriculture Committee, at the beginning of Tarbert's confirmation hearing.
Senator Pat Roberts:
Economy, while it was not the farmer or the rancher or rural cooperative or electric utility who contributed to the financial crisis of 2008. It is often these folks who shoulder the heaviest burden when regulators write and implement rules. Today, this committee will hear from a nominee who is no stranger to public service. His experience clearly shows he has an appreciation of what led to the financial crisis 10 years ago and he understands how these markets are impacted by actions taken by Congress and the US federal regulators, as well as our legislative and regulatory partners around the world.
Josh King:
That's Senator Pat Roberts of Kansas. Dawn Stump, incoming chairman Tarbert, you and your fellow commissioners have a lot of work on your hands. What are the most pressing issues in your opinion?
Dawn Stump:
We do have a fair bit of work to do in the international space. For me, that is where we are most in need of focus. The current chairman, Chairman Christopher Giancarlo has devoted an enormous amount of time and effort to ensuring that our relationships around the globe are made better, there was a bit of tension after the crisis in the manner in which each jurisdiction went about implementing the regulations. And frankly, I think that was just all due to timing it. Obviously if somebody was going to go first it happened to be the United States and the CFTC. So now I think it's time to level set and I think Dr. Tarbert is, in fact, the perfect person to continue that effort in that he has tremendous relationships. He has worked with the Financial Stability Board in his role at treasury. He's had various and productive, as far as I'm aware, interactions of colleagues around the world. And this is going to be critical to our mission ahead, I believe.
Josh King:
Talking about those tremendous relationships, he's going to need them on international issues because at his confirmation hearing, Dr. Tarbert told lawmakers that US firms shouldn't be subject to overseas rules. He said, and I quote, "Our clearinghouses and exchanges here in the United States need to be exclusively regulated by US regulators." Is this drawing a line in the sand for opening up another front and already tense relationships with the EU on a number of issues?
Dawn Stump:
I think that it's incumbent upon the Europeans and the regulators in the United States to reset where we have gone with the regulation of, in particular and I believe what he's speaking there is, our clearinghouses. The CFTC needs to afford other jurisdictions far more deference than we have. We have required other clearinghouses that want to service US clients to register with the CFTC. I'm a firm believer that Congress actually spelled out in the Dodd-Frank Act that we could provide exemptions to foreign clearinghouses if they were comparably regulated, and now they're comparably regulated. It took a bit of time for everybody to get on the same page, but we need to revisit that. And in doing so, we need to ensure that this spirit of deference is two way. I do find it a bit unfortunate that the Europeans have recently published a consultation suggesting that they now would like to be a frontline regulator or potentially be a frontline regulator beyond their own jurisdiction.
Dawn Stump:
I think that as we contemplate how we could afford more deference to our international colleagues, we have to apply common sense and demand the same from other regulators around the world. I believe that to do otherwise is actually making the system less safe. If various regulators with comparable regulations but not identical regulations are presumed to be your frontline regulator, it becomes very confusing. And particularly in the case of clearinghouses, a confusing web of regulation is not serving the purpose of more robust clearing in the OTC derivative space. I always remind people, clearinghouses were not a contributor to the crisis they were actually thought to be a solution to helping mitigate that overly complicated web of bilateral over the counter transactions. And we have to harken back to that. I mean, it did require us to update and make their regulation more robust, but it is not incumbent upon that infrastructure to have a confusing set of regulations that in fact may weaken their resilience.
Josh King:
I haven't been in this space nearly as long as you've been in my couple years watching these issues unfold, watched outgoing Chairman Chris Giancarlo making several speeches in front of the Futures Industry Association, where you spent part of your career, both in Chicago, Boca, read coverage of his other commentary over the last few year. How do you think Dr. Tarbert's leadership style is going to contrast or be any in any way different from Chis Giancarlo?
Dawn Stump:
I think that it is probably beneficial for us to have a different set of players at the table. Giancarlo made the decision to leave, he could have sought another term and he chose not to and I think partially due to the fact that he felt as though a fresh set of players could... And I'm not necessarily suggesting his approach will be all of all that different. I think that both Dr Tarbert and Chairman Giancarlo are extreme firm in their demands that we regulate our clearinghouses and it is not acceptable to us to have other jurisdictions insert themselves into the process in a way that is confusing. I think that's what we're all trying to avoid, we don't want confusion in the regulatory space. And so I think that while their approaches, I'm not certain how different they will be, I think that what really may benefit us at this stage is just having a fresh set of negotiators at the table.
Josh King:
We talked a little bit about the Global Markets Advisory Committee earlier, you sponsored the Global Markets Advisory Committee whose members include industry professionals, representatives of futures exchanges and market participants, including ICE's own chief strategic officer David Goone. Given incoming Chairman Tarbert's background as acting under secretary for international affairs treasury, how do you anticipate working with chairman on issues related to global business, as well as the CFTs relationship with other global regulators?
Dawn Stump:
I anticipate that my role will continue to be one of leadership in the international space. Dr. Tarbert has spent a fair bit of his career working in that space. I've actually known him for quite some time. We, I anticipate, will have a tremendous working relationship. Some of the things that I've done in my capacity as the global markets advisory committee sponsor under Chairman Giancarlo's chairmanship, I represent the agency occasionally before the standard setting bodies, such as IOSCO, I anticipate that will continue. I mean, certainly the Chairman holds that seat and will need to be an active member in those forums but to the extent I can play a backup role, I'm very happy to do so. And I think that works out really nicely so long as the chairman and I agree to a common set of principles, and I have no reason to believe that Chairman Tarbert and I will not be on the same page almost all of the time on these international matters.
Josh King:
Sticking across the pond for a second, the CFTC is working closely with the Bank of England and the Financial Conduct Authority to ensure continuity in the UK and US derivatives market regardless of the outcome of Brexit. The CFTC released a joint statement this spring with the BOE and the FCA on measures it's implementing to support financial stability and sound functioning of the financial markets. Take us through those measures and the regulatory framework that they'll provide.
Dawn Stump:
Sure. So these measures are designed to ensure that we have a plan in place for Brexit. The reality is that we have a number of supervisory memorandums of understanding relief that we've granted to various jurisdictions in Europe, but we need to replicate those now for the UK in anticipation of Brexit. Also, quite important, the UK will need to make a determination as to whether or not our institutions are equivalent, and we will need to make a determination as to whether or not their domiciled regulated entities are comparable to our own. So these are exercises we've already gone through with Europe, and we will now need to execute with the UK. So the FCA, the Bank of England are our primary interface for those decisions and we have tremendous working room relationship with both. I anticipate that these measures we're taking to ensure that Brexit does not disrupt the international global nature of our markets and our market participants, are almost all well in place by now.
Josh King:
At the start of this year, you wrote an op-ed in the Financial Times calling for a reevaluation of the CFTC's approach to overseas CCPs central clearing counterparties. You said, and I quote, "We were the first country to implement new clearing rules for OTC derivatives and were determined to require any foreign regulated clearinghouse wishing to offer these products to US clients, to register with the CFTC. Today we can reassess because other countries and the EU have implemented their own comparable reforms, we are already empowered to do so." We were talking about this a little bit earlier, but what motivated you to write this piece in a newspaper that was bound to really get right on the desks of these European regulators?
Dawn Stump:
Yeah. I just wanted the European regulatory community to know were serious about being more deferential. The reality is that when our regulations that reach into their jurisdictions were put in place, we didn't have the benefit of their finalization of the post-crisis regulation. Now we have the benefit of knowing how they're doing this, we have MOUs in place, we have comparability determinations, we have substitute a compliance arrangements. All of those things need to be factored in now to how we reach into those jurisdictions and what institutions we require to be registered with the CFTC. But at the same time there's another component to the op-ed that suggests that EMIR 2.2, European legislation, a consultation was just recently issued to suggest that they may be taking a deferential approach to regulating clearinghouses outside of Europe. For us, this is a difficult thing, I mean, it is borne out of Brexit but the reality is it is a challenge. If we are going to apply more respect to our colleagues overseas, we expect the same level of respect for our regulatory abilities and our regulatory purview. So I am struggling at this juncture, the commission is struggling, I think, as to how we move forward and provide more deference when the Europeans may be going in the opposite direction.
Josh King:
I read a lot of coverage at the time of your op-ed, some commentary from people who sort of focused closely on these things like Patrick Young sort of gave you a standing ovation. What was the response you got from that piece and did it sort of open up a new level of dialogue that hadn't been there before?
Dawn Stump:
I think it was well received by many people who have operated in this space for a long time, both in the UK and then broader Europe. At the same time, I'm not certain that it was well received by those who were in the process of writing EMIR 2.2 and not to suggest that they were critical, it just didn't lend itself to the direction they were going. So we've had many conversations subsequent to the op-ed relative to they were still going to go this path and I think that we are still were working through where they end up they're not finalized anything. And so we are hopeful that before they finalize their EMIR 2.2 level two text, that we can have a very reasonable conversation about what is the right path for the globe, why are we not still to assisting each other and regulating all of these entities around the world. Our markets are global, we can't pretend that they aren't and unilateral overreach is simply not going to behoove the market.
Josh King:
In a different vein, Dawn, you also recently announced the CFTC's data protection initiative with which will help build out policy that addresses potential threats to your data and keep abreast to the latest security best practices. From reevaluating overseas, CCPs to risk management, there seems to be a theme of streamlining and cutting out excess. Is this your view?
Dawn Stump:
I think that's consistent with my view, yes. I think that we've learned a lot, our regulatory overreach is far greater than it was prior to the crisis. We need to ensure that when we take and specifically, when we talk about data, we need to ensure that we are taking in the data that we absolutely must have. Our out a footprint is very large. It will continue to be large, but we need to conduct a scoping exercise to ensure that we have a use case for all of the information we're taking in, from my perspective, we need to determine how we're accessing that information. Is it coming into our system? Are we going on site to review it? And all of these things are available and different facets of the regulator are, have policies and procedures in place. I just want to make certain that we have a common set of policies and procedures across the agency.
Dawn Stump:
There's a security element to this. It's not just cyber it. It's also the manner in which we allow people inside the agency to access the data. Our response, if we did have a breach, how would we respond? What would we be expected to communicate? And then retention, how long do we need to retain records? Some of that is dictated by federal regulations that are beyond just the CFTC, but these are all things that I think need a holistic review, an agency wide policy and procedure
Josh King:
At the end of 2018, Dawn, CFTC Chairman Giancarlo gave the keynote address at the Georgetown Law FinTech Conference. And in closing, he said, I quote again, "In the next decade the CFTC and indeed all market regulators have no choice but to transform alongside modern digital markets and become quant driven agencies conducting robust data collection, automated data analysis, and state of the art AI. We have no choice, but to become highly effective quantitative regulators." What steps is the CFTC taking to regulate the digital markets and essentially keep up with the constant change and growth of our industry?
Dawn Stump:
Yeah, this is a very tall order. As we mentioned earlier, our regulatory role has grown exponentially such that I agree with the Chairman, we have an obligation to better understand the way the market has migrated to a very digital execution. And frankly, there's opportunity there from the regulatory side and that it could streamline our regulatory practices. We do struggle a bit in that we are limited in the manner in which we can receive services from digital providers, just due to the fact that there's a gift policy with regard to the government. So we are in the process of seeking changes to ensure that we might be able to better receive that and understand it.
Dawn Stump:
Beyond that we have something called LabCFTC that Chairman Giancarlo had the foresight to create. It is both for us an educational unit, as well as an in industry facing unit of the agency that helps people to understand what we would need if they wanted to seek to be regulated in our space. So this is still in its infancy, but I applaud Chairman Giancarlo, again, his forethought for establishing such.
Josh King:
Last October at the FIA Futures and Options expo in Chicago, your fellow commissioner, Dan Berkovitz, who was sworn in with you on August 28th, the democratic nominee, said that he felt trading venues are best suited to set position limits given the CFTC's limited budget. What's your current stance on position limits and where we are in the process for federal rule?
Dawn Stump:
Yeah, I feel like the position limit debate is an ongoing saga. And in fact, Commissioner Berkovitz and I met working on a position limit issue in 2006, I believe. I completely agree with him that the exchanges are best suited to help us oversee the manner in which the position limits are established. One component of this is we need updated deliverable supply in order to update the limits. I often say that the commission had limits and administer limits for gear for nine agricultural commodities. To the extent we find it necessary to extend that to energy and metals commodities, which is what the Dodd-Frank Act suggested that we do, we do have to remember that hedging strategies in the energy market are very different from hedging strategies in the agricultural market, such that a one size fits all is just not going to work. That complicates our life, but that doesn't mean that applying what's worked in the agricultural space to the energy markets is workable.
Dawn Stump:
I think we've learned that over years, we finalized a rule, the court remanded it back to us, we've had a supplemental rule, we've had another proposed rule, we've had, I think, an interim final rule and we're still working on it. Some of this I believe is one size fits all won't work, we have to update the data that informs the limits. We have to rely upon the exchanges because they know their market participants and the hedgers to help us determine how best to allow exemptions for those who are truly hedging to continue to be able to hedge. I think that is a common sense approach that could provide the path forward on position limits.
Josh King:
So as we wrap up here, in the area of innovation and technology, Dawn, one issue that's been gaining steam is the regulation of digital asset and outgoing Chairman Giancarlo took steps to oversee the rise of cryptocurrencies, establishing new review processes for virtual currency products. But as was reported in the Wall Street Journal through this transitional period, he didn't quite finish a proposal to rewrite post-financial crisis swap trading requirements. Many see trading, custody storage and spending of digital assets like Bitcoin, as a way to reduce friction in global commerce, if institutions and consumers can develop trust in those markets. What are the challenges before the CFTC in this area?
Dawn Stump:
I think the challenge is the communication and the understanding of what we regulate. I often like to remind folks, we regulate the derivatives, we don't regulate the cash market. If we find that there's manipulation in the cash market we can bring an enforcement action, but we regulate the futures and the swaps. So to the extent there's confusion out there about who's monitoring the cash market, we are monitoring it for manipulation, but we are not establishing the regulatory principles that dictate how you should be operating in that space. I just want to be clear about that, we regulate the futures exchanges to the extent there are futures contracts on Bitcoin and the swap execution facilities and the clearinghouses that clear those derivatives. And frankly, it's been remarkable to see the similarities, to the extent these are risk management tools, our principle based regulations serves the corn market, the Bitcoin market, the interest rate swap market. And if we do not make those regulations so prescriptive it continues to be relevant for all of them because they are markets and their risk management tools and we have to remember that is exactly why I think the regulated community likes to come and work with us because the principles that we subscribe to are transferable.
Josh King:
As you look toward the next two to three months, what are the big issues that you and your fellow commissioners and your staff will be tackling?
Dawn Stump:
Well, it will be what we always devote our time and attention to. Right now we are contemplating make some changes to the way in which we regulate foreign CCPs, foreign swap dealers that interface with foreign persons or foreign swap dealers that interface with US persons. We continue to, you mentioned that Chairman Giancarlo had put forward a proposal on swap execution facilities while that a very diverse set of opinions, many of which were conflicting, I think it did highlight that there are some areas there that we can work to streamline. This is an entirely new market structure, of course it was going to need refinement.
Dawn Stump:
Beyond that, I'm really hopeful that we can work on the report elements from the Dodd-Frank Act. The reporting elements have not yet been harmonized internationally, and it is unfortunate that we don't have international harmonization of the information that we're taking in. Because until we do have international harmonization, if we did have a problem, the information is not in the format that we all need to communicate effectively with one another. So this is a key priority for me, and we our staff is working on this very diligently. So I look forward to those things. Reality is we'll have a transition, we're going to have a chairman transition. And so Dr. Tarbert will set the agenda very soon and I'm fascinated to see what he wants to focus on, but I'm sure it will be great.
Josh King:
Well, as soon as Dr Tarbert finishes up his work on the G20 and gets into the CFTC with his gavel and pounds it to order, we will wait and watch and look forward to seeing what he and you and the rest of the commission have in store for us for the months and years ahead. Dawn Stump, thanks a lot for spending a little time after your speech in New York to come back to your old haunt here at the NYSE and spend some time with us inside the ICE house.
Dawn Stump:
Thank you so much for having me. I've really enjoyed it.
Josh King:
That's our conversation for this week. Our guest was CFTC Commissioner Dawn Stump. If you like what you heard please rate us on iTunes so other folks know were to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us @icehousepodcast. Our show is produced by Theresa DeLuca and Pete Ash with production assistance from Steven Romanchek and Ian Wolff. I'm Josh king, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
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