I respectfully dissent from the adoption of the final rule amending Part 40 of the Commodity Futures Trading Commission’s[1] regulations because I fear these amendments formalize a steady erosion of the Commission’s self-certification process.
The self-certification process is a fundamental pillar of our agency’s principles-based regulatory framework, enabling designated contract markets (“DCMs”) and swap execution facilities (“SEFs”) to bring new products to their markets quickly, a critical factor when innovating in our markets. Self-certification requires the DCM or SEF to certify that the product complies with the Commodity Exchange Act (“CEA”) and CFTC regulations, and the SEF or DCM listing the product remains subject to its obligations under the CEA and CFTC regulations. Bringing a product to the market through self-certification does not mean that the product lacks appropriate safeguards and protections. Rather, a self-certified product must be fully compliant with the CEA and CFTC regulations—just like a product formally approved by the Commission.
The amendments to Part 40 set forth a new “complete” standard for information required to be provided to the Commission as part of the self-certification and approval processes.[2] I am concerned that the Commission will use this sufficiently vague and amorphous standard to subject new products to unreasonable stays and requests for additional information. A core tenet of the CFTC’s mission in the CEA is to “promote responsible innovation,”[3] not stifle it with the wet blanket of requests for additional information.
One of the main reasons behind the Commission’s principles-based framework is to provide the agency with flexibility to evolve with our markets. Yet all flexibility is lost when prescriptive regulations are issued to outline existing expectations. Here, the preamble of the final rule repeatedly states that the changes being adopted are not intended to expand or otherwise alter the scope of the explanation or analysis required under the current regulation. But I question why we would go through the exercise of amending a regulation if the revisions do not change any existing expectation under the current version of the regulation.
The Commission’s self-certification process has served to demonstrate our trust in our markets and their commitment to the highest standards, allowing the markets to be responsible for their compliance with the CEA and the Commission’s implementing regulations while also offering innovation in the markets. Unfortunately, the amendments to Part 40 being finalized today suggest an erosion of that trust, and for that reason I must dissent.
[1] This statement will refer to the agency as the “Commission” or “CFTC.”
[2] See 17 C.F.R. § 40.2(a)(3)(v) (“a concise explanation and analysis that is complete with respect to the product’s terms and conditions, the underlying commodity, and the product’s compliance with applicable provisions of the Act, including core principles, and the Commission’s regulations thereunder”); 17 C.F.R. § 40.3(a)(4) (“an explanation and analysis that is complete with respect to the product’s terms and conditions, the underlying commodity, and the product’s compliance with applicable provisions of the Act, including core principles, and the Commission’s regulations thereunder”); 17 C.F.R. § 40.5(a)(5) (“an explanation and analysis that is complete with respect to the operation, purpose, and effect of the proposed rule or rule amendment and its compliance with applicable provisions of the Act, including core principles, and the Commission’s regulations thereunder…”); 17 C.F.R. § 40.6(a)(7)(v) (“a concise explanation and analysis that is complete with respect to the operation, purpose, and effect of the proposed rule or rule amendment and its compliance with applicable provisions of the Act, including core principles, and the Commission’s regulations thereunder”).
[3] CEA Section 3(b), 7 U.S.C. § 5(b).
