Rostin Behnam CFTC Nomination Hearing
Senate Committee on Agriculture, Nutrition, and Forestry
CFTC Confirmation Hearing
Wednesday, October 27, 2021
Witnesses
- Rostin Behnam, to be Chairman and a Commissioner of the Commodity Futures Trading Commission (CFTC)
Opening Statements
Chairwoman Deborah Stabenow (D-Mich.)
In her opening statement, Stabenow discussed the explosion and growth of new technologies, their vulnerability to fraud and abuse, and their lack of customer protections. She added that many of these technologies are commodities, so Behnam will need to thread the needle to allow innovation while ensuring consumer protections. Stabenow also discussed the climate crisis and Behnam’s leading voice in how the crisis impacts financial markets. She concluded by stating the need for more CFTC funding and a full slate of Commissioners.
Ranking Member John Boozman (R-Ark.)
In his opening statement, Boozman stated that questions remain about the proper role federal regulators should play in managing digital assets. He also highlighted the discussions around climate change and discussed the bipartisan history of the Committee while highlighting the lack of input from the Committee’s minority in the American Rescue Plan and the lack of input from rural communities in the reconciliation plan.
Testimony
Rostin Behnam, to be Chairman and a Commissioner of the Commodity Futures Trading Commission
In his testimony, Behnam said if confirmed, the CFTC will continue to engage, listen, and support American agriculture producers. Additionally, Behnam said manufacturers, pension funds, and financial institutions all rely on derivatives to manage risks. Behnam said clearing houses continue to play a critical role in the safety and soundness of the financial system. He continued that he wants more discussion about emerging risks and evolving market structure, adding that cybersecurity remains a high priority. He also discussed other emerging risks and opportunities and mentioned that he formed the climate risk unit to explore the CFTC’s role in managing climate risk. Behnam stated that derivatives will play a key role in market-based solutions. He said he looks forward to re-examining and expanding the CFTC’s authority to ensure that benefits from the emerging digital asset market can be harnessed without undue harm to financial market stability.
Question & Answer
Digital Assets
Stabenow asked what the CFTC can do to protect customers and promote transparency and if the agency needs additional authority and resources. Behnam said the CFTC has been pursuing enforcement cases in the digital asset marketplace because of limited statutory authority related to anti-fraud and anti-manipulation. He added that it is important for the Committee to consider expanding the CFTC’s authority. Sen. Sherrod Brown (D-Ohio) asked about additional tools that would help the CFTC regulate digital assets. Behnam said it is important to have a conversation about market regulation and the exchange of digital asset coins. Sen. Tina Smith (D-Minn.) asked Behnam how he sees the most significant risk to investors in digital asset markets and how those risks affect communities of color. Behnam cited volatility and said we need a clear, transparent regulatory structure that will benefit the market and the larger technological goal. He also opined on serving the unbanked and communities of color being invested in digital assets. Smith asked how Behnam views financial innovations that are dodging regulatory frameworks. Behnam said it is important to understand that innovation will change market structure overtime. He added that we must be thoughtful in our enforcement of new technologies to ensure compliance.
Sen. John Thune (R-S.D.) asked what the regulatory role is of the CFTC versus the Securities and Exchange Commission (SEC) in this space, and how Behnam will ensure the agencies are coordinating oversight. Behnam said more than half the value of the digital asset marketplace is commodities and noted that what is unique to these markets, as opposed to traditional commodities, is their retail facing nature. He said he will continue to work with SEC Chair Gensler because this directly touches both agencies’ markets and mentioned their rich history of being able to divide jurisdiction.
Climate Risk
Stabenow asked what role the CFTC should play in emerging voluntary carbon markets. Behnam said the CFTC should be a part of the conversation and share the agency’s expertise in establishing a well-functioning market. Sen. Kirsten Gillibrand (D-N.Y.) asked Behnam to explain the challenges of climate change to financial markets and what the CFTC can do. Behnam used the example of farmers being unable to harvest crops and the compounding subsequent effects and said the CFTC regulates products that facilitate capital allocation to renewable energy resources and that the agency can facilitate discussions around climate risk transition. Gillibrand asked how Behnam would leverage his position to realize the goals of President Biden’s climate risk Executive Order. Behnam said he has engaged in conversations with other regulators, is encouraged by the Financial Stability Oversight Council’s (FSOC) work, and that the CFTC will engage in the discussion of climate risk transition, ESG, and risk management.
Sen. Tommy Tuberville (R-Ala.) asked what the CFTC’s role is when it comes to climate. Behnam said they are a risk management agency and have looked at weather and climate for decades to see what it means for agricultural producers and energy providers. He said there have been more broad-based efforts by the private sector and that the CFTC needs to keep up with that.
Boozman asked Behnam to expand on his past remarks fearing “moving too far and too fast.” Behnam said transition risk is the most important challenge we are going to face because the country needs to move forward, but currently we do not have the supply in carbon neutral energy sources to meet demand. Behnam said he does not think it poses a systemic risk to the financial system at this moment, but noted there are systemic shocks occurring across the country and said if they become compounded or simultaneous, then that could pose risks to the financial system.
Carbon Markets
Boozman asked about growing climate solutions and if Behnam agrees the carbon market needs to be in the public sphere rather than the government buying and selling. Behnam said if the bill becomes law, the market could benefit from CFTC expertise and would hate to see the market side of that bill fail.
Sen. John Hoeven (N.D.) asked about CO2 credits for agriculture, to which Behnam responded that the CFTC may be helpful in providing expertise on price transparency, risk management, and the fundamental structure of a well-run market. Hoeven asked for recommendations for Congress on implementing a CO2 trading market. Behnam said it is important to have a market that has integrity, transparency, and freedom from market manipulation.
Sen. Roger Marshall (R-Kans.) asked how carbon taxes and markets might be interacting with the CFTC and derivatives. Behnam mentioned the emergence of products related to carbon offsets, natural resource scarcity, as well as voluntary carbon markets. He said if there is a collective wheel to push forward and scale these markets and products to retain appropriate risk management uses, he thinks the CFTC can support those goals.
Regulation and Oversight
Brown and Stabenow asked how the CFTC balances cooperation with good enforcement to ensure that compliance improves. Behnam said that he is supportive of cooperation but that the agency must create incentives for folks to report intentional or unintentional wrongdoing and impose effective penalties to deter future bad action. Sen. Amy Klobuchar (D-Minn.) asked Behnam if he would commit to having CFTC decision making account for commercial risks inherent in agricultural processing and marketing. Behnam answered affirmatively. Klobuchar asked how Behnam would balance regulation of hedge funds and investors with those of farmers, coops, grain dealers, and food processors. Behnam said we need speculators and liquidity providers in the market, but we have rules and market structure to ensure that commercial end users have access to these markets. Klobuchar asked how the CFTC monitors social media offering illegitimate futures trading. Behnam said the CFTC communicates with different application providers and technologists to ensure that their services do not violate the law.
Taxing Unrealized Gains
Boozman asked Behnam if he has financial risk concerns relating to an unrealized gains tax. Behnam said he has not looked at the specifics, but believes there would be potential outcomes if floods of investors started to liquidate positions.
China
Sen. Mike Braun (R-Ind.) asked about commodity prices going up, and when a player like China is out of bounds with the way other countries operate, if the CFTC would hold China accountable for price manipulation. Behnam said there would have to be a tie-in with CFTC’s law.
Producers and Supply Chain
Stabenow asked how Behnam would engage with producers and prioritize issues of interest to them. Behnam said that agricultural futures markets are working well but that the CFTC will continue to engage directly with agricultural producers. He added that with new emerging risks, the CFTC needs to engage on a one-on-one basis with producers. Hoeven asked for Behnam’s opinion on supply chain challenges. Behnam discussed labor shortage issues, economic activity issues, and the CFTC’s limitations to address certain chokepoints like the pandemic and severe weather events. Hoeven asked what the CFTC can do to help farmers and producers manage risks. Behnam discussed the issue in the livestock complex and the CFTC’s work to promote price transparency and address new technology. He added that the CFTC will work with the entire value chain and exchanges so that each point has clear and identifiable information.
Diversity
Brown asked how the CFTC can improve diversity at the agency. Behnam said he created a Chief Diversity Officer at the CFTC but that the agency is still behind and plans to do more to recruit a diverse staff. He added that budget constraints have impacted the agency’s ability to recruit and retain staff.
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