[Senate Hearing 117-509]
[From the U.S. Government Publishing Office]
S. Hrg. 117-509
NOMINATION OF THE HONORABLE ROSTIN
BEHNAM, OF MARYLAND, TO BE CHAIRMAN
AND A COMMISSIONER OF THE COMMODITY
FUTURES TRADING COMISSION
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HEARING
BEFORE THE
COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
October 27, 2021
__________
Printed for the use of the
Committee on Agriculture, Nutrition, and Forestry
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available on http://www.govinfo.gov/
__________
U.S. GOVERNMENT PUBLISHING OFFICE
47-197 PDF WASHINGTON : 2023
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COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
DEBBIE STABENOW, Michigan, Chairwoman
PATRICK J. LEAHY, Vermont JOHN BOOZMAN, Arkansas
SHERROD BROWN, Ohio MITCH McCONNELL, Kentucky
AMY KLOBUCHAR, Minnesota JOHN HOEVEN, North Dakota
MICHAEL F. BENNET, Colorado JONI ERNST, Iowa
KIRSTEN E. GILLIBRAND, New York CINDY HYDE-SMITH, Mississippi
TINA SMITH, Minnesota ROGER MARSHALL, Kansas
RICHARD J. DURBIN, Illinois TOMMY TUBERVILLE, Alabama
CORY BOOKER, New Jersey CHARLES GRASSLEY, Iowa
BEN RAY LUJAN, New Mexico JOHN THUNE, South Dakota
RAPHAEL WARNOCK, Georgia DEB FISCHER, Nebraska
MIKE BRAUN, Indiana
Joseph A. Shultz, Majority Staff Director
Mary Beth Schultz, Majority Chief Counsel
Jessica L. Williams, Chief Clerk
Fitzhugh Elder IV, Minority Staff Director
Fred J. Clark, Minority Chief Counsel
C O N T E N T S
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Wednesday, October 27, 2021
Page
Hearing:
Nomination of the Honorable Rostin Behnam, of Maryland, to be
Chairman and a Commissioner of the Commodity Futures Trading
Comission...................................................... 1
----------
STATEMENTS PRESENTED BY SENATORS
Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan... 1
Boozman, Hon. John, U.S. Senator from the State of Arkansas...... 2
WITNESSES
Behnam, Hon. Rostin, of Maryland, to be Chairman and a
Commissioner of the Commodity Futures Trading Commission....... 5
----------
APPENDIX
Prepared Statements:
Behnam, Hon. Rostin.......................................... 30
Document(s) Submitted for the Record:
Stabenow, Hon. Debbie:
Undersigned organizations, letters of support................ 34
NCBA, letter of support...................................... 36
U.S. Cattlemen's Association, letter of support.............. 37
Behnam, Hon. Rostin:
Committee questionnaire, Office of Government Ethics
Executive Branch Personnel Public Financial Disclosure
Report and 5-day letter filed by Behnam, Rostin............ 38
Question and Answer:
Behnam, Hon. Rostin:
Written response to questions from Hon. Debbie Stabenow...... 92
Written response to questions from Hon. John Boozman......... 95
Written response to questions from Hon. Sherrod Brown........ 98
Written response to questions from Hon. Kirsten E. Gillibrand 100
Written response to questions from Hon. Ben Ray Lujan........ 102
Written response to questions from Hon. Raphael Warnock...... 105
Written response to questions from Hon. John Hoeven.......... 106
Written response to questions from Hon. Joni Ernst........... 110
Written response to questions from Hon. Tommy Tuberville..... 112
Written response to questions from Hon. Charles Grassley..... 116
NOMINATION OF THE HONORABLE ROSTIN BEHNAM, OF MARYLAND, TO BE CHAIRMAN
AND A COMMISSIONER OF THE COMMODITY FUTURES TRADING COMISSION
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WEDNESDAY, OCTOBER 27, 2021
U.S. Senate,
Committee on Agriculture, Nutrition, and Forestry,
Washington, DC.
The Committee met, pursuant to notice, at 10 a.m., via
Webex and in room 216, Hart Senate Office Building, Hon. Debbie
Stabenow, Chairwoman of the Committee, presiding.
Present or submitting a statement: Senators Stabenow,
Brown, Klobuchar, Bennet, Gillibrand, Smith, Booker, Warnock,
Boozman, Hoeven, Ernst, Marshall, Tuberville, Grassley, Thune,
Fischer, and Braun.
STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR FROM THE STATE
OF MICHIGAN, CHAIRWOMAN, U.S. COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
Chairwoman Stabenow. Good morning, and I call to order
today's hearing on the nomination of Mr. Rostin Behnam to
become Chairman of the Commodity Futures Trading Commission
(CFTC). Congratulations on your nomination, Russ. It is good to
see you. I know your wife--I know that Dinah and two of your
three beautiful girls are working their way through security at
the moment, so we look forward to officially welcoming them,
Nina, Farah, and I know that your third little one, Roxana, is
a baby at home, so we say hello virtually to her.
I also want to welcome Commissioner Dawn Stump. Thank you
for attending today, and I think your support is a testament to
Russ's ability to work in a bipartisan manner with fellow
commissioners, and yours as well, to be here today. We are very
appreciative.
To say that I am excited about Russ's nomination is an
understatement. I was very fortunate to work with Russ for
several years when he handled CFTC issues for our Committee,
and he provided invaluable counsel on matters related to our
derivative markets. I have even heard that Russ keeps a poster
of Michigan agriculture in his office as a reminder of the
important work of this Committee.
The CFTC is critical to ensuring farmers and consumers
alike can trust the stability of financial and agricultural
markets to hedge their risk. If confirmed, Chairman Behnam will
oversee the CFTC at a time when our markets are undergoing a
significant evolution. For example, we are seeing an explosion
and growth of digital assets and other financial technologies.
With these new technologies, while they are popular, among many
consumers they are particularly vulnerable to fraud and abuse
and lack the customer protections built into more traditional
financial markets.
Many of these digital assets are commodities. If confirmed,
Chairman Behnam will need to thread the needle to ensure this
industry can continue to innovate in ways that are smart, while
posing less risk to customers. I look forward to working with
Commissioner Behnam and the Commission in this effort as we
consider whether additional legislative authorities are needed.
We are also reaching a tipping point in our response to the
climate crisis, as we know, and Commissioner Behnam has been a
leading voice in examining how this crisis can impact our
financial markets. Without a doubt, the CFTC is small but
mighty, and yet even as its responsibilities continue to
expand, unfortunately its funding has failed to keep pace. It
is inexplicable that the CFTC has been underfunded for so many
years. This puts our financial system at risk. The CFTC is the
only financial regulator that is not supported by user fees,
leaving it particularly vulnerable to dips in its budget.
I am disappointed to see that CFTC, unlike other financial
regulators, was not funded at the level requested in the
President's budget request, and I am going to continue to fight
to get adequate resources for the CFTC to carry out its
important mission.
The CFTC also needs a full slate of commissioners to
accomplish its mission. I look forward to holding a hearing, as
soon as possible, for the two Democratic nominees and working
closely with Senator Boozman to have a Republican nominee put
forward as soon as possible so we can complete this important
commission.
Commissioner Behnam has support from a broad range of
stakeholders across the financial and agricultural sectors, and
I would ask unanimous consent that their letters be entered
into the record. Ordered, without objection.
[The letters can be found on pages 34-37 in the appendix.]
Chairwoman Stabenow. Now as I am turning to my friend and
our Ranking Member, Senator Boozman, I do notice, Russ, that
your family is now with us, so Dinah, welcome to you and the
girls. We are so glad to have your family with us today on this
important occasion.
Senator Boozman.
STATEMENT OF HON. SENATOR JOHN BOOZMAN, U.S. SENATOR FROM THE
STATE OF ARKANSAS
Senator Boozman. Thank you, Madam Chair, and I am pleased
to welcome Mr., or rather Commissioner, Mr. Commissioner Behnam
to the Committee as we consider his nomination to be Chairman
of the Commodity Futures Trading Commission. I congratulate you
on your nomination and your willingness to continue to serve
your country. If confirmed, Mr. Behnam will have the Acting
title removed and he will officially take the helm of an agency
that regulates a wide range of financial products that are
essential tools for end users like farmers, ranchers,
municipalities, and pension funds, which use them to hedge
commercial risk.
Beyond legacy commodity contracts that market participants
have used for centuries to manage risk, derivative markets have
also grown to include certain digital assets. While digital
assets and distributed ledger technology are revolutionizing
financial transactions and the way people manage their money,
questions remain as to the proper role Federal regulators
should play in encouraging further innovation in digital assets
while ensuring that market participants are protected.
Addressing climate change and its potential impact on
markets has also been at the forefront of both domestic and
international policy discussion and an issue Mr. Behnam has
made a priority during his tenure at the CFTC.
Commissioner Behnam, I look forward to hearing your vision
for leading the CFTC, particularly as it pertains to any
upcoming rulemakings related to climate change and how you plan
to engage with other financial regulators to preserve the
CFTC's jurisdictions over derivatives, including digital
currencies.
Before I conclude my statement I would like to offer a few
observations about the nature of the Ag Committee and our
special role in the lives of American farmers, ranchers, and
rural communities. The Ag Committee is at its best when we work
together. Today is an excellent example of this. The Senate
received Mr. Behnam's nomination on September 20th, our staffs
have worked in a coordinated fashion to review his paperwork
and his record, and today we meet in a bipartisan fashion to
hear from the nominee, whom I feel confident will be confirmed,
and certainly we will support, to be the next Chairman of the
CFTC.
Unfortunately, days like today have become less frequent.
The Committee has recently strayed from its traditions, and I
fear the consequences to American agriculture, our farmers,
ranchers, and rural communities. In the last 40 years, in this
Committee, regardless of the party that controlled the Senate,
there was some level of bipartisan input into the
reconciliation process. That tradition ended this year.
Consideration of the agriculture provisions of the American
Rescue Plan Act earlier this year and the current
reconciliation legislation represent the first time in more
than 40 years leadership of the Committee has chosen to abandon
our bipartisan traditions.
Unfortunately, it appears our country's farmers and
ranchers are not being consulted either. I know that I count on
the wisdom and experience of our country's producers and the
leaders from our rural communities to inform me. I have no
evidence that in the development of the reconciliation bill
that any input was sought from our major farm organizations. In
fact, when I asked them if they were consulted, they tell me
that they were not.
Many of our fellow citizens who live in rural America
believe that people in Washington think--and I stress think---
they know what is best for our farm families and our rural
communities. There is a feeling among many of the people who do
not live in our Nation's cities that their political leaders do
not value their expertise or their opinions, and do not
understand their lives.
When the Senate Ag Committee decides to forego the
expertise and the opinion of those we are entrusted to
represent, we are not living up to what should be our
commitment to our farmers, ranchers, and rural communities.
With that I yield back, and we look forward to your
testimony. You have got a wonderful little family there, and
they have got to be your greatest asset.
Thank you, Madam Chair.
Chairwoman Stabenow. Thank you, Ranking Member Boozman, and
I am going to officially introduce Commissioner Behnam now.
I do want to say, though, in response to my friend, Ranking
Member, that while unfortunately the reconciliation process
over both times and over recent years has been a partisan
process, I do want to thank the hundreds of organizations that
have given input to what is being recommended on climate-smart
conservation and forestry and so on, and much of this being
taken from our hearing on forestry that we did together, which
was so excellent, and our work on Growing Climate Solutions,
which, of course, is bipartisan.
I want to thank the, literally, several hundred
organizations, including every mainstream agricultural group in
the food and agriculture alliance that has been working so hard
on the issues around addressing the climate crisis in a way
that works for farmers and ranchers and foresters. We thank all
of them for very important input and support, and look forward
to moving forward, as always on this Committee, in a bipartisan
way to address their needs.
Commissioner Behnam was unanimously confirmed as
Commissioner in 2017. Before that, he served as Senior Counsel
on our Agriculture, Nutrition, and Forestry Committee. As a
practicing attorney, he worked at the New Jersey Office of the
Attorney General within the Bureau of Securities. Russ earned
an AB from Georgetown University and a JD from Syracuse
University College of Law.
During his tenure, Russ has shown tremendous leadership and
have been on the forefront of issues critical to global market
stability. As one of the first financial regulators to ring the
alarm on the climate crisis, his Climate Subcommittee authored
a landmark report analyzing the significant risks climate
change poses to the financial system, with input from members
of the agriculture and energy markets, financial industry, and
the environmental public policy sector. That is the kind of
foresight we need, frankly, strengthening the markets for the
risks to come.
Under Russ's leadership, the Market Risk Advisory Committee
played a leading role in the transition to a new benchmark
interest rate to improve the transparency and reliability of
interest rates for certain loans and contracts.
Russ, your experience in financial markets and agricultural
communities will make you an excellent leader to steer the CFTC
in the face of new challenges, and I look forward to hearing
more about your vision for the Commission moving forward.
Before doing that, I do have a couple of questions that I
need to ask you. If you would rise first of all, to administer
an oath we have to do for all of our nominees. Please raise
your right hand.
Do you swear or affirm that the testimony you are about to
provide is the truth, the whole truth, and nothing but the
truth, so help you God?
Mr. Behnam. I do.
Chairwoman Stabenow. Thank you. Second, do you agree that,
if confirmed, you will appear before any duly constituted
committee of Congress if asked to appear?
Mr. Behnam. I do.
Chairwoman Stabenow. Thank you very much. You may now
proceed with your opening statement.
STATEMENT OF THE HON. ROSTIN BEHNAM, OF MARYLAND, TO BE
CHAIRMAN AND A COMMISSIONER OF THE COMMODITY FUTURES TRADING
COMMISSION
Mr. Behnam. Chairwoman Stabenow, Ranking Member Boozman,
members of the Committee, it is an honor to sit before you
today as a nominee to serve as Chairman of the Commodity
Futures Trading Commission. I extend my gratitude to President
Biden for nominating me, and Chairwoman Stabenow and Ranking
Member Boozman for holding this hearing today.
I would first like to recognize and thank my wife, Dinah
Bengur, and our daughters, Nina and Farah, for being here
today, and send my love to our youngest daughter, Roxana, who
is at home. I would like to thank my parents whose hard work
and sacrifices have provided the safe footing for each of my
steps, both personally and professionally.
I would like to acknowledge a few people who are here. My
in-laws, Vicki Schultz and Oz Bengur, who have been extremely
supportive to me and Dinah; also my chief of staff, David
Gillers; and a few of my staff back at the agency, Laura Gardy,
John Dunfee, and Alicia Lewis. I would also like to thank my
friend, Greg Stallkamp, and his family. They came from Chicago.
Greg is an original Michigander and he introduced me to
Northern Michigan, so I am indebted to him for life.
Finally, I would like to acknowledge Commissioner Stump,
who, Chairwoman, you acknowledged as well. She is a great
colleague, she is a great advocate and asset for the
Commission, and above all else she is a good friend.
Finally, I would like to thank you, Chairwoman Stabenow. In
July 2017, sitting before this Committee, I committed to you
that I would endeavor to use your values and balanced judgment
as a compass for my own actions. I hope I have fulfilled that
promise, and recommit to the same if confirmed as Chairman.
Much has changed since 2017. The COVID-19 pandemic has had
profound impacts on global financial markets, the U.S. economy,
and most importantly on our daily lives. Like all Americans,
CFTC staff have adjusted routines, impressively fulfilling the
agency's mission while facing unprecedented challenges. The
CFTC's future success starts and ends with building a diverse,
expert staff supported with appropriate resources and
leadership.
From a market integrity and resiliency standpoint, I am
proud to report to this Committee that the U.S. derivatives
markets performed very well during the pandemic's early 2020
onset. Leaning on post-financial crisis reforms, CFTC markets
met historically unprecedented volume and volatility with the
powerful benefits of central clearing, capital and margin
requirements, data reporting, and increased transparency.
As the U.S. economy strengthens, CFTC-regulated derivatives
markets will play a critical role in ensuring a complete
recovery, including in the rural economy. America's farmers and
ranchers have long relied on derivatives markets to manage risk
and discover prices. If confirmed as Chairman, the CFTC will
continue to engage, listen, and decisively act to support
American agricultural producers.
Additionally, manufacturers, energy producers, pension
funds, financial institutions, and countless other small and
large businesses rely on derivatives markets to manage risk.
Safe, transparent, liquid, and well-regulated derivatives
markets are a critical component of a healthy, vibrant U.S.
economy. The CFTC will do its part to promote, ensure, and to
protect market integrity.
Looking forward, domestic and global coordination remains
an agency priority. Early 2020 hearkened back to 2008,
reminding us that the interconnectedness of global financial
markets requires persistent engagement toward maintaining
resiliency and protecting the financial system and U.S. economy
from future crises.
More specific to the CFTC, clearinghouses play a critical
role in the safety and soundness of the financial system. In
addition to annual CFTC examinations of systemically important
clearinghouses, I believe continuous discussion among
regulators and market participants about emerging risks and
evolving market structure is critical to strengthen resiliency.
Customer protections are at the heart of the CFTC's
mission. If confirmed, I will prioritize policy that
invigorates a culture of compliance reinforced by an
enforcement program that roots out fraud, manipulation, and
market abuse, and sends a strong, clear message to bad actors,
particularly at a time of rapidly advancing technology.
Cybersecurity remains an ever-present priority. As we
collectively face greater threats, clearly executed
cybersecurity strategies will benefit all market participants
and the resilience of the American economy. The stakes are
simply too high to fall short on a full commitment of resources
and expertise.
I will end my statement with a few words about new and
emerging risks and opportunities. The pandemic has taught us
much about the importance of preparing for extreme but
plausible events. In March of this year, I formed the Climate
Risk Unit to explore the CFTC's role in managing climate-
related financial market risk, and supporting an orderly
transition. Derivatives will play a key role in market-based
solutions. While focusing on the risks climate change poses is
imperative, I do not want to lose sight of the opportunities
that are endemic to a transition. I believe the CFTC must play
a role in this market growth if the larger transition goals are
to be met.
Finally, the growth and widespread adoption of digital
assets presents many novel issues for all regulators. Against
this backdrop, the CFTC has actively used our existing
statutory authority to stop and deter fraud and manipulation in
these emerging markets. If confirmed, the CFTC will continue
its proactive approach to protect customers and strengthen
market resiliency. I look forward to working with this
Committee to reexamine--and, if appropriate, expand--the CFTC's
authority to ensure both the benefits and promise of the
emerging digital asset market and the underlying technology can
be harnessed without undue harm to customers and financial
market stability.
Thank you for your time and I look forward to answering
your questions.
[The prepared statement of Mr. Behnam can be found on page
30 in the appendix.]
Chairwoman Stabenow. Well thank you very much, and let me
begin where you ended, in terms of digital assets, because as
you have indicated, we are seeing a rapid expansion in the
trading of digital assets and the market is volatile and a
target for fraud presenting significant risks for investors.
Could you talk a little bit more about what you believe the
CFTC can do, should do in protecting customers, promoting
transparency, and at this point, do you think that the agency
needs additional authority and resources to really achieve the
goals that you think are important to achieve?
Mr. Behnam. Thanks, Senator. The CFTC has responsibly but
aggressively been pursuing enforcement cases in the digital
asset marketplace for a number of years now. We have been one
of the few cops on the beat, because of limited statutory
authority related to anti-fraud and anti-manipulation. Even in
the past few months alone we have brought a $100 million case
against a digital asset exchange and a $40 million case against
a stablecoin.
This is the tip of the iceberg. As of yesterday, the total
size of the digital asset market was $2.7 trillion, and among
that $2.7 trillion, nearly 60 percent were commodities. With
that in mind I think it is important for this Committee to
reconsider and consider expanding authority for the CFTC.
This would certainly be a departure from our historical
role as a derivatives regulator, but given the size, the scope,
and the scale of this emerging market, how it is interfacing
and affecting customers, retail customers, and then with the
scale of the growth being so rapid, potential financial
stability risks in the future, I think it is critically
important to have a primary cop on the beat, and certainly the
CFTC is prepared to do that, if this Committee so wishes.
Chairwoman Stabenow. Well, thank you, and I look forward to
working with you. I know our whole Committee will be very
interested in exploring this more and what is the appropriate
role, what additional authorities would make sense to be able
to manage the risk and address the fraud, which obviously is a
very important responsibility for the CFTC.
Our American farmers and ranchers and agricultural
consumers depend on the derivative markets for price discovery
and to manage risk. This reliance assumes a strong commitment
to promoting market integrity and customer protections. Are
agricultural futures still an effective risk management tool
for producers, and if confirmed, how would you engage with our
producers and prioritize issues of interest to them?
Mr. Behnam. Thanks, Senator. Based on conversations I have
recently had with producers and folks across the country, U.S.
futures markets are working quite well for American
agricultural producers. That said, we have worked very hard in
the recent past to address a number of issues around price
transparency, convergence, and the emerging role of technology
in our markets.
We will continue, especially if confirmed, to engage
directly with American agricultural producers here in D.C., but
more importantly, across the country, which I know is a big
commitment from all of the Commission. With new emerging risks
we definitely need to engage on a one-to-one basis to ensure
that any issues that may arise are addressed in a timely and
effective way.
Chairwoman Stabenow. Thank you, and speaking of new
emerging risks again, as a commissioner you have shown
leadership in calling for regulators and market participants to
examine the risks that the climate crisis poses to our global
financial system. You know, we have recently passed, with a
strong bipartisan vote, the Growing Climate Solutions Act, and
now, as we are moving forward, what role, if any, should the
CFTC play with respect to the emerging voluntary carbon
markets?
Mr. Behnam. Thanks, Senator. I think, really quite simply,
in thinking about the Growing Climate Solutions Act, you are
creating a financial market. The efficacy of allowing foresters
to sequester carbon and then get paid in lieu of that is really
based and contingent on a well-functioning, transparent
financial market, where the credits can be bought and sold.
We have seen this in the past, and I think it is important
for a regulator like the CFTC to be a part of that conversation
so that we can share our expertise, our decades-long expertise
in establishing markets that have integrity, that have the core
components of a well-functioning market, which are pre-trade
and post-trade transparency, clearing, settlement, best
practices, and a number of things that will preserve and ensure
a fair, transparent market that is free from fraud and
manipulation.
Chairwoman Stabenow. Thank you. I see my time is up. I will
turn now to Senator Boozman.
Senator Boozman. Thank you, Commissioner. You mentioned the
Growing Climate Solutions and the importance of developing that
market. You would agree that that market needs to be in the
public sphere versus the government trying to do that?
Mr. Behnam. Senator, I agree with that. I would suggest
that if the bill is passed and signed into law a market like
that could certainly benefit from the experience and expertise
that the CFTC has as a commodity regulator. I think the last
thing that you would want, or other members who are strong
advocates for that bill is to see the market side of that
effort fail, because if it does, like I said earlier, the soft
of driving point of the bill itself will not be accomplished.
It is important to have those elements of a fair,
transparent market functioning well so that those credits can
be bought and sold in an appropriate way.
Senator Boozman. A fair and transparent market, again, in
the public sphere, you know, not the government. I am sorry.
The market being such that it is bought and sold, as markets
are now, versus the government being the one that is buying and
selling.
Mr. Behnam. Absolutely. Yes.
Senator Boozman. Very good. Aggressively addressing climate
change has been at the forefront of many regulatory decisions
coming out of the administration. I think it is fair to say
that you hope it will be one of your legacy issues. In February
2020, you spoke at the Crop Insurance and Reinsurance annual
meeting where you discussed the effects of severe weather
relating to insured losses and inability to plant vital crops.
You also mentioned transition risks relating to
transitioning to a low-carbon economy through carbon-neutral
energy sources. You mentioned the possibility of assets being
stranded in wholesale portfolios such as coal mining, power
generation, oil and gas being especially exposed to transition
risk. I commend you for identifying there are larger economic
repercussions if the execution or transition to carbon
neutrality is not done in a thoughtful or calculated manner.
Can you expand a little on your past remarks and talk about
the risk involved in moving too far, too fast, and what
systemic risk climate change poses to financial markets?
Mr. Behnam. Thanks, Senator. Certainly transition risk is
arguably the most important challenge that we are going to
face, because it is going to require a delicate balance of
moving forward toward carbon neutrality but not moving too
fast, because statistically it has been pretty clear that we do
not have alternative power sources and energy sources to meet
the demand that we currently have with traditional carbon-based
energy sources.
We have to move forward. I do think that if we do not move
forward at a quick enough clip then we are going to have larger
sort of disasters and systemic issues that arise. We have to be
mindful of current demand from consumers and Americans across
the country and making sure those are met by either current
energy sources and emerging new energy sources.
I think from a systemic standpoint I do not think climate
change poses a systemic risk to the financial system at this
moment. There are some sub-systemic shocks that have been
occurring across the country, and I would just identify floods
in the Midwest, forest fires out West, hurricane season in the
Gulf Coast or the East Coast. You can see how each of these
weather events, as they are becoming more frequent and more
extreme, creates sub-systemic shocks to the region, and
potentially the financial system.
My concern is as we go forward that you are going to have
more frequent weather events, and if they are compounded or
simultaneous then that could pose a larger threat to the
financial system. As I pointed out earlier, we have learned
quite clearly from 2008 and 2020 the interconnectedness of the
financial system, so even if you do have failures or issues
within liquidity crises or clearing in one region or one area
of the country it could certainly have downstream effects
across the rest of the country.
I think those are things we need to be mindful of at this
point as we move forward in addressing some of the climate
issues and risks that it poses to the economy.
Senator Boozman. Very good. There is talk now of financing
the massive spending bill that is potentially going to be on
the floor, taxing unrealized gains. Do you have concerns that
we have the knowledge as to the financial risk related to that,
the financial possibilities as people, you know, try and cash
in, try and do this and that, to pay for those unrealized
gains?
Mr. Behnam. Senator, I do not know. I have not looked at
the sort of repercussions that might exist.
Senator Boozman. You agree that there is potential for real
repercussions in that regard?
Mr. Behnam. There would be potential outcomes if, you know,
a lot of investors started to liquidate positions, but I cannot
tell you----
Senator Boozman. It might be good that we actually studied
that before we went forward.
Mr. Behnam. I am happy to look into it, and if we can be of
service or a resource we will certainly provide that.
Senator Boozman. It certainly would affect the portfolio
that you are commissioner of?
Mr. Behnam. I would imagine that investors that have
positions in futures or swaps may change their position or
their strategy based on tax law.
Senator Boozman. It probably would be a good idea for
somebody to ask you.
Mr. Behnam. It should make sense. I guess from my
standpoint, from a regulator standpoint, I have to ensure
market integrity, resiliency, and the lack of stability issues.
I do not know if a changing portfolio because of tax policy
would necessarily present stability issues or market structure
issues. It would certainly change valuations, but I am not a
price-setting--we are not a price-setting agency. We are just
looking at stability issues.
Senator Boozman. Thank you, Madam Chair. Thank you very
much.
Chairwoman Stabenow. Thank you very much. We next have
Senator Brown with us, I believe remotely, and then Senator
Marshall will be next. Senator Brown?
Senator Brown. Thank you, Madam Chair, and Acting Chair
Behnam, good to see you again. Congratulations on your
nomination, of course.
I want to focus on enforcement and ensuring penalties are
appropriate. Specifically, we discussed in the past, and I know
we have a meeting, more than one, scheduled later this week,
about the practice of allowing corporate bad actors to
cooperate on self-report in exchange for smaller penalties, a
tradition that frankly does not work very well. I am concerned
that practice, putting it mildly, does not improve compliance.
How does the agency balance cooperation with good
enforcement and ensure that compliance improves?
Mr. Behnam. Thanks, Senator. It is an important question
and I will say, at the onset, I am fully supportive of
cooperation. I think it is a good strategy for law enforcement
agencies, both civil and criminal. You rightfully point out
having the right balance is really critical to ensuring a
credible cooperation program, where creating incentives for
folks to come in and report either intention or unintentional
wrongdoing, but also we do not want just a slap on the wrist.
We want to put a penalty in force that is going to deter future
bad acts. That is really, in my mind, building a culture of
compliance, holding individuals accountable, from the lowest
ranking to the most senior ranking, and changing the culture
and the attitude of the firm so that we are not just having an
enforcement program that is the cost of doing business. We
really want to steer away from that.
I think in the past few years we were a little bit out of
balance, and if confirmed, I certainly am going to reevaluate
our cooperation program and ensure it is balancing both those
incentives with the appropriate penalty so that we do not have
recidivist actors in the future.
Senator Brown. Thank you. Chair Stabenow touched on this. I
wanted a little more depth and detail from you. Your agency and
other Federal regulators have been looking at digital assets
and cryptocurrencies, including working together as part of the
President's working group on a report on stablecoins. I chair,
as you may know, the Banking and Housing Committee, and we have
great interest in this, jurisdictions of the different agencies
potentially overlap. There are two members of this Committee
that sit on the Banking and Housing Committee, Senator Smith
and Senator Warnock, and I know they have interest in this.
Are there additional tools that would be helpful for CFTC
on this?
Mr. Behnam. Absolutely, Senator. We are a market regulator.
We are one of two, as you well know, with our sister agency,
the SEC, and the markets and the market transactions that are
taking place right now are a huge part of the risks that
digital assets pose. I think it is important to have a full,
encompassing conversation about prudential risks, banking
risks, clearing and settlement risks. We really also need to
have a conversation about market regulation and sort of the
exchange, the purchase and sale of these coins in a regulatory
structure for both the securities and the commodities.
Senator Brown. Thank you. I appreciate the progress of this
Administration on diversity. Never enough but far, far, far
better than his predecessor, and really predecessors. I am
especially interested in diversity where it has, frankly, been
at some of its worst, and that is financial regulators. I would
like to hear--and I go through the whole not just your agency
but the Fed and Treasury and OCC and FDIC and more--I would
like to hear about what you have been able to do so far, and if
confirmed, how you would do more to improve diversity at the
agency.
Because you understand, I think, Mr. Behnam, you understand
that a more diverse agency is better government. Just like my
office and my committee staff, its diversity helps me come to
better conclusions because I hear different aspects and
different views and different approaches, and we all, as our
friend, Paul Wellstone, used to say, ``We all do better when we
all do better.'' Talk about that in the last minute or so, if
you would.
Mr. Behnam. Thanks, Senator. I agree with you completely,
and since I became Acting Chair I created the Chief Diversity
Officer within our Office of Minority and Women Inclusion. This
is a new position, and my goal really for this position is to
create an all-agency effort to recruit at the lowest levels but
also at the senior levels of leadership so we can have that
diverse work force.
There is no doubt right now, as an agency we are behind,
and we have a lot of work to do, but I am very hopeful that
this new position, with support from the Chairman's office, the
Commission and staff, will do more recruitment, activity,
engagement with communities across the country so that we are
not only recruiting senior-level executives and senior-level
professionals but creating a bench for the future.
Our budget constraints over the past decade have affected
our ability to recruit and retain, and I am hopeful that going
forward we can do a better job of sort of being on par with the
other financial regulators to recruit through Summer Honors
Programs or a Pathways Program for young graduates so that we
incentivize and create a reason for them to come into public
service and stay there for a career.
We are going to lose a lot of people over the next five to
10 years because of attrition and retirement, and I really
think it is important to recruit the next generation of public
servants through a wide-ranging campaign that is certainly
implementing diversity, inclusion, and equity across the board.
Senator Brown. Thank you, Mr. Behnam. Thank you, Chair
Stabenow.
Chairwoman Stabenow. Thank you very much, and I believe
that Senator Marshall has stepped out for a moment so we will
turn to Senator Tuberville.
Senator Tuberville. Thank you, Madam Chair. Thank you, Mr.
Behnam, for being here today. Thanks for your service.
You know, if confirmed, rural America is going to be
counting on you to be their voice. You have been on the team.
Now you are getting ready to be the leader. That is a huge
step. You know, our Nation's farmers and ranchers, they rely on
the derivatives market to hedge risk to protect them from the
losses of a bad year, which we have had several, especially in
my State of Alabama over the last few years with the weather.
You know, to speak for rural America you have got to know
rural America, and our country's agriculture industry is the
envy of the world and we need to keep it that way. Your
predecessor, Dr. Tarbert, went above and beyond, you know, to
engage with the ag community and folks outside Washington, DC.
and Wall Street. He set the gold standard. You have got big
shoes to fill and I hope you are able to do that.
What have you done in the time that you have been on CFTC,
you know, in the last few years, to get yourself immersed into
the rural communities?
Mr. Behnam. Thanks, Senator Tuberville. Great question and
I fully appreciate your point about us committing as an agency
to rural America.
I will tell you, I spent six and a half years working on
the Ag Committee as counsel, and I grew up in northern New
Jersey. I was not very familiar with rural America and the
challenges that rural Americans and agricultural producers
face. Those six years opened my eyes. It afforded me the
opportunity to travel across the Midwest and visit farms and
ranches and talk to producers and see what challenges they are
facing and the challenges of our food system and why we are the
envy of the world.
Since becoming a commissioner I have taken several trips
across the Midwest. That was sort of put on hiatus because of
the pandemic, but my goal and my sort of strategy is direct
engagement. I love to travel. I love to visit folks. I love to
sit down and talk to them one-on-one and hear about their
issues, and really relating it back and leaning on my
experience of working on a farm bill and working on several
pieces of legislation that deal directly with Rural America and
American agriculture, and having those personal relationships
so that I can be more empathetic in terms of understanding the
challenges that folks face that I did not necessarily
understand or appreciate growing up.
If confirmed, I am going to continue that strategy,
continue outreach. We are going to do our best as an agency-
wide effort to make sure that we are engaging with producers
and the entire constituency of American agriculture, and
hearing their voice and hearing their challenges and taking
action in a very expedient way so that, as you point out, these
markets continue, as they have for the past 150 year, serving
the purpose that they are fit for.
Senator Tuberville. Yes, our farmers and ranchers, they are
struggling in some areas. You need to hear their voice, because
I hear them every day, and I want to invite you to come down to
Alabama, once confirmed.
During your time as Acting Chairman you have tied up a lot
of our agency resources looking at climate risk. You released a
report last year with recommendations that were largely outside
the CFTC's jurisdiction. What do you view as the agency's role
when it comes to climate? Give me your definition.
Mr. Behnam. We are a risk management agency, and for
decades, quite frankly, we look at weather. We look at climate
change, because we have to see what it means for agricultural
producers, for energy providers. I think as the climate is
changing and we are seeing a more broad-based effort from the
private sector to address climate change, both the physical
impacts and the transition risks, we, as an agency, need to
keep up with that. We need to make sure delivery points for
grains are not having challenging because of weather events. We
need to make sure that flooding events in the spring is not
affecting planting season or harvest. We need to look at the
forest fire season out West and see how that is affecting the
American rural economy and the sort of fruit bowl in
California. These are all issues that I think are directly
related to the agency.
On the one hand we need to support market-based solutions
of innovative futures product and derivatives products that are
going to help your farmers and ranchers hedge risk. On the
other hand, we have to support transition, which can be
anything from developing and supporting carbon markets or
coming up with solutions in the interest rate space or the
currency space so that investors can put money toward renewable
sources of energy and other things that will help the
transition, as Senator Boozman pointed out, rightfully, be
smooth and not too imbalanced, because those are going to be
serious challenges.
My goal is to listen, to convene, to have a conversation,
and to really work in tandem with what the private sector has
done, and is doing, so that we can be a part of the
conversation and ultimately support it. Because there is the
climate risk management portion but there is also the
supporting the transition, and I do think the agency can and
should play an important role in both.
Senator Tuberville. Yes. One last question. Being the
leader of this group, do you foresee adding climate scientists
to your staff, or do you have any now, or are people more in
tune to what is going on in climate other than, you know, what
I call you guys, bean counters or whatever?
Mr. Behnam. We do not. Senator, we do not have any
positions for a climate scientist at the agency. We are
predominantly an agency of lawyers, investigators, economists,
and accountants. As I said earlier, because of the nature of
our job and the relationship with product agriculture, energy,
and other commodities, we have always been in tune to weather
and climate, and I think we will just continue that going
forward without having to bring on any climate scientists.
Senator Tuberville. Basically you are going to use the
experts' opinion, which is what we all should do.
Mr. Behnam. Correct.
Senator Tuberville. Yes. Thank you. Thank you, Madam Chair.
Chairwoman Stabenow. Thank you, Senator. Now Senator
Gillibrand will join us remotely.
Senator Gillibrand. Thank you, Madam Chairwoman. Thank you
so much for appearing in front of this Committee today and
congratulations on your nomination.
As you are aware, producers, such as dairy farmers on the
ground in New York are impacted by the futures market. Their
lives are directly influenced by market changes in the policies
that you will develop and implement. If confirmed, will you
commit to visiting New York State producers to see the boots-
on-the-ground effect of the agency that you will continue to
lead?
Mr. Behnam. Senator, absolutely, and I am proud to say that
I think I have taken two trips already up to central New York
and visited a number of dairy farms up by Utica and Syracuse. I
am looking forward to going back and certainly working with
your office to support New York dairy.
Senator Gillibrand. Thank you. In September 2020, the CFTC
released a report entitled ``Managing Climate Risk in the U.S.
Financial System.'' Recommendation 4.1 from your report states,
``All relevant Federal financial regulatory agencies should
incorporate climate-related risks into their mandate and
develop a strategy for integrating these risks in their work,
including into their existing monitoring and oversight
functions.''
Can you briefly explain the challenges that climate change
poses to financial markets and what would your plans be to
implement the recommendations of the CFTC? In your opinion, how
can the CFTC address the challenges of climate change?
Mr. Behnam. Thanks, Senator. The first part of your
question, in terms of what risk climate change poses to
financial markets, you know, I use hypotheticals and examples
frequently. July 2018 to June 2019 was the wettest year on
record in the Midwest, and we can imagine growers in the
Midwest not being able to plant seed and certainly harvest, and
what does that mean for their ability to pay their loans, to
generate revenue? Then when they are unable to generate revenue
because of a lack of harvest, what does that mean for the loans
they have to a regional or a local bank or a credit union? That
is a very simple micro-example but you can see how that may
cascade if it is across multiple States or multiple regions,
and then it is compounded with other weather events across the
country.
These interconnected links between the financial system can
have compounding effects that ultimately provide, or at least
could suggest a sub-systemic or ultimately systemic shock to
the financial system. Those are the types of physical risks
that we have to be mindful of and the feedback loop that would
result from it.
In terms of what the CFTC can do, we are obviously very
focused on derivatives, futures swaps, and options, and these
products, at their core, provide risk management and price
discovery, and in the transition away from carbon-emitting
energy sources and to neutral economy, these products are going
to be invaluable to supporting the allocation of capital toward
renewable energy sources and then just managing risk on a day-
to-day basis for American producers but also large and small
businesses.
My goal, if confirmed, is to convene a large group, to talk
to manufacturers, to talk to ag and energy providers, to talk
to public interest groups and financial institutions, as I was
saying to Senator Tuberville, see what they are doing and then
work along with them so that we can support both managing and
mitigating physical impacts but ultimately supporting the
transition in a thoughtful way that does not create unintended
consequences.
Senator Gillibrand. Well, that makes sense. Earlier this
year, President Biden issued Executive Order 14030, which
focused on climate-related financial risk. One of the goals of
this Executive order was to encourage the Treasury Secretary to
work with Financial Stability Oversight Council (FSOC), of
which you are a member as Chair of the CFTC, to assess climate-
related financial risks to the stability of the U.S. financial
system.
I know that last week FSOC released a new report in
response to that Executive order. How else would you leverage
your experience sponsoring the Market Risk Advisory Committee
and your position as a councilmember of FSOC to further realize
the goals of this executive order?
Mr. Behnam. Thank you, Senator. You know, I have been
working on this issue for a number of years, have gained a lot
of experience through engagement with all sorts of entities and
companies across the value chain that touch every part of our
economy. I have certainly had a number of conversations with
the Secretary and my other colleagues who had different
financial regulators. I am very encouraged by the work the FSOC
is doing under Secretary Yellen's leadership, and I think we
are heading in a very positive direction.
I think the CFTC has a rich dataset. We have a rich history
of managing climate risk and risk generally. We, I think, are
going to be able to participate in the larger macro
conversation of what are better disclosures for investors, what
is the language we want to speak, which is taxonomy, what are
the standards that we want to have across the board so that the
systems we are putting in place to transition to a net zero
economy are efficient and effective, and then, ultimately, what
we can do within the CFTC ourselves, mostly within the
voluntary carbon markets or some of the other innovative
products that are being listed that have to do with ESG or
natural resource risk management.
We are seeing a number of those products, market-based
solutions again, that are starting to be listed on our
exchanges, which is very encouraging, and quite frankly, just a
sign of the times about what the market and what financial
institutions are thinking and what their customers are
demanding.
Senator Gillibrand. Thank you. I know my time has expired,
Madam Chairwoman. I would like to submit for the record two
series of questions, one about cyber and one about the
derivatives market. I am also on the Intel Committee so I am
doing a great deal of work on the cyber area, so I would also
like to arrange a meeting with you to talk about some of my
cyber concerns post this hearing, if that is okay with you.
Mr. Behnam. Absolutely. I look forward to it.
Senator Gillibrand. Thank you. Thank you, Madam Chairwoman.
Chairwoman Stabenow. Absolutely, and thank you. Those are
such important issues.
We will now turn to Senator Braun and then Senator Smith.
Senator Braun?
Senator Braun. Thank you, Madam Chair. Mr. Behnam, good to
be talking to you here today. I have been involved in
agriculture for nearly 30-some years, and I remember when I was
in farming entity and using the Board of Trade and those
options. Sometimes that was the only way you could carve out a
profit. Back in the days of the LDPs and direct payments, that
was a big tool to pull the trigger on. Oftentimes it was when
you would do a hedged or arrived contract then have to fix in
the basis was the most difficult part of it.
That is an example of what farmer have to do every day to
be successful in a very thin margin. My concern would be with
the biggest player out there, rather than us, which is China.
China has really shown itself to be, in a variety of markets, a
country that is willing to shortcut the process when it comes
to something more complicated than growing corn and beans and
then selling it with intellectual property, and just a place
that you have to pay attention to.
Do you fear that at some point down the road--and to me, my
observation was they did not adhere to some of the agreements
they had in place during the Trump administration. Commodity
prices were a little soft. All of a sudden when that political
situation got resolved in November, all of a sudden, farm
prices go way up, and a lot of it had to do with China then
exercising what it was supposed to have done.
For all the good things we do here, providing the marketing
tools that the Board of Trade and the Mercantile Exchange give
us, what about a player that is out of bounds with the way most
other countries operate? Does that complicate your job? Would
you hold them accountable for it if you saw them doing
something to pricing that was caused by them and not by the
markets?
Mr. Behnam. Senator, thanks for the question. To address
the second question first, naturally there would have to be
some tie or some relationship with our law and our enforcement
authority. We would certainly look at any action, and take
action if we could, but again it would be subject to any
authority we had.
The larger question about the issue you raised is
important, and I will say I have been focused on it. I have
been having a lot of bilateral conversations about it
internally, here in the U.S., and then also externally,
overseas. I think one point to take away, and you know this
well--you essentially said it--is the U.S. has historically
been the gold standard for benchmarking commodities, and we
continue to be, anything from ags and energy to precious metals
as well, in certain circumstances. I think it is very important
for this Committee to hear that, from a national security
perspective, we should aspire to remain in that position. We
are seeing emerging markets grow across the world, and
rightfully so as we are having more diverse markets sort of
develop in different parts of the world, that is natural
outgrowth of it, whether it is in any part of the world.
I do think, given the size of our economy, given national
security concerns, and the historical reference of many of
these commodities being benchmarked here, whether it is WTI
crude or corn and beans or any of the previous metals that are
critical to our economic infrastructure, we should do
everything we can, and I certainly look forward to working with
you to keep it that way.
Senator Braun. It is interesting because China, just a few
decades ago, was a developing country. Now they want to still
maintain that status. They are about a $14 trillion economy. We
are about a 22. EU is about 20. You add all that up, that is a
lot with just a few players. We have got some issues but not
the kind that I am talking about with China, even with the EU.
I think we are that place that sets the standard is the
clearinghouse for how you price things. We have never had a
geopolitical opponent, in my mind, that has got the capability,
especially somewhere down the road when they are larger than we
are. They, to me, look like they stage things and do reveal
some of their behavior in the short run, be wary of it in the
midterm and long term.
One other question before my time runs out. I think your
entity has been running since 2013, where you are not
authorized but were still funding it. That should be an
anomaly, not something that we do routinely. What is your
feeling about that, and what do you intend to do to get it back
into a place where you are authorized and appropriated?
Mr. Behnam. Senator, you are right. Obviously doors have
been opened and we are doing our job and fulfilling our
mission, regardless of the lack of authorization. It is
important. It is important for morale at the agency. It is
important for a mandate from the authorizing committee in the
Congress to do our job. If confirmed, certainly I welcome to
work with you and other members of the Committee to create a
smart, balanced, measured, reauthorization bill that addresses
these new challenges that we are facing, whether they are
overseas or domestic, and really looking forward for the
agency. Because over the past 10 years we have had some
uncertainty around our budget, and in my current role as Acting
Chair, just in the past 10 months, as the sort of CEO of the
agency, I have observed the repercussions of that, and they are
real. I think certainty and a recognition of the importance of
the agency, an increasing consistent budget will help us do the
job that we need to do so that we can prevent crises, whether
it is in traditional ag markets, energy markets, or the growing
digital marketplace.
Senator Braun. I am glad to see you are of that opinion. We
need to do so. Thank you.
Chairwoman Stabenow. Well thank you very much, and I agree,
and I know that Senator Boozman and I will be working on that
together with the whole Committee on how we move forward on
reauthorization.
We will now turn to Senator Smith and then Senator
Marshall.
Senator Smith. Thank you, Madam Chair, and it is wonderful
to see you again. Thank you so much for our conversation
yesterday. I appreciated it. I really appreciated the spirit of
putting consumer protection front and center of your work and
the work of the agency, and it is wonderful to see your family
here also, so thank you.
When we spoke yesterday, I talked about my concerns about
the largely unregulated cryptocurrency and decentralized
finance markets that are attracting billions of dollars in
investments from Americans. As we discussed, the United States
has the best, most trusted markets in the world, in large part
because financial regulators keep a close eye to root out fraud
and manipulation, so that people can truly trust these markets.
While you can certainly lose money when your investments
perform badly, regulators have worked really hard to make sure
that banks and broker-dealers and derivatives merchants are not
stealing people's money. This is incredibly important.
I am concerned, though, that many consumers do not fully
understand the risks of fraud and market manipulation in some
of these unregulated digital asset markets, and I was glad to
see that you mentioned recent data talking about how this
impacts communities of color, in particular.
Chair Behnam, could you just share with us how you see
this, what you see as the most significant risks to ordinary
investors in these new markets and how they disproportionately
affect communities of color?
Mr. Behnam. Thanks, Senator, and I appreciate the
conversation yesterday as well. You know, the emerging
technologies and the tokens and the coins that are associated
with them, they sort of hit the market in a very loud and
bright way for the past number of years. If you look at charts,
there has certainly been a lot of volatility, even in the
recent past few months. If you look at the price from 10 years
ago to now, it has appreciated quite a bit. I think a lot of
people have made quite a lot of money off of it, and they view
that as an opportunity to make more money in the future.
As we know, history tells us, with markets, there are
movements up and down, and I think without a clear, transparent
regulatory structure, which I think will certainly benefit the
market itself--to your point, we have the deepest and largest
and most trusted derivatives markets and capital markets in the
world because of the regulatory structure we have here, and I
firmly believe that. Some may differ in their opinion but I
firmly believe that.
I do think with the emerging technology and the vision for
what these coins and these crypto assets contemplate--because
there is a whole vision for the future of the internet behind
these coins--that if we were to build a transparent, thoughtful
regulatory structure it could benefit the market and the larger
technological goal.
Customers are certainly looking at this right now as a
speculation. It is touching retail customers, and as you
pointed out and we discussed, there is a large portion of the
community of people of color that are invested in this. There
could be many reasons, but this goes to our banking system, and
potentially underbanked communities, and the ease with which
folks are able to purchase and sell these coins, to transfer
money or to buy different things.
Those are the types of issues and concerns that raise red
flags for me, and I think hopefully for you as well, so we can
come up with thoughtful legislation that would give the agency
more authority and ultimately protect customers.
Senator Smith. Thank you very much for that. I appreciate
your perspective on this, and I think that we share the same
approach as we make sure that people have opportunities to
participate in a market that is free and transparent and can be
trusted.
Minnesota is home to the Minneapolis Grain Exchange, which
is a small but very important institution for farmers and users
around the country, as well as for the local community.
Complying with CFTC rules for the Minneapolis Grain Exchange
takes significant resources, but their customers are much
better off because they know that they can buy and sell grain
and other commodities futures there on a closely regulated
market, free of fraud and manipulation.
I am concerned about these emerging, decentralized finance
vehicles and how they might undermine the regulated markets and
give an unfair advantage to firms that are operating outside of
CFTC rules, potentially illegally.
How do you view these financial innovations that seem to be
ignoring, or seeking even to dodge requirements to operate
within kind of longstanding Federal regulatory frameworks?
Mr. Behnam. Thanks, Senator. It is important for us, I
think, collectively, to be balanced in our approach and
understand that innovation will change market structure over
time, but we can move too quick. Our financial system and the
infrastructure that it is built on, which, in large part, is
intermediation, right. It is a customer going to a broker, an
Futures Commission Market (FCM), or going through an
Introducing Broker (IB) or an associated person and getting
access to markets. A lot of this decentralizing of finance is
exactly that--it is decentralizing finance such that the points
of access become much shorter and more direct. Naturally there
could be benefits to that, but there can also be a lot of
risks, because those layers of protections that we have built
over time, through law and rules, are just being taken away.
With all that in mind, I think we have to be measured and
thoughtful about how we view this technology and potentially
the upside in benefits, but we also want to be aggressive and
thoughtful in our enforcement, in our current view of this
technology so that those who are, as you say, playing outside
the rulebook are held accountable, because it could potentially
create an impartial and unlevel playing field that is certainly
a disadvantage to those who comply with the rules.
Senator Smith. Thank you so much. Thank you, Madam Chair.
Chairwoman Stabenow. Thank you very much. Senator Marshall.
Senator Marshall. Thank you, Madam Chair, and Commissioner
Behnam, welcome so much to the all-powerful Agriculture
Committee. I, too, greatly appreciate a face-to-face
conversation. I do feel a great responsibility to be able to
look the people of Kansas in the eye and say, ``Yes, I
interviewed, I talked to the CFTC Commissioner and Chairman.''
I look forward to supporting your nomination and working with
you in the future.
The CFTC has certainly been a great risk management tool
for so many of my ag producers, especially my cattle industry,
but more and more the row crop folks are getting involved with
it as well. Really with the exception of the cow-calf
operations, I think it is being greatly utilized, and we have
briefly talked that and I look forward to, you know, how we can
make sure that they have access to this risk management plan as
well. I think, in brief, I would say if it is not broken, do
not fix it, and I think we are in a pretty good spot.
As we kind of started our conversation yesterday, maybe I
will come back to carbon tax, the carbon market, and how do you
see those might be interacting with the CFTC and derivatives?
Mr. Behnam. Thanks, Senator, and I again appreciate your
willingness to meet with me on Monday.
Like I said, I want to engage with the marketplace such
that I think the CFTC can play an important role in being a
partner in what is happening in the private sector right now.
We are seeing the emergence of products on our listed exchanges
that are related to carbon offsets. We are seeing the emergence
and listing of products that are related to natural resource
scarcity. We are obviously seeing the emergence of voluntary
carbon markets. If there is a collective will to push forward
and scale these markets and these products such that they
retain appropriate risk management uses, I do confidently think
that the CFTC can play an important role in supporting those
goals.
I will certainly be measured in my approach. We will
engage, we will have a dialog, and I will not predetermine any
conclusions. If there is a way for us to be supportive in
mitigating risk, we will do it. If there is a way for us to
help support transition, we will also do it.
Senator Marshall. Great. Yesterday we talked about the
climate risk unit, and I just want to get you on record, I
guess, just to kind of share with what your vision is of that.
I guess I would just ask you to be committed to, wherever we go
with this topic, is that you will be committed to a cradle-to-
grave assessment of carbon, that whether we are growing
cherries in Michigan, that those trees are grabbing carbon out
of the air all year long. If we are growing rice in Arkansas,
photosynthesis is occurring, and that we are getting credit for
the carbon that we are grabbing as well. That we are getting
credit for past practices as well as future practices.
I am always surprised when someone up here asks me about,
``Have you heard of no-till farming?'' We have been doing that
for over 20 years on our farm. Or something about, you know,
cover crops. My goodness. We have been doing that for decades
as well.
I want to be inclusive in this and not look at just
tailpipe emissions, if you will.
Mr. Behnam. Senator, you have my commitment. I am very
familiar with those programs and understand there are multiple
tools in the toolbox, especially within the context of managing
climate risk and carbon sequestration, all the things you said.
The CFTC, within the context of the Climate Risk Unit, will be
one sort of spoke in that wheel, contributing what we can,
engaging, talking, and hopefully sharing our expertise and
lessons with those who think they can use it.
Senator Marshall. Great. Maybe we will finish up with
Winter Storm Uri, and I know you are very familiar with the
situation, that the prices for natural gas for heating homes
literally went up exponentially--not doubly, not triply, but we
were paying exponential prices. Many families in Kansas, for
the next year, will be suffering a doubling in their utility
bill to heat their home already, and that was before we had
natural gas prices double over the past several months.
When there is an event like that and so much money is
exchanging hands--and I know the producers got a little piece
of the pie, and it just looks like the markets might be a place
for some potential wrongdoing--what would be the CFTC's role in
trying to investigate, and are there any lessons learned,
anything that we can do to prevent this from happening again?
Mr. Behnam. Thanks, Senator. I would say, in terms of
natural events, climate events, or just events that are
affecting our physical commodity markets, whether it is ag or
energy, we have a great team of economist, we have an
intelligence branch, our Market Oversight Division. We are
constantly observing and looking at market events and how
prices are moving, with the caveat that we are not a price-
setting agency and this is the natural dynamics of supply and
demand. In many respects we are prepared and looking forward to
seeing what is happening to prices across the board.
That said, just to clarify, and I know you know this well--
we discussed this--we do not have jurisdiction over cash market
transactions, so in this case power generation or natural gas.
However, we do have fraud and manipulation authority, so in a
case like this, where you saw a huge spike in the cost of
energy and power, and where some may have made off really well
and others not, we are constantly surveilling markets. We are
hearing and listening to tips and communicating with folks on
the ground. If there is any allegation or suspicion of fraud or
manipulation in the cash market we then do have authority to go
and use our regulatory and law enforcement power.
Ultimately, it relates to the futures market. If we see any
suspicious activity that could be related to those climate
events we certainly have direct jurisdiction over that and
would bring an enforcement action against any of the
participants in that particular activity.
Senator Marshall. Thank you, Chairman. I yield back.
Chairwoman Stabenow. Thank you. Thank you very much.
Well, we have no other members that have signed on
virtually. I am going to turn to Senator Hoeven and then we
also have a vote that just started.
Senator Hoeven.
Senator Hoeven. Thank you, Madam Chairman. Thank you, Mr.
Behnam, for being here today. What do you see as the primary
role of the CFTC at this time?
Mr. Behnam. Senator, thanks for the question. I would say
as we are moving forward there are emerging risks that we are
not accustomed to sort of thinking about. I have discussed them
a fair bit with the digital asset space, some of the climate
risks that we are facing for sure. I think it is important for
us, as an agency, to be nimble, to focus on our constituencies
in the ag sector and the energy sector, producers and end
users, and understand that at the heart we are a customer
protection agency.
At our heart we are a support and a foundation for the
American economy, through risk management and price discovery.
We need to balance both our historical responsibility--
something that we do very well and care about deeply--with some
of these new, emerging risks that we are facing and I think are
squarely within our remit and our expertise.
Senator Hoeven. Do you have an opinion as to the role the
CFTC can play in a market-based approach to providing CO2
credits for agriculture?
Mr. Behnam. Senator, I think at this point certainly
voluntary markets are going to be voluntary markets and market
driven. As I mentioned earlier, we have decades-long of
experience in regulating commodity markets. To the extent that
markets are emerging and that we could be helpful in lending
our expertise in terms of price transparency, risk management,
and the fundamental structure of an operational, well-run
market, we are certainly happy to contribute and be a part of
that conversation.
Senator Hoeven. Do you have any top-line recommendations or
suggestions for us as we work to try to implement a market-
based approach to CO2 trading, and so forth?
Mr. Behnam. Senator, thinking about the bill that you co-
sponsored, I believe, the Growing Climate Solutions Act, that
is a market-based solution. I think we are creating a financial
market where credits are going to be bought and sold, and it is
important to have a market that has integrity, that has
transparency, and that is free from fraud and manipulation. If
you can create that then the outcome of what you are trying to
accomplish--sequestering carbon and getting money into
producers' and ranchers' and farmers' pockets, foresters'
pockets--will be accomplished.
To the extent, given our expertise and our history as a
financial market regulator, we can be helpful in that space, I
think it would be a net-net positive for everyone.
Senator Hoeven. Is it your impression that the bill is
heading in that direction, or trying to accomplish what you
just described?
Mr. Behnam. It is not my impression but I am simply just
suggesting that as that bill moves forward, and if it is signed
into law, we would certainly welcome the opportunity to
participate, if that is what this Committee and the Congress
wished.
Senator Hoeven. Do you have any suggestions,
recommendations, opinions, or observations regarding the supply
chain challenges that we are currently facing in this country
and how we might try to unravel those disruptions and address
them?
Mr. Behnam. Senator, certainly I think from a pandemic
standpoint we have seen labor shortage issues, economic
activity challenges for sure, but in terms of what I call a
``choke point,'' this is something that I have thought about a
lot, in the context of climate events. If you think about the
ports across the country, the rail across the country, you
know, it is not uncommon that the Mississippi floods and we
cannot get a barge down from the Midwest down to the Gulf, and
that affects grain prices.
We only have so many choke points in this country, and when
you have weather events, or in this case, a health crisis, it
affects prices very directly. Does that affect our markets?
Certainly. We see it in the price volatility and the price
change. Can we do anything about it? If there is fraud or
manipulation, certainly we can, but these are sort of external
events that we have to identify, observe, and manage from a
markets perspective.
My opinion is just to be mindful of these choke points
because I have observed that myself, as a commissioner, that it
could be certainly a risk point for the country, going forward,
if we continue to have these natural disasters.
Senator Hoeven. Are there things that you will try to do
with the CFTC that would help our small farmers and ranchers
better hedge their livestock or crops? Are there things you can
do to make it easier for them, more transparent, that would be
helpful? Not so much to the sophisticated producers, of which
there are many, and we want them to be able to use CFTC, of
course, easily, but for the smaller guys, what can you do for
them? How do you help them out?
Mr. Behnam. Senator, we have had an issue in the livestock
complex for a number of years. We have worked very hard within
the agency to work on price transparency, to work on
convergence, certainly, and then the role of technology in
these markets I think is a big challenge for some of our
producers. Understanding the difference and the challenge that
a large producers and a small producer might face, I think it
is incumbent on us--and I will certainly do this if confirmed--
to work with the entire constituency and value chain, work with
the exchanges, and find out solutions, whether it is different
contracts, different delivery points, more transparency, all
the way down to the operational itself, to the processor, to
the slaughterhouse, so that each point has clear and
identifiable information.
Because ultimately, a futures price is a reflection of cash
market activity, and if we do not see appropriate transparency
in the cash market and the activity that is happening, we are
not going to see price discovery happening the way it needs to
happen. I would certainly commit to you to working with you and
producers in your State and making sure that we are working
with the entire value chain, we are leaning on the exchanges,
certainly, to be innovative and creative, and to make sure they
are treating everybody equitably and fairly.
Senator Hoeven. I appreciate that. Thank you.
Chairwoman Stabenow. Thank you very much. I believe we have
Senator Thune with us virtually. Senator Thune?
Senator Thune. Madam Chair, thank you and Ranking Member
Boozman for holding this hearing to consider this nomination,
and Commissioner Behnam, thank you for appearing before the
Senate Ag Committee and for your willingness to sit in this
position.
Let me ask you a question having to do with cattle prices
and cattle markets. Cattle producers have experienced
significant market volatility in recent years, and there have
been concerns raised with potential market manipulation. During
your time as a CFTC commissioner, what oversight actions have
you taken to ensure the transparency and integrity of livestock
markets, and if confirmed as Chair, will you commit to
prioritizing oversight of these markets?
Mr. Behnam. Senator Thune, thanks for the question. As a
commissioner, and the agency created a Livestock Task Force in
2020, to address some of the issues that we had been hearing
for a number of years about transparency in the livestock
market. We did feel that some of the issues were remediated,
but certainly if some of your constituents are still facing
those same challenges I fully commit to working with you, the
value chain, and like I said to Senator Hoeven, the exchanges
and other market participants to ensure there is appropriate
levels of transparency and ultimately risk management
opportunities and appropriate price discovery.
Senator Thune. Well, we would look forward to working with
you on that. To your point, yes, there is still just a lot of
concern among livestock producers across South Dakota, and you
probably heard it from Senator Hoeven in North Dakota and other
places in the West, just about the lack of transparency in
price discovery, the opaqueness of this market, and certainly
the incredible volatility and wide spreads in the margins
between what somebody who goes in to buy some beef in the
supermarket--hamburger, steaks, whatever--is paying what a
producer is receiving, and the huge margins that are being
received by folks in the middle, namely the packers.
You need to understand, this issue is still very real and
one that I think is crying out for some solutions. There are
some proposals out there legislatively. There are some
proposals as the Justice Department reviews and looks at that.
We just want to make sure that, you know, you have got a
competitive marketplace. Free markets work when there is
competition, and what we want to see is a competitive
marketplace where livestock producers have access to a
competitive market where they can receive a price that is fair
for the product, for the commodity that they are raising and
growing. Just I want to make that point to you and let you know
that is something we are paying a lot of attention to.
In 2015, the CFTC determined that bitcoin and other virtual
currencies are commodities that fall under the CFTC regulatory
jurisdiction. Since then, the CFTC has brought a number of
enforcement actions and served as an important regulatory voice
in the ongoing dialog about this technology.
As you know, the Securities and Exchange Commission, or the
SEC, is involved in this space as well. In your view, what is
the regulatory role of the CFTC versus the SEC in this space,
and if confirmed, what actions would you take to make sure that
the SEC and CFTC are coordinating when it comes to oversight of
virtual currencies?
Mr. Behnam. Thanks, Senator. Yes, as you rightly point out,
and I stated earlier in the hearing, more than 60 percent of
the total value of the digital asset market space is in our
commodities, and I think that squarely puts a huge
responsibility in our space, given current authority, which is
limited and based on fraud and manipulation.
What strikes me as unique to these markets, as opposed to
traditional commodities, is the retail-facing nature of them,
as opposed to what typically is a wholesale market. We have
individuals ranging in age and background, typically on their
phone, using an app to buy and sell these crypto assets, which
are very volatile and can create a lot of losses because they
are subject to fraud and manipulation.
We have been very forward-thinking in our enforcement
activity. I think we have been measured but also aggressive. As
Acting Chair, and if confirmed as Chair, I will continue to do
so. I do believe this is a tough question. We will continue to
work with the SEC. I have a good working relationship with
Chair Gensler, and I will continue to work with him. This
directly touches both of our markets, but the agencies have a
rich history of working together and really dividing
jurisdiction along thin lines, whether it is single-stock
futures back in the 80's or security-based swaps after the
financial crisis.
We are a team, above all else, and we will work together,
but we understand that we both have different missions and
jurisdictions, and in the context of digital assets there will
be some tough questions for this Committee to think about if
there is going to be an expansion of authority for the CFTC
into what is more a cash market than a derivatives market.
Again, given the size, the scope, and the scale of the risk
that is being faced and posed to customers and the potential
financial stability risks, down the road, given the speed with
which it is growing, I think these are important questions for
the Committee to consider, and I certainly welcome the
opportunity to discuss them with you so that we can have the
best possible outcome.
Senator Thune. My time has expired. I thank you for that
answer. One quick, if you could just followup, what can we do
to ensure that this technology benefits the United States and
does not end up offshore in another jurisdiction?
Mr. Behnam. Senator, this is a difficult question and one
that has been posed to policymakers and elected officials for
decades when it comes to new technology. I think we have to be
measured in our approach to embracing technology, but we have
to understand and appreciate new technology drives us forward.
We have to be sort of threading a thin line to ensure that we
are keeping technology, jobs, and advancements, which affect
national security, which affects economic growth, which affects
labor markets here in the U.S. That is critically important.
We have to bring, collectively, the group in within the
tent and make them understand that if you are going to do
business in the United States it is going to be done within a
thoughtful, regulated environment. As I said to Senator Smith
earlier, I think that is the reason why we have the best
derivatives markets and capital markets in the world, is
because we have thoughtful regulatory regimes. It is not
perfect but we are constantly tweaking and adjusting and
engaging with Congress to make sure that we are striking the
right balance so that we are, as you said, keeping technology
and economic growth here in the U.S., but making sure it is
safe for customers and does not cause undue risks to the
financial system.
Senator Thune. Thank you, Commissioner. Thank you, Madam
Chair.
Chairwoman Stabenow. Thank you. I appreciate your comments.
Senator Klobuchar is on her way back. She was here earlier and
she is trying to do her version of being in two places at once
with the Judiciary Committee going on as well. Since we have
not perfected ``Beam me up, Scotty'' yet, we will give her just
a moment to be able to return. I believe she is--she is on her
way at the moment.
Let me just ask one other question I did not get to, Russ,
and that relates to enforcement and the important functions
that you have been talking about today. When we look at the
strengths of the enforcement program--and I appreciate the
balanced way the CFTC has proceeded and the transparency and
integrity--but as we look at the reauthorization of CFTC and
working together, Senator Boozman and I, to thoughtfully look
at what is happening and get your input on what we might do to
strengthen the law, what improvements, if you are confirmed,
would you like to see in the program's effectiveness, and what
kinds of things would be helpful to you as you move forward in
this new position?
Mr. Behnam. Thanks, Senator. Just quickly, I would have to
absolutely give credit to my predecessor and his predecessor
before that. We have had a strong enforcement program for a
number of years. We have brought a lot of cases, a record
number even in the past few. Continue to be creative and
innovative but also thoughtful and measured, at least staying
within the confines of the law, which is important obviously.
Will continue to do that, if confirmed. I think we are facing
so many new risks and so many new challenges that do not
squarely fit within what our regulatory structure was built on
decades ago, and that is why it is important for us to engage
and have a dialog about the future of derivatives markets and
the role of the CFTC in them. We will continue to do that.
I mentioned to Senator Brown earlier cooperation. It is a
very important tool to create incentives for bad actors,
institutions to come in and say that, you know, they had done
something accidentally or perhaps intentionally. I say that
just because we want to build a culture of compliance, and I
said that earlier, and it is important. Folks need to be held
accountable. Actions are important, and they send a message,
and that is what we are going to do from an enforcement
perspective, is send a message that we expect folks to act
within the boundaries of the law. We expect folks, from the top
of an institution to the bottom, to understand that, to
appreciate that, and to support that culture within an
institution.
We cannot just simply point a finger at one bad actor and
say, ``You are out.'' There has to be a larger, thoughtful
conversation with an institution so that those activities can
happen. They can happen because you have systems built into
place, and they can happen because you have a culture that does
not allow them.
Chairwoman Stabenow. Thank you very much, and I am going to
turn now to Senator Klobuchar, who was here earlier, and I was
saying, Senator Klobuchar, you are trying to be two places at
once, as we frequently are. We are so glad that you made it
back with us.
Senator Klobuchar. Thank you, and thank you to your staff
and to you for making this work. You are competing,
Commissioner, with the Attorney General of the United States.
That is all. All is good.
I know some of my colleagues have talked to you, including
Senator Stabenow, about the importance of the needs of farmers
and ranchers and energy producers in your mission. Commercial
end users, as you know, base their derivative trades and
physical products as a way to hedge against the overwhelming
risks that they face day to day, from weather conditions, price
declines, high-input prices, and as we all know, and as I am
sure you have discussed today, supply chain disruptions.
Will you commit to working with farmers and ag industries
to ensure that the CFTC decisionmaking takes into account the
commercial risks inherent to agricultural production,
processing, and marketing?
Mr. Behnam. Yes. That is at the heart of our mission and we
will certainly continue to do that, if I am confirmed.
Senator Klobuchar. How would you balance the oversight and
regulation of hedge funds and investors on Wall Street with
those of farmers, co-ops, grain dealers, food processors, and
others who produce food, fuel, and fiber?
Mr. Behnam. Senator, certainly we need speculators and
liquidity providers in the markets. They allow the commercial
end users to offload risk. On the other hand you are absolutely
right. We have a set of rules and a market structure that is in
place, both at the agency and within the exchanges and with our
partner at the National Futures Association, to ensure that
commercial end users have fair, equitable access to these
markets so that they can manage risk and discover prices, as
intended.
Senator Klobuchar. Thank you. As Chair of the Anti-Trust
Subcommittee I have been, one--you will probably think I am
going to consolidation in markets, which I will in a minute,
but actually I have been working a lot both on that post as
well as on the Commerce Committee to rein in some of the
unaccountability that we see on the social media platforms when
it comes to vulnerable users and the like.
How does the CFTC detect and monitor fraudulent social
media activity or Web platforms that offer illegitimate futures
and future options trading or otherwise attempt to manipulate
the markets?
Mr. Behnam. Senator, it is a great question, and it is
difficult for us. We certainly communicate with different app
providers and different technologists who ensure whatever
services they are providing do not violate the law and are not
putting investors in a position where they do not know how they
are allocating their money or their capital.
This raises an interesting question about our ability to go
out into the public space and use our education pool of money
to have webinars, to use social media, to just connect with
individuals and tell them about the risks of markets.
Senator Klobuchar. Yes, it is kind of the best practices,
but, you know, we used to do--I remember this when I was a
prosecutor on senior fraud, and things you get in the mail or
emails you get. Clearly this is going beyond that when you come
with financial scams associated with digital trading and the
like. I hope you will take that on in your new position.
Mr. Behnam. Absolutely.
Senator Klobuchar. I know my friend, Senator Thune, asked
about increasing transparency, pricing in the cattle markets,
where obviously there has been these issues, both during the
pandemic and before and after. I was going to ask you here one
last question on heating spikes. Derivative markets are not
just useful for ag products but impact many consumer issues. If
confirmed, will you commit to monitoring and acting on
potential market manipulation for consumer-facing commodities
like heating fuel and propane? Pretty important in the ``M''
States up here of Michigan and Minnesota.
Mr. Behnam. Yes. I fully commit to doing that.
Senator Klobuchar. Okay. Very good. What additional steps
can the CFTC take to minimize exorbitant price spikes in the
future?
Mr. Behnam. Senator, we are limited in our authority in
terms of fraud and manipulation, but certainly we will engage
with producers and end users and just monitor activity across
the country to the extent we can ensure minimizing spikes.
Senator Klobuchar. Okay. Thank you, and I will followup in
writing about the natural gas spikes issue as well as maybe
more on consolidation. I really appreciate you being here, and
I wish you good luck. Thank you.
Mr. Behnam. Thank you.
Chairwoman Stabenow. Thank you very much. This concludes
today's hearing. Thank you, Russ, for sharing your vision for
the future of the CFTC and your commitment to protecting Main
Street consumers and our businesses.
The record will remain open until tomorrow at 5 p.m. for
members to submit additional questions or statements. With that
the hearing is adjourned.
[Whereupon, at 11:36 a.m., the Committee was adjourned.]
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