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CFTC’s Massad – regulate and innovate

CFTC Chairman Timothy Massad delivered the keynote speech to yesterday’s meeting of the World Federation of Exchanges. In a slight departure from his consistent themes of the superlative work of the Agency he chairs, its budget woes and the social utility of derivatives markets, Chairman Massad highlighted different aspects of the relationship between regulation and innovation.

Making the analogy that financial evolution is akin to running a high speed train on old tracks, with consequent danger to both, he posits the regulator’s job as one of building the infrastructure that ensures safety while encouraging innovation. He reviews three main areas where legislation and the leading edge collide: bitcoin/blockchain, automated trading and the slow grind to international regulatory consistency. In the latter section, he singles out CCP recognition for specific censure.

“I believe there is an ample basis for the European Commission to declare us equivalent, and I think this should have been done some time ago.”

Chairman Massad concludes with the interrelationship between regulation and market evolution, stressing the embrace of change by legislative adaptation.

While acknowledging the tension between technological revolution and regulation, Chairman Massad offers no solution to the problem. “Sensible regulation is a requirement for strong and healthy markets- markets that thrive and continue to evolve and innovate.” Does “sensible regulation” mean Dodd-Frank with some light tweaks, or does it imply a more thoroughgoing reform of the underlying structure? His own example of the benefits of a regulatory light touch, the introduction of cash-settled futures, would seem to argue against the continued use of the “regulate by volume”, 14,000 pages and counting, Dodd-Frank approach.

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