Better Markets filed a comment letter with the Commodity and Futures Trading Commission (CFTC) on Regulation Part 40.
Why it Matters. Part 40 of the CFTC’s regulations serves as the primary conduit through which novel financial products and rules enter the derivatives market. The regulatory framework is designed to perform a multifaceted examination, evaluation, and approval process that scrutinizes these innovations from various angles. This examination is carried out with a focus on safeguarding the market’s stability, ensuring customer protection, and preserving the overall financial integrity of the derivatives market. CFTC Regulation Part 40 is instrumental in striking a balance between fostering innovation and maintaining a secure, transparent, and well-regulated derivatives market. It provides a framework for the Commission to engage with market participants, assess innovations, and make informed decisions that contribute to the overall health and competitiveness of the derivatives market.
What we said. Better Markets supports the proposed amendments, emphasizing the critical role of complete information in the Commission’s oversight of new products. It is imperative for the Commission to thoroughly understand whether an exchange is complying with its core principles, assess the product’s legal compliance, and evaluate any heightened risks the product may pose to customers and financial stability. However, while Better Markets endorses the proposed amendments, we believe the amendments still fall short of adequately accommodating the ever-evolving landscape of derivatives products. With the surge of cryptocurrency and the introduction of new novel and complex contracts, the proposed rule doesn’t adequately address the discrepancy in the way the Commission reviews self-certified products as compared to the way it reviews self-certification of rules.
Bottom Line. While the proposed amendments to CFTC Regulation Part 40 are a step in the right direction, they may need further adjustments to effectively address the fast-paced changes in the derivatives marketplace, ensuring that regulatory oversight keeps pace with innovation and evolving financial products.
You can find the full comment letter here.