WASHINGTON, D.C.— Dennis M. Kelleher, President and CEO of Better Markets, released the following statement in advance of the Senate Agriculture hearing on CFTC Oversight to be held on Wednesday, March 8, 2023:

“The CFTC is a vital financial regulatory agency, important to the lives and livelihoods of all Americans.  That was made painfully clear by the catastrophic 2008 crash, which was caused in part by financial regulators becoming industry allies and cheerleaders rather than properly regulating them and prioritizing the public interest. To ensure that it fulfills its critical role, the CFTC’s statutory powers and duties were greatly expanded and strengthened in the Dodd-Frank financial reform law.  Better Markets, which has participated in more than 100 of those Dodd-Frank rulemakings at the CFTC and numerous related lawsuits, proposes that the CFTC Chair be asked the following key questions at the March 8^th hearing related to (1) crypto, (2) FTX and SBF, (3) the Digital Commodities Consumer Protection Act of 2022 (DCCPA), (4) commodities speculation and position limits, (5) comparability determinations, (6) rulemakings, (7) the disclosure of internal, nonpublic, confidential CFTC deliberations and discussions, and (8) diversity at the CFTC.”

Crypto

1. You have sought budget increases in the past to enable the CFTC to fulfill its mission and current statutory mandates.
   • You would agree that without substantially more resources, personnel, and technology, the CFTC cannot undertake the duties and responsibilities of regulating and policing the commodities and derivatives crypto markets, right?
     • Put differently, even if you had the authority to regulate the crypto commodities markets today, the CFTC does not have the resources, personnel, and technology to actually do that job without substantial additional appropriations and time, right?
2. You have stated that the CFTC is fully capable and prepared to regulate, supervise, and police all the participants and entities in the crypto commodities markets.
   • Have you mapped and done a granular, detailed analysis of the crypto market participants and entities to determine the personnel, expertise, technology, and appropriations amount that the CFTC would need to be adequately prepared and resourced to effectively regulate and police the industry?
     • Would you release that publicly?
   • Have you also done an analysis of how long it would take the CFTC to onboard the personnel and implement the technology you would need to be able to regulate, supervise and police this industry?
     • Would you release that publicly?
3. Has the CFTC done a detailed legal analysis of which of the estimated 10,000-plus tokens are or are not commodities subject to regulation by the CFTC?
   • • Would you release that publicly?
   • In particular, has the CFTC done the legal analysis to determine that Bitcoin and Ether are in fact commodities as they are currently organized and used
     • Would you release that publicly?
4. I know you are aware of the case SEC vs. Ripple Labs, filed in December 2020. Are you aware that Ripple has stated that it has already spent around $100 million on legal fees in that case?
   • Has the CFTC done an analysis of the litigation budget it would need to bring the crypto industry into compliance given the scorched earth litigation strategy used by the industry?
5. Has the CFTC done an analysis of the likely inflow of crypto retail traders into the commodity markets?
   • Has the CFTC determined the resulting increased levels of speculation given that those retail traders would be speculators not taking delivery?
   • Has it determined that the levels of speculation will not be excessive given that excess speculation is specifically prohibited by the Commodity Exchange Act?
   • Has it evaluated how position limits would apply to that trading activity?
   • Has it considered how its regulatory approach would need to change given its long history of regulating mostly very large institutional producers and purchasers of commodities?
     • While there has been some retail participation in some markets regulated by the CFTC, don’t you agree that there could be an exponential increase in retail traders due to crypto?
     • How do you see that impacting the mission, mandate, operations, and culture of the CFTC?

FTX/SBF

1. Last time you were before this Committee on December 1, 2022, you said you and your team had taken an “initial look” at your calendar and said you had met with FTX and SBF 10 times over 14 months. You also said your team was going to “take a fresh look” at your calendars and would get that information “to the Committee as soon as possible.”
   • Undoubtedly that review is now complete. Please detail for us the full extent of your meetings, contacts, communications, and involvement with FTX and SBF.
     • By “your,” I mean you personally and those in the Office of the Chairman.
     • Will you publicly disclose all documents related to those meetings, contacts, communications, and involvement with FTX and SBF, redacting anything that is necessary due to confidentiality requirements?
2. When you testified in December, you said that LedgerX (which at the time was dba FTX Derivatives US) was registered, licensed, regulated, and supervised by the CFTC as a DMM, SEF and DCO.
   • You also testified that the CFTC was “walled off from going past the regulated entity” FTX Derivatives US at the time and that the CFTC had no ability to go beyond FTX Derivatives US to make any inquiries of any of the other FTX entities, including those that we now know were grossly mismanaged and involved in fraud and criminal activities.
   • You also testified that FTX Derivatives US was “dogged in their pursuit of getting” their DCO license amended to change the structure and operations of clearing houses and that they were at the CFTC “quite a bit talking with staff about the details and the application.”
   • Given that getting FTX Derivatives US’s proposal approved was the top priority for FTX and SBF, didn’t the CFTC have enormous leverage not only over FTX Derivatives US, but also over FTX and SBF to obtain almost whatever information it wanted?
     • Given that FTX Derivatives US’s application involved proposed operations and structures that FTX was using and employing at other FTX entities, wouldn’t it have been reasonable if not required for the CFTC to ask for and obtain information about that from the other FTX entities?
       • Given SBF’s common ownership and control of all the FTX entities, he clearly had the authority to get and provide that information, right?
       • Given how much he wanted to get the CFTC to grant the application, he would have been highly motivated to do so, right?
       • Given your 10 or so meetings with FTX and SBF and the innumerable meetings they had with your staff and others, asking for that information would have been easy, right?
     • For example, auto-margining and auto-liquidation was a common feature elsewhere in the FTX family of entities, but unique and untested among CFTC regulated entities.
       • Asking for information related to those operations and practices, even if not technically able to demand it, would seem reasonable and appropriate, right?
       • Shouldn’t the CFTC have said that that information was necessary for it to evaluate the claims FTX Derivatives US was making about the DCO application pending before the CFTC?
         • Did you or the anyone at the CFTC do that?
   • Similarly, FTX and SBF made numerous representations about how they handled and would handle customers, customer funds, conflicts of interest, affiliated entities, and related matters.
     • Given that they represented how they did that at other FTX entities, shouldn’t the CFTC have asked or demanded FTX to provide information on those business practices at other entities?
     • For example, shouldn’t the CFTC have asked to speak to the chief compliance officer of FTX to understand the compliance and control functions at other FTX entities?
       • For example, FTX made many representations about managing conflicts of interest, onboarding customers (i.e., know your customer requirements), segregation of customer funds and numerous other compliance and control issues.
       • While the CFTC may not have had the technical authority to do so, those are clearly relevant issues that would be necessary to evaluate the then pending application and the CFTC, wouldn’t you agree?
         • Of course, we now know that FTX didn’t have a chief compliance officer, right?
         • And we now know that they didn’t have most if any of the systems and controls represented to the CFTC and others, right?
     • FTX Derivatives US was also proposing to materially change and reduce the so-called waterfall protections for clearing houses which provide multiple, independent sources of strength in the event of broken trades, member failures, or systemic stress or crisis.
       • In fact, FTX Derivatives US was proposing to replace FCMs and other protections with a reserve fund proposed to be $250 million, but FTX Derivatives US didn’t actually have that money, did it?
       • FTX Derivatives US was almost certainly going to have to obtain that $250 million from other FTX affiliates or SBF himself, right?
       • Given that, shouldn’t the CFTC have examined the financial ability and resilience of FTX Derivatives US’s affiliated entities?
         • Moreover, shouldn’t the CFTC have assured itself that wherever the reserve fund came from that FTX Derivatives US had it legitimately (i.e., that it was not customer funds or funds anyone else had a claim to) as well as had the exclusive control and ownership of the $250 million?

DCCPA legislation

1. Before providing input into, drafting language for, and ultimately endorsing the DCCPA, did the CFTC do a granular, detailed analysis of how self-certification had been used and abused by market participants over the years?
   • Can you review that with us?
2. Why do you think FTX and SBF so aggressively endorsed and supported the DCCPA bill before FTX’s collapse and SBF’s arrest and imprisonment?
3. The DCCPA preempts state registration requirements. Do you believe the DCCPA should be the floor and states should be allowed to increase the registration requirements to protect their citizens?
4. What use case can you provide that makes digital commodities a legitimate economic activity?
   • Put differently, the only use case for crypto we’re aware of is money laundering, tax evasion, gambling, sanctions evading, ripping off customers, and similar illegal activities. What are the legitimate, legal activities of crypto for the productive economy?
5. Have you seen any compelling, unbiased, non-industry sourced evidence demonstrating that bitcoin in fact result in financial inclusion to the unbanked?
   • Can you publicly release that evidence?
6. You know that the CEA prohibits “excess speculation” and that speculation is limited to facilitate the activities of actual producers and purchasers.
   • Did you consider the impact of increased speculation that would result from retail traders increased participation in the futures markets?
   • Did you make any determinations regarding whether that trading would or could be excessive and what to do about it?
     • Did you consider the impact of the position limits rule on such activities?
7. Has the CFTC done an analysis of the risks that future registered crypto exchanges under the DCCPA would offer and trade crypto commodities and securities while falsely suggesting they are a CFTC-registered exchange with respect to all of their offerings?
   • Has the CFTC determined what actions it will require such exchanges to take to prevent this from happening?
     • Are you aware of the several instances where the FDIC has had to issue cease and desist orders to crypto firms for illegal stating or suggesting that their customers’ money are insured by the FDIC?
       • Isn’t it foreseeable that something like that will happen regarding the CFTC registered entities that also trade securities?
8. Are you aware that FTX and/or SBF hired at least 13 former CFTC officials?
   • As you know, this is referred to as the revolving door.
   • Did you have any concerns that there might be some undue influence or access enabled by those revolving door hires?
   • Did you take any measures to ensure that none of those former CFTC officials abused their former positions of trust and confidence when they were working for the public?

Commodities, Speculation and Position Limits

1. As you have pointed out, commodities are vital to every American, from breakfast cereal and sandwich bread to gas in their car and aluminum for their coke or beer can.
2. That’s why the CFTC is obligated to regulate the commodities markets and ensure that the prices largely reflect supply and demand.
3. And that’s why the law prohibits excess speculation and limits speculative activity to only those who facilitate actual producers and purchases.
4. That’s also why the CFTC imposes position limits on commodities.
   • When those position limits were last adopted, you voted against them, right?
   • Any your fellow democratic CFTC Commissioner voted against them as well, right?
5. In light of the CFTC’s legal obligations, your objections to the position limits rule, and the many shocks to the commodity markets over the last several years, has the CFTC investigated each of the commodity markets to determine the level of speculative interest and analyzed whether or not the position limits are working?
   • Can you release the results of those investigations, at least at a sufficient granular level for the American people to see for themselves that they are working?
   • After all, the commodity traders and speculators have made historic, record-breaking profits over the last two years.
     • Those profits and the associated gigantic bonuses have all come out of the pockets of hard-working Americans.
       • Don’t they deserve to see for themselves that the laws and rules designed to protect them are working?
6. Under the 2010 Dodd-Frank Act, Congress required the CFTC to study the effects of the position limits imposed by the CFTC on excessive speculation and, within 12 months after the imposition of position limits, to submit a report on the study to Congress.
   • You’ll agree that the CFTC has never provided such a report to Congress, right?
     • Can you explain why the CFTC has not fulfilled its statutory duty by conducting the study and providing it to Congress?
       • When can Congress expect that report?

Comparability Determinations

1. When the CFTC determines a foreign jurisdiction is comparable to US law, the CFTC defers to those foreign regulators who then have the duty to regulate entities in their countries when they are doing business in the US.
   • That is effectively outsourcing the protection of US taxpayers, market participants and markets to foreign regulators, right?
2. That’s why it is key to make sure any such foreign laws are in fact comparable.
   • Otherwise, it would be a massive loophole enabling regulatory arbitrage.
     • US derivatives firms would just move their jobs and businesses overseas to evade tougher US regulations.
     • Why do you believe the CFTC’s outcome determination approach is an effective way to determine whether foreign regulations are comparable to US law?
3. When making such outcome determinations, the CFTC is essentially making predictions about the eventual impact of two different sets of regulatory requirements.
   • Has the CFTC provided any outcomes analysis that provides an accurate prediction of regulatory outcomes regarding stress tests for example?
   • If the CFTC has to impose numerous conditions on its determination of comparability, isn’t that proof that those rules and laws are not comparable?
     • For example, if US law required [X] minimum capital, but the foreign jurisdiction only requires [X-Y] capital and that is a material difference, that is not comparable by definition, right?
     • Wouldn’t conditioning a comparability determination on that foreign jurisdiction to have the same [X] capital as the US therefore be an inappropriate approach to determine comparability?
     • Put differently, shouldn’t the rules and laws of the foreign jurisdiction be comparable without material conditions imposed by the CFTC in connection with making a comparability determination?

Rulemaking

1. The CFTC’s Spring 2022 rulemaking agenda had approximately 23 rules.
2. However, only one rule was enacted in Spring 2022.
3. The CFTC’s Fall 2022 rulemaking agenda is identical to the Spring 2022 agenda, with the exception of that one rule and dropping another rule.
4. It has been reported that the reason for the lack of rulemaking was that the new commissioners needed “time to get up to speed” after they were sworn in on March 2022.
   • How long did it take for those commissioners to get up to speed?

Disclosure of Internal, Nonpublic, Confidential CFTC Deliberations and Discussions

1. Do you think that anyone at the CFTC should publicly disclose internal, nonpublic, confidential information to the media?
2. Do you think that anyone at the CFTC should publicly advise a regulated entity with a pending proposal to withdraw that proposal to avoid the CFTC taking action on it?
3. Do you think that CFTC Regulation 140.735-5 applies to everyone working at the CFTC including Commissioners and Chairs like yourself?
4. In recent speeches, you spoke about the CFTC being fully transparent, but how long has it been since you released your public-facing external calendar, which used to be done at least monthly and has now not been done for more than a year?
   • When can the public expect you to release your prior calendars and start following precedent of doing it every month?
5. It looks like the CFTC has not published external meetings staff has had in connection to a rulemaking since 2020, more than 2 full years now.
   • That also used to happen typically shortly after such meetings occurred.
     • Given your stated commitment to transparency, when can the public expect the CFTC to begin to adhere to this historic practice?
       • Will you make it a priority to require the staff to promptly publicly disclose their meetings with external parties as you have agreed to do with your calendars and meetings with external parties?
6. Will you make it a priority for staff to keep a log of communications they have with external parties regardless of whether or not they are related to a specific rulemaking or not and publicly publish that information at least monthly?

Diversity at the CFTC

1. Does the CFTC have data it can share with this committee reflecting the diversity of the workplace?
2. Since the hiring of the Chief Diversity Officer in January 2022, have you seen an increase in diversity hiring?
   • If so, will you provide that data?

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org