On Monday, September 25, 2107, outgoing CFTC Commissioner Sharon Bowen delivered a farewell address at the Institute of International Economic Law. During her three-year tenure at the CFTC, Commissioner Bowen was an effective advocate for the kind of strong derivatives regulation that is necessary to protect investors, maintain stable markets, and create the conditions for economic growth and prosperity. Her voice will be sorely missed, especially as the CFTC and other regulatory agencies have embarked on a campaign to scale back regulation and enforcement in the financial markets.
In her address, Commissioner Bowen rightly pointed to some significant achievements over the past three years: The agency expanded the clearing of standardized derivatives; promoted cooperation with international regulators on clearing house regulation, margin rules, and enforcement; and saw the “Market Risk Advisory Committee” develop meaningful recommendations for dealing with central counter party defaults.
Even more important, however, Commissioner Bowen emphasized that much more needs to be done, especially in the areas of cybersecurity, high frequency trading, and clearing house governance. And she cited to one of the most fundamental challenges facing the agency: the short-sighted allocation of a meager budget to an agency that oversees a $400 trillion derivatives market.
Whether the CFTC can make genuine progress on these and other fronts remains to be seen, but so far, the signs are discouraging. CFTC Chairman Giancarlo believes that the derivatives markets are struggling under the weight of “excessive regulation,” which in his view is stifling the American economy. And his initiatives—from the KISS program supposedly aimed at simplifying rules, to the recently-announced enforcement policy that will rely increasingly on self-reporting by industry—promise not just to “streamline” rules, but to weaken if not gut them as well.
In fact, the agency appears to be headed in just the wrong direction, and the data doesn’t support it, as there is no credible evidence that regulation is smothering economic growth and prosperity. The CFTC should instead protect and preserve the rules already finalized, strive to improve on them where necessary as Commissioner Bowen argued, and enforce the law with more vigor than ever against lawbreakers.
De-regulation and loss of accountability in the financial markets leads in only one direction: another financial crisis that will do more to destroy economic growth and prosperity than any set of rules could possibly inflict, costing trillions of dollars in lost productivity and incalculable human suffering. To help counter this trend, we hope that Commissioner Bowen’s voice will echo loudly throughout the halls of the CFTC long after she is gone.
