CFTC COMMISSIONER CHILTON'S SPEECH BEFORE OUACHITA SPEAKERS SERIES

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION
“Reasonable Responsibilities”

Speech of Commissioner Bart Chilton before the Ouachita Speakers Series

November 7, 2013

Introduction—Ponzimonium

Good evening! Thank you, Wilbur (Smither), for the invitation and for the introduction. It’s great to be with all of you tonight. I’m excited for a few reasons, one of which is to break out of my often very specific issue-oriented agenda.

Thank you for the shout out in the introduction regarding my book Ponzimonium: How Are Scam Artists Are Ripping Off America; it was written as an educational piece, to help folks appreciate the enormous number of scam artists out there working 24-7-365 to rip people off. I wrote about con artists that over the years impacted tens of thousands of people by stealing hundreds of millions of dollars. We will talk about a range of characters tonight, but the folks in the book are particularly slick fraudsters, masters of illusion and deception and outright criminals. They are not the topic of tonight’s speech, but suffice it to say, they live on—even right here in River City—and I simply felt a responsibility to share with folks some simple things they could do to help identify a swindle. We can talk more about that in the Q&A period if folks would like.

Fortunate Fellow

One thing Wilbur did not tell you in his introduction is that I am one very fortunate fellow. You see, I’m told a large inheritance from a distant relative that I didn’t even know I had, is coming my way. Also, my email address won a lottery worth several million (although I’ve not entered any contest). It is a good thing I’ll be getting all that cash because a woman wrote about her botched surgery in Peru. Now that I’m newly rich, there’s an obligation to help her out. She’s in tremendous pain and needs cash to have another surgery and get healthy. She says she will be “forever indebted” to me once I help out, so it sounds like a good trade! I thought these and other emails seemed suspicious, and I had a reasonable responsibility to check them out, but as it turns out, I’m also a beneficiary of a scam fraud fund for folks who have been robbed by schemers of one sort or another. They just need a bunch of personal information and my bank account numbers and I’ll get the money due to me. So, I’ve got that going for me.

I hope to have a bit of fun this evening and cover a good bit of substance. We will talk a little about government and politics, about business and technology, and about what we all can do that might be a little different, to help rebuild a civil society. So, let’s do the Barry White, and “…get it on”.

Grrreat!

Some of you may have seen this recently. An NBC News/Wall Street Journal poll found that 60 percent of Americans say every Member of Congress should be fired—fired. Did anyone see that? Who said we don’t need Donald Trump in government! “You’re fired!”

The polls aren’t treating President Obama much more kindly either. His job approval ratings are only 41 percent as of this week, one point off his all-time low of 40 percent in 2011. His disapproval rating is a record high 52 percent, 1 point short of his highest disapproval rating of 53 percent. If you want to contrast and compare or look at more details, go to Gallup’s website at gallup.com. For example, the lowest job approval for President George W. Bush (43) was 25 percent. The highest was 90 percent. Anyone want to guess when he hit 90 percent approval? Yep, just following 9/11.

We had a unified, shared vision after 9/11: We were determined to survive, to find the perpetrators and to be stronger than before because of the experience. U.S.A., USA, USA! Oh, and we pretty much agreed that terrorists are despicable, there is that. But, we were really into the Proud To Be An American, Born In The U.S.A. patriotism.

It would be awesome if we could have that shared vision again, maybe even get behind our politicians and think that the large majority of time they were doing a respectable job. We could look upon them, regardless of political party, as leaders. Ah, to return, “…now to the thrilling days of yesteryear!” That would be “grrreat!”

While we can’t go back, it seems perfectly reasonable to expect more decorum, more respect, more grace and courage under fire. And we should expect and demand more collaboration and teamwork on behalf of the nation, because it is “grrreat!”

We need more strong, accountable leaders. I’m fortunate, as many of you are, to have seen some terrific leaders—leaders of all political stripes, leaders who enjoyed the trust of the American People.

Fairness Doctrine & Reasonable Responsibility

So, let’s talk about it. Today, certainly, it seems like constant bickering, doesn’t it? In “fairness” it’s from all sides. And, the media plays a significant role in the present quagmire. Some of you may recall the Fairness Doctrine, which has a history dating back more than 60 years. For the majority of years in our lives, it was the law of the land and appropriately led us to conclude that we could “trust” what we saw on TV. It required all holders of broadcast licenses (radio and television) to present controversial issues of public important in a manner that was—in the opinion of the Federal Communications Commission (FCC)—“honest, equitable and balanced.” The goal was to assure that folks heard competing sides of an issue from news segments, editorials or public affairs shows.

What many people don’t realize is the FCC stopped enforcing that reasonable responsibility requirement in 1987, and a little over two years ago, removed all the language regarding the Fairness Doctrine from its books. So, all taglines and branding efforts aside, “fair and balanced” are self-ascribed values these days. “News” can now be a three-ring circus of entertainment. “Hurry, Hurry, Hurry, see the silver-tongued-devil speak out of both sides of the mouth, all the while not losing the smile.”

And it is nonstop! No more “Oh say can you see, by the dawn’s early light” at 1 a.m. Today’s 24-hour television programming has bred embellished rhetoric. That war of words is worrisome because it creates intolerance. The line between advocate and thespian has been so badly blurred most Americans are in a fuzz about what is actually taking place.

As a result, many of those on the right see the left as wimpy weasels weakening the fiber and footing of our founding fathers. On the left, many see the right as self-righteous swine, swigging 80-proof bottles of patriotism and behaving badly. They have one thing in common. A lot of them hate each other. They hate each other. It is sad state of affairs that so many Americans dislike other Americans and have little tolerance for diverse opinions.

I’ve watched the discourse deteriorate dramatically in my own 30 years in politics and public service. I witness it today in Technicolor and Dolby Surround Sound, travelling and speaking with people all across the nation. Plus, I receive a lot of email from people who are very angry. (Although to be fair, in the last two days, I’ve never received more nice emails from people.) But I’ve received many emails from folks who are irritated with me, or my Agency, at the government, the banks or just plain distraught in general. And think about the emails that say this or that dreadful thing about politicians. Some may be true. However, many of them seem crazy, because they are crazy. But, many people believe them.

It seems like a reasonable responsibility that when people receive an email that seems really bizarre, they check it out, certainly before they forward it to anyone and potentially perpetuate false information. I’m not suggesting that will get any president or Congress to a 90 percent job approval, but it can’t hurt the state of affairs. “Come on and dream, dream along.” What have we got to lose by fact-checking?

Pants-on-Fire

There are a couple of places folks can go to do this very easily. Here’s the one I like best: factcheck.org. They will call foul on anyone for incorrect information. They are nonpartisan and not-for-profit and serve a real consumer advocacy function. They are my sort of peeps. They monitor TV ads, debates, speeches, interviews and news releases in order to reduce the dishonesty and confusion and increase clarity in American politics.

Another place to go is PolitiFact at politifact.com. They use a “truth-o-meter.” If you really are not telling the truth, they term it “pants-on-fire.” For example, the chain email which stated that “Congressional lawmakers earn their salaries ‘FOR LIFE,’ which for House Minority Leader Nancy Pelosi would add up to $803,700 Dollars (sic) a year for LIFE including FREE medical care.” That’s pants-on-fire false. Undoubtedly it contributed to the average blood pressure reading that week, but nonetheless pants-on-fire false.

Ann Coulter, the political commentator said, “No doctors who went to an American medical school will be accepting Obamacare.” A blogger posted “Obama Declares November National Muslim Appreciation Month.” Betsy McCaughey, a former Lieutenant Governor of New York said, “Obamacare will question your sex life.” Those are all pants-on-fire falsehoods. Yet, people repeat these things, and it increases intolerance—as well as ignorance.

Here’s another two from right here in Arkansas. Congressman Tom Cotton says Senator Pryor voted for “special subsidies” for lawmakers and staff in Congress so they’re protected from Obamacare. He also said, “The health care marketplaces have no privacy protections.” Both statements are false, according to PolitiFact.

And before anyone thinks I’m here as an evangelist for the Democratic Party, I will voluntarily adhere to the Fairness Doctrine. Van Jones is a host of CNN's Crossfire; he’s on the left. He said that only “1 percent of candidates that (the National Rifle Association) endorsed in 2012 won”. That’s false. Congresswoman Debbie Wasserman Schultz said the United States “stood alone in the war in Iraq”. Pants-on-fire false. President Obama said, “We have doubled the distance our cars will go on a gallon of gas”. That too, is false. Secretary of Health and Human Services Kathleen Sebelius said, “If I have affordable coverage in my workplace, I’m not eligible to go into the marketplace…It’s illegal.” That is Democrat pants-on-fire false, according to PolitiFact.

Anyway, you get the picture. There is a war of words in American politics and a few of the folks out there shoot blanks sometimes, some more than others. So, let’s hope people look to unbiased sources to get to the truth, not those with an agenda—hidden or otherwise. We can’t take responsibility for the nutty things folks say, but it is certainly reasonable that we take responsibility for what we say or pass along. We can, as a valued friend says, be “system busters” and stop, or at least slow, the war of words by the politicians.

Wall Streeters & the Decade of Deregulation

Let’s move to another area of inquiry—the Wall Streeters. You know: “Some say money is bad for the soul, bad for the rock, bad for the roll, bad for the heart, bad for the brain, bad for damn near everything, of yeah!” (Sammy and Van Halen were on fire.) But, I don’t believe that “…the love of money is the root of all evil,” nope; “Money Makes The World Go Round.”

Some of you may have retired from Wall Street. Others have friends or maybe kids on Wall Street. I deal with these folks all the time. There are very smart people in the financial sector. I know and like many, even most of them. At the same time, there have been some, umm, how do we say it—issues.

The economic collapse in 2008 was due, according to the Financial Crisis Inquiry Commission, to both Wall Streeters and a lack of appropriate laws, rules and oversight by regulators. I call it a Decade of Deregulation promoted by a group of folks called the Free-Marketeers.

Sure, we want free markets, but utterly free markets with no rules or regulation whatsoever don’t work out so well. That’s what took place in 2008. There were hundreds of trillions of dollars being bet that were not regulated whatsoever—zero zippity zilch regulation. Wall Street was making bets upon bets upon bets that bundles of things, like home mortgages, would fail. There was no agreed-upon valuation of what these things were worth. As a result, we saw firms like Lehman Brothers bite the dust. Lehman was over-leveraged 30 to one in their last statement. No economist in the world would think that was reasonably responsible. Then the collapse hit. That was fun . . . not!

In 2010, Congress approved and the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. Regulators have made some good progress in implementing the requirements of the law, but there is still more to be done.

Evil Ways

At the same time, we’ve seen more malfeasance in the financial sector than ever before. Hardly a day goes by when we don’t learn about some illegal activity. That’s got to change. Larger fines need to be imposed and when folks do the crime they should do the time, not just pay the fine. There needs to be a culture shift on Wall Street. I’m not so sure all the Wall Streeters got the memo (or that there were enough memos) that told people “You’ve got to change your evil ways, baby . . . This can’t go on, Lord knows you got to change.”

We can’t solve that problem by passing another law or regulation. Government can’t effectively regulate ethics or morals. But, the top executives and the boards of directors can instill in these firms, core values—and reasonable responsibilities—about what they should, and should not do. And if they cannot, we need to go back to our nation’s business schools and start discussing curricula electives versus requirements.

I’m optimistic this is changing, and it’s high time it did.

Technology

Without getting too in-the-weeds on how markets have changed, I do want to mention technology.

We know how scary-complex things have become in our own world, with iPhones and droids. It’s tough to keep up with all that technology going on in our personal lives. Sometimes, many folks feel left out as technology surpasses their ability to work with it. Well, that’s taking place in markets too, and regulators can’t keep up. See, you aren’t alone. However, I’d bet it doesn’t make you feel much better that regulators don’t have the same technology as traders and we don’t have enough people keep up with what the tech savvy financial wizards are doing.

I term these market participants called high frequency traders “Cheetahs” because of their incredible speed. They are faster than Speedy Gonzales…because they are Cheetahs, not mice! Here’s how fast they go, they can trade many times per second. A millisecond is 1,000 parts of a single second. That’s fast.

What all that means is that when things go wrong, and we’ve seen things like the Flash Crash of 2010 where the Dow Jones Industrial Average dropped nearly 1,000 points in 20 minutes, they go wrong in a huge honking hurry.

Guess what, these traders aren’t even required to register with our Agency, test their programs, or install kill switches. I’ve been working on those things and hope for changes next year.

I’m reminded of an Albert Einstein statement. He said, “It has become appallingly obvious that our technology has exceeded our humanity.” Think about that, technology has exceeded our humanity.

Technology is a good thing—even grrreat—but it needs to be monitored. Just like when Wall Streeters, after the Decade of Deregulation, were left to their own devices, so too are the Cheetahs. That needs to change before we see another major market meltdown. And I hate to say this, but mark my words, if we don’t do something; there will be another meltdown like the Flash Crash.

Time Machines

Think about how things are so very different than they were 20 years ago. How about 40 years ago? How do you think things will be different in three or five years, or ten 20 or 30 years? It’s actually sort of fun to contemplate if you can let your mind wander and wonder. Try it in bed as you are going to sleep. I’m a big believer in using our dream states for cool things like that. Really, try it. Think about what the world will be like in 20 years. What should people plan for in the future?

Let’s talk specifics so you can see what I’m suggesting. Twenty years ago, we knew computing technology was going to get better, “you better, you better, you bet.” Things would be lighter and have more capacity. We knew information would available on the web. But it wasn’t a reality yet. It was a question of how and when?

Today, we know that climate change is taking place. It will be addressed. It’s sort of like the debt ceiling; there is simply no other reasonably responsible thing to do. So, how will climate change be addressed? I know, I know, there will be worldwide carbon credits being traded in the years to come. It’s already happening in the European Union and other places. Richard Sandor, the father of financial futures in Chicago started an environmental climate exchange years ago. That is, in part, how we addressed acid rain. Anyone hear about problems with acid rain lately? Nope, because a free markets approach—trading acid rain credits—took care of it. Mr. Sandor championed the effort to get a law in place that would move carbon trading forward and take our place as a nation in the endeavor to right the wrongs of the last hundred-plus years of atmospheric degradation. There was bipartisan support for this. Senator McCain was a supporter! Then, however, we just got slowed down, candidly, due to politics in and the aftermath of the 2008 elections.

Like computers and the web, on climate change, we just don’t know exactly when or how it will be addressed. But, it will happen, we have no other option if we want to save the planet.

(And BTW, if you aren’t down with the “climate change is real part,” with all due respect, seriously, go back and read this speech later and follow up on the fact-checking section. Maybe try nasa.gov. Thanks for your attention and reasonable responsibility.)

Searching for insight into when changes may occur or how they will be manifested will give us an upper hand on changing its course—faster or slower, this way or that way.

Change

So, how do we deal with the things that are to come, in our dreams or in reality, or both? If we are good, they come in both, right? How do we deal with “Ch-ch-ch-ch-Changes.”

Remember the old Byrds song adapted from the Bible? “To everything—turn, turn, turn, There is a season—turn, turn, turn, And a time for every purpose under heaven.” Let’s talk about change and changes.

It’s so easy to persist in resisting change. People like their routines. Change can mess them up. Think Cheryl Crow singing “A Change” with her great tone, “Hello it’s me, I’m not at home, If you’d like to reach me, leave me alone…” and then the chorus, “A change would do you good.” (She’s fabulous, and has a new country album.)

If we expect change and ready ourselves to adapt to change, that’s a great starting point.

Oscar Wilde, the cultural commentator from the late 1800s said, “To expect the unexpected shows a thoroughly modern intellect”. He made that statement about expecting the unexpected when a lot of stuff was going on. Things were being invented left and right: typewriters, dish and clothes washers, radar, and metal detectors, contact lenses, and escalators. You’d be hit in the face with a new invention if you didn’t watch it. If you didn’t expect incredible things, well, you didn’t have a thoroughly modern intellect. Sorry Charlie.

Well, today is sort of like that. We have this technology and that technology coming at us at seemingly lightning speed. My phone is only one year old, but there are two newer models.

We live in a world of constant and increasing change, and we can either embrace that change or learn to live with it—and indeed, thrive in it—or we can just go crawl under a rock.

So, we too should consider expecting the unexpected. It readies us for change. The change might be with regard to technology, but it also might be with regard to the financial sector, or the environment, or with healthcare, or Washington. And if we’re prepared, we’re in the best position we can be to avoid calamities like the 2008 financial crisis or the 2010 flash crash. But we have to be open to dealing with change.

Regrooving Change Managers

On an individual level, we’ve all experienced it. Whether you call it adaptation or managing change, or coping with the unexpected, sometimes we just need to suck it up, cowboy or cowgirl up, bite the bullet, or whatever your phrase du jour. Regroove those brain cells. Retool our skill sets, behaviors and competencies.

Here’s an example. A friend of mine used to become practically paralyzed at the thought of purchasing and using any new piece of technology. A new DVD player was enough to send her into a tailspin—buying, installing, dealing with technicians—she hated all of it. It made her feel stupid. She realized at some point, however, that changes and improvements in technology was inexorable—it was going to keep moving ahead, with or without her, and unless she developed a different attitude, she would end up perpetually angry. So, she decided to make a change.

She started in a small way, and changed one thing: she decided that she would master texting. Not a big deal, right? But to her it was. And it was a big challenge, at first. She bought a smart phone, spent a lot of time in the store with some very helpful young “geniuses”, and finally, in fits and starts, began texting. It was a bumpy road, but she did it until it became natural for her. It wasn’t a momentous event in the history of the world, but it was a huge change in her brain, in the way she thought. And there were ripple effects.

It began to affect the way she looked at other technologies. They weren’t so scary. DVD player? Ah, easy. Smartphone apps? Well, she started to use load and use loads of them, all the time. Bluetooth stereo speakers? A snap.

And then she started to think about applying her new-found techie-talents in different ways. She ended up putting together several different pieces of sound equipment, combined with some smart phone technology, which allowed her to play some terrific music on an old acoustic guitar. And this new sound was delightful to her and she’s playing in bars and at weddings for fun and some pocket change…and the delight of others. It wouldn’t have occurred to her, however, to think about putting together this little system, had she stayed in her technology-hating cocoon. But she “change managed” her techno-aversion, and made something really exciting and good happen.

We have all done something similar in our lives. Been there, done that? For many, in fact most all of us, a change would do us good.

CanduU

All this talk about the inevitable nature of change brings me to my last point: how we drive cultural and political change on a larger scale. Is there a way we can help get the nation back on the right track? Or do we opt to kick that can on down the road for another generation? Oh wait, there’s that reasonable responsibility thing.

It has been a tremendous honor and privilege to spend 30 years in politics and government service. Not because the pay is great nor because the hours are reasonable, nor because I was able to finish my policy to-do list each day like my colleagues in the private sector have a penchant for doing. I’ve done it because reasonable or otherwise, it was to me, a responsibility.

In light of intensely partisan politics, a flagrant lack of fairness in the media, nagging negativity, and a culture of greed and selfishness, how do we move forward in simply not expecting, but driving change? Not simply manage, cope, deal with, accept, resign, tolerate, handle, but to create and drive that change? There are three thoughts to share and perhaps you will have others.

Number One: Question Authority. Now, now, I am not talking about James Dean in Rebel Without A Cause or John Mellencamp’s Authority Song. After all, in the latter song, “Authority always wins.” No flag or bra burning references. I’m thinking of that old radical balding guy in pantaloons. You know, the one who wrote, “It is the first responsibility of every citizen to question authority.” Yep, founding father Benjamin Franklin. (I’ve been working on his hair style for 25 years now, and about 4 more inches and I think I’ll finally have nailed it).

So yes, question authority and listen carefully. Today and almost always, it’s infinitely more important to understand than to be understood. Seek to fully understand. If it’s a great opportunity posed by a seemingly skilled and adept financial investor, surely could be a Ponzi scheme these days–question authority. A President, even one of your own political persuasions—question authority. A statement by a candidate running for office—question authority. An email from the friend of a friend of a friend, stating thus and such? Question...umm, okay, that might not be authority, which brings me to…

Number Two: Discernment. Judge well. Listen to all sides. Read multiple sources of conflicting points of view. Query, probe, research, look at the big picture. What’s in it for everyone? Who are the stakeholders? What are their myriad agenda? Don’t simply consume the comfort food of politics, listening only to what you want to hear...true or false, right or wrong, accurate or, umm, not so much. We all need protein. We all need veggies. We all need fruits. Enjoy a diverse diet of knowledge and sources, and use discernment to sort out what is honest, equitable and balanced in your view. And…

Number Three: Shared Vision. Seek and create a shared vision to build on common ground. The foundation of every successful change management program is the establishment of shared goals and objectives and a shared vision of where the organization is going. Without primary stakeholders and champions—like elected officials and so called leaders—sharing the same vision, nothing short of bloody revolution will get you there. And similarly, without the workers and implementers on board, well, good luck to you and the Razorbacks.

Yet, here we are as a mass of people living as residents of the same country no longer with a shared vision for our nation, no longer with shared goals and objectives for what we want it to become. We are beginning to agree on what we don’t want. But to be positive, to move forward, we need that vision on what we do want. We need clear leadership, and a balanced media to focus the discussion and be able to raise issues without raising our voices.

The days, weeks and months after 9/11 reminded us of that. We had a shared vision and voice about the nation. We shared strength, resilience, pride, courage, freedom and indomitable spirit. Let’s hope and pray we do not need another ugly event to find common ground. Let’s hope that if we are ready for change; that we seek and embrace change with a Candu enthusiasm by questioning authority, being discerning and seeking common ground. As the late Senator Paul Simon of Illinois often said, “We can do better.” I really believe you Candu, and we Candu better too, don’t you?

Conclusion

It has been a pleasure to be with you tonight. Oops, pardon me; it seems technology does not because that’s an email coming in on my phone. Oh, it seems like an urgent matter. It appears a rich princess is in distress and needs my assistance. I lend her a small amount now and she gives me lots of gold later. She seems nice and calls me “Dear Beloved.” I guess she needs my bank routing number. There are some things that will never change!

Ah, but that would be a different speech.

Thank you for your attention and your interest in helping to make our society a better place in which to live.

CFTC COMMISSIONER CHILTON'S STATEMENT ON CROSS-BORDER GUIDANCE AND EXEMPTIVE ORDER

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
“Just Say’n”

Statement of Commissioner Bart Chilton on Cross-Border Guidance and Exemptive Order, Washington, DC

July 12, 2013

We’ve done a lot of rules and we’ve done way more than other financial regulators. We have final clearing and transparency rules, recordkeeping, reporting, and registration rules, and we’re working hard to finalize other important areas (like, just gotta say, position limits and I hope we more actively engage on Volcker). We’ve done a heckuva job on a lot of issues. All of these are super important. Nothing we’ve done, however, will fully succeed without the critical action that I hope we will take today. Just say’n.

That’s because we don’t live in a void all to ourselves. We live in a world with intricate, inter-connected, interdependent international markets. There is a commonality of connections like never before in history. What happens in one nation impacts another. Risk travels around the globe with a click of the mouse.

We’ve learned that hurting lesson and come to this point where we can move forward. Here are the two key takeaways for me on what we can do today:

1. We can provide certainty to markets and market participants to give needed structure in our rapidly changing financial world;

2. We can do so in a fashion—through phased-in effective dates for rules—that is cognizant of other global regulators, particularly those in the European Union.

Like in the movie Field of Dreams, when the voice from the corn field says, “If you build it, he will come.” I’ve said repeatedly that if we and the E.U. build balanced and fairly harmonized financial regulatory regimes, the rest of the world will come. The rest of the world will build similar regulatory structures. And that’s the ticket to protecting consumers: a network of fairly comparable and comprehensive rules that guard against systemic risks for us, but for other nations as well.

Now, before I finish, there’s a key concept I want to highlight for all the naysayers out there. The economy crashed in 2008. Dodd-Frank was passed in 2010 and required—required—us to implement it in 2011. The G-20 even agreed that swaps reform should be done in 2012. We’ve had a guidance document floating around here for half-a-year. My point, and I do have one, is this: it isn’t like this regulatory reform or this guidance snuck up on us. And, there isn’t any reason for folks to come down with acute Reguphobia at this state of play—paranoia will destroya.

At the same time, we’re always going for balance, so let me highlight the important comment period here: 75 days. We want them, we need them, gotta have ‘em! I hope and expect to hear from the public on any and all issues relating to our implementation of Dodd-Frank—on all fronts. We all are down in the weeds implementing these things, and if we need to tweak or adjust, work on a few kinks, on any issue, from implementation of cross-border trading requirements to indemnification guidance—let us know. And to that end, let me reiterate something I said in October and repeated in December: during this interim period of phased in compliance, I cannot envision nor would I support the agency taking any action against an entity engaging in good faith compliance, nor can I envision an action in the future taken retroactively for non-compliance in this interim period. We’ve all gotta use a common sense, reasonable man standard here.

(Oh, and by the way, while your commenting, please feel free to tell us if we got something right, as well!)

We all know that once in a while regulators can leave a thread hanging loose, ‘cause ooh, we aren’t always perfect. In this regard, I plan to engage the Global Markets Advisory Committee (GMAC) during this comment period to ensure we have a live-action forum to hear from folks (not that people have been shy about airing their concerns to date).

Finally, I express my sincere gratitude to the Chairman for his tireless work on all of these issues. I also thank my colleagues, Commissioner Sommers (whom we will miss), Commissioners O’Malia and Wetjen and their staffs. Finally, special heartfelt thanks to the professional agency staff who have worked exceedingly hard on this key component of financial reform. We need to honor your tireless work by passing this thing—the guidance and phased-in compliance—today. Not to do so would allow consumers and our economy to be unprotected. That just wouldn’t be right. Just say’n.

Thank you.

CFTC COMMISSIONER CHILTON'S ADRESS TO THE TRADING SHOW CHICAGO 2013

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION,

"The Anatomy of Speed"

Keynote Address of Commissioner Bart Chilton to the Trading Show Chicago 2013, Chicago, Illinois
June 24, 2013
Jambo!

Jambo! Hello. I wanted to lay a little Swahili greeting on you this morning because we are going to talk a little about Tanzania and technology. Isn’t that what you were expecting, a little Tanzania and technology? Jambo … and you say … Jambo. That’s very good! A hearty hello to you. See how we are already learning and having some fun. Let’s keep it going. I have some new information and data to share with you later.



Magazines
Does anyone here still read magazines, ya know made of paper, that sorta stuff? I do. I still do. Remember when folks used to collect magazines? One collectable magazine was usually stored in your father’s closet.

The other one I’m thinking of was stored in a den or basement. It was a different size and had a yellow binder. I want you guys to all say it out loud. One thoughtful guess in: three, two one, go! You got it, National Geographic. Whoever said the phone book must have had a late night.

We still get Nat Geo at our house and I love it. Sure I enjoy Bloomberg Businessweek but that’s so much like work for me, it’s not very relaxing. I categorically enjoy Rolling Stone, especially Matt Taibbi’s great writing (although sometimes that’s a little like work for me), but the rest of Rolling Stone is just entertaining and enjoyable fun stuff. I can never get enough of Mick and Keith or the Boss. But Nat Geo is really neat in that it takes you to faraway places and has those wonderful photographs.

Last November I was reading a Nat Geo and there’s this story "Cheetahs on the Edge" written by Roff Smith with photos by Frans Lanting. It’s really very well done. It starts off in Tanzania. (How do you say hello in Swahili? Jambo!)

The story describes how the cheetahs live, how they can survive in the cold and heat, and how they are so very adept at knowing the territory and terrain to provide their prey the fewest opportunities to escape. I just couldn’t help but think of the similarities between actual cheetahs and market cheetahs. Quite frankly, I have not once felt that I gave HFTs an incorrect moniker. Reading this article confirms it all in my mind. It is very apt, indeed.

Market cheetahs are out there almost all of the time searching for their food—micro dollars—in milliseconds. They know the market terrain super well, just like cheetahs in the wild in Tanzania.

The Nat Geo story conveys how cheetahs have been, and are today, highly-prized. Well, I’m sure there are a lot of law firms that would like to have a few highly-prized cheetahs on retainer. I’m sure a lot of politicians would value a good campaign-related relationship with some of these cheetahs. Strike that; I know many already do have those relationships right here in this town.

The Nat Geo story also notes that cheetahs are actually a breed apart, a distinct genus, in fact—unlike the other big cats. Cheetahs have claws that are only semi-retractable and work like a sprinter’s shoes which allow them to go from zero to 60 mph in three seconds! And cheetahs aren’t just fast; they have a super short turning radius. They can change directions in a flash, or quicker than a flash. Well, duh on the market cheetahs. They may be like automated trading systems (ATSs) in some ways, like cheetahs in the wild are similar to lions, but they are both distinctly different from other cats in the wild and in markets. The speed of our market cheetahs make them definitively diverse from anything we have seen before. They are a breed apart.

Finally, a study late last year, which was conducted in conjunction with the CFTC, said in essence that cheetah trading imposes quantifiable costs on small investors. Aggressive cheetahs make a lot of money, and they make their biggest paydays when they trade with small, traditional traders. A cheetah trading with a fundamental trader makes $1.92 on a $50,000 trade but if that same trade is made with a small trader, the number goes up to $3.49. This could end up pushing smaller, non-cheetah traders out of markets.

All this is to say that the term cheetah for HFTs is more fitting today than ever. For the record, the word for cheetah in Swahili is "duma." Sounds like puma, but duma with a "d." Got it? Good, there may be a quiz.


The PROTECT Act—HR 2292
One thing I dislike is repeating things I’ve said, particularly when someone in the audience may have heard me discuss the matter before. One can’t avoid it all the time, but I try. In this regard, I’ll just say that I’ve been calling for a few key things to regulate the cheetahs over the years. I won’t go through them all because thankfully there has been some new and thoughtful leadership on these issues in Congress.

Representative Ed Markey has been one of my heroes since I began working in the House of Representatives back in 1985. I couldn’t be more impressed that he has taken it upon himself and his staff to work in this regard and I’m very supportive of his thoughtful legislation, HR 2292, the PROTECT Act. The legislation would require cheetah registration, testing, kill switches, and increased penalties for violations of the Commodity Exchange Act (CEA). The provisions of the PROTECT Act related to penalties aren’t just for cheetahs, but for all violations of the CEA. It would increase penalties from the current $140,000 fine per violation to $1,000,000 for individuals and $10,000,000 for entities. And the PROTECT Act gives discretion to the CFTC for how often a violation occurs. Currently, a violation has been considered to be only once per day. That makes no sense in today’s millisecond market environment. It is my hope that the PROTECT Act will become part of legislation to reauthorize the CFTC this year.


Cheetahs Today—New Data
Alright, with all that done, let’s get to some new stuff, shall we? Cheetahs are relatively new to markets. There isn’t one single word in any of the recent financial reform law—Dodd-Frank—about HFTs. Yet, they comprise a large percentage of the daily trading volume—roughly 30 to 50 percent. That’s an average. There are times—feeding times—when they have a much greater percentage of the volume. In fact, some new data I’m discussing for the first time today is fascinating.

Here it is: During the last year, we looked at 20 million trading seconds. Of those 20 million, we pinpointed 189,000 seconds, primarily around the open and close of markets. In those 189,000 seconds we found something astounding: Cheetahs traded at rates of 100-500 trades per second in a major commodity market! By any standards that exist, or have ever been discussed in public, that’s a shell-shocker data point. Trading 100 to 500 times per second, as a cluster, in one commodity contract? Holy mother of cheetahs! That's a mammoth market number any way you look at it. It’s actually pretty hard to even comprehend. This is my head exploding—pooofff!

If anyone says they know all about what’s going on with these cheetahs and markets, don’t believe them. How could they? Are they from another planet and have superhuman supercomputer powers? The best case is that some very smart folks know a portion of what is going on. But to suggest that they understand all of this isn’t correct. And, what is going on at this incomprehensible rate raises all sorts of policy, oversight and enforcement issues that our Commission needs to consider.


Fantasy Liquidity
One such issue has been sort of a dirty little secret. That’s the matter of fantasy liquidity created by what are called "wash" trades.

If one trades with yourself, that is putting a price out and hitting that price for yourself, you take no risk, yet create the market impression that a legitimate trade has occurred. It appears to the market as if there is liquidity. If this was only for a few trades, it wouldn’t make much of a difference to the market. It wouldn’t seem like much liquidity. However, if there is a lot of trading going on with only one trader "washing" the trades by themselves, that is not only wrong; it is illegal.

Section 4c of the Commodity Exchange Act states that it is: "unlawful for any person to offer to enter into, or confirm the execution of a transaction involving the purchase or sale of any commodity for future delivery … if the transaction … (i) is, of the character of, or is commonly known to the trade as, a ‘‘wash sale."

At the same time, there are exchange rules out there that say, "No person shall place or accept buy and sell orders in the same product and expiration month … where the person knows or reasonably should know that the … transaction(s) [is a] wash sale(s). Buy and sell orders for different accounts with common beneficial ownership that are entered with the intent to negate market risk or price competition shall also be deemed to violate the prohibition on wash trades." Another exchange rule says, "No Market Participant shall … make or report any wash trade...."

Wash sales are clearly a violation of the law, and against exchange rules. When they occur, they create fantasy liquidity. However, given the enormous volumes, I believe some cheetahs are engaging in this type of activity—that is, trading that arguably could qualify as "wash" trading under the CEA.

I’ve asked: Why would cheetahs do that? Are they trying to create fantasy liquidity in an effort to entice easy prey into the markets so that the cheetahs can pounce? That theory is something I’ve suggested we review at the Agency.

Here’s another theoretical answer to my question about why cheetahs might be engaged in creating fantasy liquidity: Many cheetahs are part of exchange market maker programs. Market maker programs pay traders for providing liquidity. When there’s lots of what is perceived as trading volume, it encourages others to trade. When there’s lots of liquidity, exchanges can boast their markets are deep and liquid. So, exchanges often pay cheetahs and other market makers to trade.

However, if a cheetah is truly washing the trades, they aren’t taking on any market risk whatsoever and they are violating the law. The fantasy liquidity may make it appear positive for exchanges, but the exchanges can’t allow that to occur.

By the way, wash trading is clearly unfair to other traders and, if it impacts price discovery, unfair to consumers.


Wash Blockers—For Cleaner Markets
So, one might think the exchanges would put in place what are called "wash blockers." And great, "wash blockers—for cleaner markets!" Guess what, proposed guidance from an exchange—the CME—on this issue is on the table right now.

You might think that as a regulator who has complained about voluminous wash sales that I’d be all for it. You exchange folks go to town—implement, implement, implement. But, whoa doggies, not so fast. What is it they are going to do exactly? How are they going to do it? Are all exchanges going to do the same thing? If not, does one exchange have a better idea than the other? Do we have a better idea? Are there any mitigating circumstances that the Commission needs to consider prior to allowing the exchanges to implement these wash blocker measures?

Well, for me, all of those questions, as well as a few others, need to be vetted internally before we allow the exchanges to self-certify and move forward.

My concern is the same concern that I’ve had with cheetahs and technology in markets, in general. We have all too often just accepted things that are occurring or that folks want to do. The results are that we see market SNAFUs all the time. I used to keep a list of all of the tech issues gone bad. It became too long. We need to take a deep breath and ensure that we know, to the best of our ability, what might occur. Regulators are always so darn reactive. Rather, we need to be more nimble and quick and think about what might be around the corner.

That’s why today, I’m suggesting that we take a chill pill on allowing the new wash blocker guidance without a more thorough review. I’m not saying in a few weeks or so we won’t give the go ahead. I’m just saying, right now there are simply too many unanswered questions that need to be addressed from an oversight and surveillance perspective, and potentially from an enforcement perspective.


Looking into your Dens
On that happy note, I guess I want to leave our fine furry cheetah friends with a message. You are the fastest predators in the market and we are watching you. That doesn’t mean we have all the tools or resources we need or want. We don’t. But, we are working on it. We have, as of fairly recently, developed the capacity to see trades in the milliseconds. That is, one-one-thousandth of a second. We can see what you are doing. We can see all of your trading, even when it is many, many times per second. We won’t stop at getting your instant messages, your emails or your text messages. We are going to come into your dens and look and analyze with experts your algo programs to see if you are violating the law. New regulatory world order, cats. If you are playing by the rules, and I know many of you are, all will be cool. You won’t have anything to worry about. If you aren’t playing by the rules, watch out. You can’t hide. We may be slower than you, but we are a persistent breed of our own.


Asante!
Finally, we all want efficient and effective markets that are devoid of fraud, abuse, manipulation and things like wash trading. Right? Right. That will make it better for everyone. It will make it better for other market participants, but it will make it better for consumers and our nation’s economy.

Asante! That means thanks. Asante, asante, guys. Thank you

CFTC COMMISSIONER CHILTON'S KEYNOTE ADDRESS TO NATIONAL ENERGY MARKETERS ASSOCIATION

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
"The Energizers"

Keynote Address by Commissioner Bart Chilton to the National Energy Marketers Association, Washington, DC

April 30, 2013

Introduction

Thank you. Thanks for the introduction and I appreciate the invitation from Craig (Goodman) and appreciate your service to our country for so many years as part of several administrations.

It’s good to be with you today at your Annual Restructuring Conference. I am so down with your theme, by the way: "How to serve the public interest using competitive markets." It may be a shocker for you, but not everybody that comes to see me at CFTC has the public interest in mind—surprise, surprise, surprise! In other remarks, I’ve spoken about the need for a culture shift in many corporate boardrooms and suggested that profit and loss statements shouldn’t be the only thing they think about. To some, it might seem like heresy, but there is an essential place in corporate boardrooms and executive suites for considering the greater good, the consumer, and the public interest. That’s all on that topic because you all clearly get it. You go! Let me make a toast: Here’s to hoping more aspire to be like you and that you keep going and going and going. Cheers.

The Energizers

And on that going and going note, one thing I’ve long admired about folks like you is the way you use markets as they were originally intended—to mitigate risk and help with price discovery. You need to because like the Energizer Bunny, you have to keep going and going and going or your customers will suffer.

In other words, that’s part of what makes you so reliable—you! It’s hard to hedge risk on just about anything, but when you’re hedging based upon how hot a summer you think it will be or tweaking your positions based upon the afternoon wind speed, that’s truly tough. It is beyond challenging. Maybe you guys can all do it fairly seamlessly, but it sure looks impressive from the outside. And that’s for people who are looking. I don’t think most folks have anywhere near a visual about how difficult that is to do. You are very reliable because of your efforts and you simply keep going and going and going.

Reliable Regulators?

What about us in government, people like me and my organization? Are we as reliable as we should be? Think back to 2008 when an irresponsible Wall Street and unreliable regulators stood by and watched the whole economy collapse. Nine million people lost their jobs; many more their homes. Something had to be done and it was done in the form of Dodd-Frank. That law gives regulators the tools to be reliable at keeping Wall Street responsible. It’s not all implemented yet, but we are trying. We are going and going and going. Eventually, we will get it done.

So today, let’s talk about why that—getting Dodd-Frank done—is categorically important.

Massive Passives

Here’s one example: The "financialization" of commodity markets by traders I call Massive Passives. These guys, at times, are impacting markets and your ability to properly hedge your risk. Between 2005 and 2008 we saw roughly $200 billion come into the regulated futures markets in the U.S.—$200 billion! And that’s just what we know about. At that time, we didn’t have the access to see everything going on in unregulated over-the-counter markets. With Dodd-Frank, we do and we have greater transparency. But, what we’ve seen isn’t all that pretty.

So, where’d this $200 billion-with-"B" come from? Say a pension fund wanted to diversify into commodities. That’s generally OK, right? But the type of trading that they and exchange traded funds and mutual funds and other managed money do (not all the time, but generally) is different than what speculators used to do. Instead of getting in and out of markets, maybe based upon a drought or other natural disaster, or in the energy markets getting in or out related to the weather, the driving season, OPEC or a refinery breakdown, these very large funds put money in the markets and park it. They are relatively price insensitive. They don’t get in or out of the market because prices change a little here or there. They are in it for the longer haul. They invest more like folks invest in the stock markets.

Back in the day, perhaps a Dad said to his kids:

Sonny Boy, Girly Sue, let me explain investing to you

As a stock holder, when we get older

you’ll recall this chat about stock this and stock that

You’ll remember I said with a grin

that these shares of….Energizer Holdings or something akin,

will be worth something then

So, we’re gonna hold onto these bad boys

We are going to keep going and going and going with them

Someday, when then arrives, we’ll be rich. It will change our lives!

That’s how wealth derives

High fives!

So, the Massive Passives took a tried and true strategy for stocks and used it in futures. I’m certainly not suggesting that they should be kicked out of our markets—no, no, no. Nevertheless, this type of trading strategy is a concern.

Massive Passives are a concern because too much concentration in markets can influence prices. Now, many people would say that any liquidity is good liquidity. But, are we sure? There are times when there is so much Massive Passive liquidity on the buy side—those going long and staying long—that prices cannot be based on the fundamentals of supply and demand. I’ve seen in energy markets 12 longs for every short. But you folks don’t need to see that data to know all this. You’ve seen it firsthand. You’ve felt it, smelled it and tasted it. You know it: 2008 crude with a rude tude that tattooed many companies, end users and consumers alike.

Crude went from just under $100 a barrel all the way up to the mid-140s and then all the way back down to 30 bucks. Supply and demand fundamentals do all of that? Oh no they didn’t! You know they didn’t.

By the way, in 2008 when the crude price dropped late in the year, it was when the economy was going someplace in a hand basket. Even the Massive Passives weren’t so passive. And, if they exit a market en masse, they can contribute significantly to price declines. We have witnessed some reciprocal downturns even recently—cough cough—precious metals, for example.

It hasn’t gotten better since ’08. We’ve seen well over the amount of speculation we had in 2008 at various times since then. With such large concentrations of market participants, it continues to raise the concern about how prices can be contorted. That’s not good for the traditional market participants like you, nor for consumers or the economy.

In response to what was going on in 2008, Congress instructed us as part of Dodd-Frank to put in place speculative position limits, limiting the position any one trader could have in a particular commodity. OK, the limits aren’t in place yet. We got lobbied, pressured, sued and screwed. But, to paraphrase, the reports of our death have been greatly exaggerated. We are going and going and going to get limits in place…period. Congress wanted them; President Obama wants them; traditional market participants want them and I want them. We have appealed a court decision and at the same time we are working on yet another position limits rule that will address the issues raised by the court. If we do not meet and approve that rule in May or June, it would surprise, surprise, surprise the daylights out of me. Not to do so would be irresponsible. It’d be a shocker for me.

Cheetahs

The bottom line is that you guys, end-users, should be able to hedge without getting crushed by the Massive Passives. And, you shouldn’t have to worry about another potential threat to your hedging: high frequency traders—those traders I have termed "cheetahs" because they (like the cats) are so fast, fast, fast. And guess what? These high frequency trading cheetahs also keep going and going and going. Yepper, they are in markets 24-7-365 trying to scoop up micro dollars in milliseconds. End-users shouldn’t be easy prey that can be mauled by the cheetahs.

Research that we have done suggests the cheetahs make the most when they trade with smaller traders, but they still make plenty when they trade with fundamental traders. That’s some of you folks—end users. Are these cats the new middlemen? Many end users have told me so. And guess what? They aren’t even required to be registered. They aren’t required to test their programs before they get put into the live production environments (the markets), and they aren’t required to have kill switches in case their cheetah programs go feral.

So, we need to ensure that you guys, end-users aren’t stifled in your ability to hedge by the Massive Passives or the cheetahs.

The End-User Bill of Rights

Finally, I don’t have to tell you that one group that got hurt in the economic meltdown was end-users. That’s part of the reason that as we look at implementing Dodd-Frank and look to see what should be done with the cheetahs, we go forward in a thoughtful manner for end-users. So that’s why a month ago, I proposed an "End-User Bill of Rights," and I want to spend my final few minutes on that today.

Here is the beastly bottom line: The futures and swaps markets wouldn't exist without end-users. The primary public benefit of derivative markets is that they provide end-users risk management opportunities that, in turn, allow them to more easily fund operations and investments and thereby generate economic growth. The ability of end-users to fund their operations is directly related to the prices paid by consumers and the overall well-being of our economy, and as you guys say—the public interest. It is that greater good we spoke about earlier. So, protecting the end-users is akin to protecting the every-day consumer. The End-User Bill of Rights therefore focuses on what should be the inalienable rights of end-users. I won’t walk through all ten, but let me hit a few highlights. Then, we also have a handout here of all ten of them and more detail if you’d like.

1. Right to reasonable Dodd-Frank implementation. Dodd-Frank needs to be implemented and needs to be implemented quickly, but that does not mean it should be done chaotically. We need to be sensible and need to provide answers to all questions before we get all regulator on folks with talk of any action.

In that same vein

2. Right to legal certainty. The Commission needs to provide the market as much legal certainty as possible as we move through a challenging implementation period. End-users and other market participants should have little doubt as to the status of their activities and the Commission and staff should respond thoughtfully and diligently to requests for legal certainty.

And the last one I’ll mention is…

3. Right to be heard. Many end-users are not used to having their swaps activity subject to CFTC regulation. During and after Dodd-Frank implementation, we need a venue for end-users to air those concerns. Some of you folks have never ever been regulated by the CFTC. We need to understand what you do better and you need to become better acquainted with us. So, let’s do lunch (kidding). Here’s a better idea. Let’s establish at the CFTC an End-User Advisory Committee (EUAC). The EUAC could be a good mix of folks from the end-user community that meets with the Commission on a regularized basis. We have these advisory committees for other areas, and I think it is time for one that focusses on end-users, particularly.

I could keep going and going, but I need to wrap this thing.

Conclusion: Keep Going and Going and Going

So those are just some examples of what we as a Commission are doing to try to bring reliability to these important markets we regulate, and, to ensure that they are fair, and that they are competitive. We’re going and going and going. And we want to keep listening and listening and listening to folks like you who know something about reliability, public interest and competitive markets. You are the ones who can help us get the regulations right.

My message is: We need to be able to adjust to the changing market world we live in. That means working with you folks, getting a handle on the Massive Passives and the cheetahs, and getting all the Dodd-Frank rules in place in an appropriate manner.

Thank you.

CFTC COMMISSIONER CHILTON SETS OUT TEN PRINCIPLES FOR A MORE "TRANSPARENT DODD-FRANK REGULATORY REGIME"

FROM: U.S. COMMODITY FUTURES TRADING COMMISSION
"The End-User Bill of Rights"

Statement of Commissioner Bart Chilton
April 3, 2013

We are one week away from an important date in Dodd-Frank implementation: the April 10 compliance date for Dodd-Frank swap reporting rules for end-users. This date represents the first major compliance date for the end-user community, a class of market participants that includes many who have not been regulated by the CFTC until now.

As we move one step closer to the full implementation of Dodd-Frank, I’m reminded of another important transition, one from over 220 years ago, the transition of this great nation from a colonial monarchy to a national democracy. At the dawn of the United States of America, the founding fathers set out ten principles, the "Bill of Rights" that would bind the new national democratic government. Similarly, today I am setting out ten principles to guide the Commission as we move into a new, more transparent Dodd-Frank regulatory regime. I believe these principles best protect our consumers and end-users who help move our economy forward—and let's keep in mind that these end-users were not the cause of the financial crisis that lead to financial reform. In fact, end-users were among the many victims of the crisis and much of Dodd-Frank was drafted with their interests in mind.

The futures and swaps markets wouldn't exist without end-users. The primary public benefit of derivatives markets is that they provide end-users risk management opportunities that, in turn, allow them to more easily fund operations and investments and thereby generate economic growth. The ability of end-users to fund their operations is directly related to the prices paid by consumers and the overall well-being of our economy; so protecting the end-users is akin to protecting the every-day consumer. The End-User Bill of Rights therefore focuses on what I believe should be the inalienable rights of end-users:

1. Right to reasonable Dodd-Frank implementation. Dodd-Frank needs to be implemented and needs to be implemented quickly, but that does not mean it should be done so harshly. Back in December 2012, I supported the Commission providing good faith forbearance relief for swap dealers (SDs) and major swap participants (MSPs) until July 31, 2013 (under certain circumstances) when trying in earnest to come into compliance with new CFTC Dodd-Frank rules. Consistent with that six month forbearance relief, I will not approve an action against end-users seeking to comply with CFTC Dodd-Frank rules in good faith, provided they act in ways consistent with a good faith intention to comply, until after October 31, 2013.

2. Right to legal certainty. The Commission and the Commission staff need to provide the market as much legal certainty as possible as we move through a challenging implementation period. End-users and other market participants should have little doubt as to the status of their activities and the Commission and staff should respond thoughtfully and diligently to requests for legal certainty. When an answer isn’t easy to provide, then the Commission or staff should be as transparent as possible with the public. The Commission or staff should strive to provide the market relief or clarity well in advance of a compliance date—last minute relief and clarification should be avoided. Finally, during this implementation of Dodd-Frank, I will not support an action against an end-user, exchange, or anyone else on an issue deserving clarity that is the subject of an outstanding request for interpretive guidance.

To provide a specific example of where the Commission could assist the end-user community with additional legal clarity, take the legal status of trade options. The Commission should tighten our guidance on commodity contracts with volumetric optionality, consistent with Commission precedent. At the same time, the Commission should focus on implementing Dodd-Frank for non-trade option swaps and broaden the trade option exemption in order to minimize any market disruptions in the trade options market. We should give end-users the opportunity to meet their statutory obligation to report trade options through an annual Form TO so that the Commission can monitor these markets for problems or evasion.

3. Right to compete in the markets. End-users should be able to hedge without getting mauled by cheetahs or crushed by Massive Passives. To protect end-users' right to compete in the markets, the Commission should start with two common sense rulemakings: First, we need high-frequency trader registration and conduct rules to prevent cheetahs from going feral. We should also provide the public market quality metrics designed to help end-users and other non-cheetahs from distinguishing between false cheetah liquidity and true liquidity. Second, we need caps on speculation so that the commodity markets return to their principal role as risk management markets for end-users. The commodity markets worked best when end-users were the predominant players. The Commission should move quickly on a new proposal on speculation limits by May 1.

4. Right to safe accounts. We need strong rules and rigorous auditing to ensure that futures commission merchants (FCMs) don't abuse their role as intermediaries while not imposing undue burdens on FCMs that provide end-users access to critical risk management markets (including a sensible compromise on residual interest). End-users should also have the right to choose between full segregation or to have their money at an FCM. If we require the availability of this option, the market will provide end-users better and more competitively-priced access to full segregation. Congress should also act to give end-users backstop protection through federally-mandated insurance.

5. Right to have confidence in the commodity markets. End-users should be confident that their intermediaries, FCMs and SDs in particular, are appropriately regulated and supervised. The Commission needs to establish rules that do this and ensure they are being enforced. The Commission needs bigger penalties to deter the abuses that threaten the health and stability of the markets. I have called for raising civil monetary penalty maximums to $10 million for entities and $1 million for individuals. The current $140,000 maximum civil monetary penalty is simply an inadequate deterrence for an agency tasked with, among other things, deterring manipulation and preventing systemic risk. Today’s regulatory infractions can spawn tomorrow’s financial meltdown and the Commission should be able to seek penalties to deter the malfeasance and negligence that can contribute to systemic problems.

6. Right to clear (or not to clear). The right to clear or not to clear should be protected for end-users. Central hedging units for non-financial end-users should be free to clear or not to clear on transactions that mitigate commercial risks for their corporate group. End-users that use inter-affiliate swaps to centralize and manage risk across a corporate group through a central hedging unit should be given the flexibility to clear or not to clear. End-users’ inter-affiliate swaps should also be exempt from transaction-by-transaction reporting. The Commission should move quickly to provide relief from reporting requirements for inter-affiliate transactions for end-users.

7. Right to margin flexibility and reasonable capital rules. Under-collateralization has not been an end-user problem. Accordingly, I support the latest February 2013 IOSCO/Basel consultation that would exempt non-financial entities that are not systemically important from prescriptive margin requirements. The Commission also needs to come up with a sensible compromise on capital requirements for non-financial SDs. The Commission should encourage non-financial SDs to register. Non-financial SDs provide competition to financial SDs and their presence lets end-users hedge their risks on more competitive terms. On the one hand, Commission capital rules should ensure non-financial SDs have adequate capital to fall back on in the event of market or portfolio stresses. On the other hand, these rules should not put non-financial SDs at a competitive disadvantage.

8. Right to hedge. Speculative position limits should encourage and not unduly complicate prudent commercial risk management practices. Public power end-users using swaps to hedge commercial risk should have the same access to risk management markets as privately-owned utilities. This should be done preferably through regulatory relief.

9. Right to smart regulation. As we move through implementation, we are going to find smarter ways to accomplish regulatory policy goals. The Commission owes the end-user community a commitment that it will amend its rules when these smarter ways become apparent. For example, there may be more prudent ways to implement Part 46 historical swaps reporting for end-users that the Commission should consider. In the interim, the Commission should give end-users a six month reprieve, through October 2013, for historical swaps reporting requirements.

10. Right to be heard. SDs and MSPs are, by definition, big boys and girls who’ve seen the writing on the wall for years. As Commission registrants and as large financial conglomerates, they can go to the NFA or industry organizations like ISDA for guidance on how to comply with our rules. NFA and ISDA and similar organizations have experience orchestrating change on an industry-wide basis. Many end-users, on the other hand, are not used to having their swaps activity subject to CFTC regulation. During and after Dodd-Frank implementation we need a venue for end-users to air their concerns. I call for an End-User Advisory Committee (EUAC) with regularized meetings. End-users face an array of unique compliance challenges and legitimate business and regulatory concerns that warrant the Commission’s focused attention.

Just like the Constitution is subject to amendment (some of the best amendments came almost eighty years after the first ratified draft), so is this document. I look forward to working with end-users, consumers, SDs, MSPs, FCMs, and others as we move through an exciting and challenging implementation period and invite their comments on this End-User Bill of Rights. If we do our jobs as regulators and implement Dodd-Frank quickly and reasonably, the markets will improve for the benefit of end-users and the American public. That was the goal of Congress and that continues to be my goal.