SPEECHES & TESTIMONY
Remarks of Chairman J. Christopher Giancarlo at the U.S. Department of Agriculture (USDA) 95th Annual Outlook Forum
February 21, 2019
Secretary Perdue, Deputy Secretary Censky, USDA Chief Economist Rob Johanssen, USDA staff, my CFTC colleagues and other distinguished guests: thank you for the opportunity to speak to you tonight at United States Department of Agriculture’s 95th Outlook Forum.
For almost a century, this forum has brought together thought leaders to consider critical issues facing agriculture. I applaud the Department for this enduring institution. It is tremendously important.
I am very honored to be speaking to you. You know, the chances were pretty slim that a guy like me from New Jersey, would ever become chairman of the U.S. Commodity Futures Trading Commission. The odds were even thinner that two people, Commissioner Russ Behnam and I, from the same country in New Jersey would serve together at the CFTC, as we do today.
Believe me, the odds were almost impossible that a Jersey guy would be the dinner speaker at the USDA’s big annual event!
But, again this is America, where amazing things happen all the time.
Depth and Diversity of American Agriculture
And, you know, there’s a reason New Jersey is called the “Garden State.” It is a top producer for such items as cranberries, blueberries, peaches, bell peppers, spinach and tomatoes. Its diversity of agriculture production compares favorably with America’s largest fruit, vegetable and nursery-stock producing states. It is notable that, based on highest dollar value per acre, New Jersey is the most productive farmland in the United States.
And, I know that Secretary Purdue is aware of this, because he just spent a few days touring New Jersey farms and meeting its producers. Our state and our country is fortunate to have such an Agriculture Secretary who is so tireless in understanding the concerns of American farms – from the smallest patch to the largest expanse – and fighting for their success.
Back in 2014, when President Obama nominated me to the Commodity Futures Trading Commission, I made a commitment to the Senate Committee on Agriculture that I would travel the country and meet with farmers and ranchers. I promised to learn about their businesses and see first-hand the challenges they face.
In 2017, when President Trump nominated me to be Chairman of the CFTC, I renewed that pledge to keep agriculture and its challenges front and center at the agency.
During my term, I have travelled the country and visited farm country in over two dozen states from Montana, Texas, Arkansas, Louisiana and Iowa to Minnesota, Missouri, New York, Georgia, Mississippi and Oklahoma. I have walked in wheat fields and harvested soybeans, tramped through rice farms and beneath pecan groves, milked dairy cows and toured feed lots, visited grain elevators and viewed cotton gins. Throughout, I have been moved by the diverse beauty of this country. I have come to love its farming families. I know what a blessing that has been.
And, what an education for a kid from Jersey. I was struck by the creative and innovative approaches underway in American agriculture. They reflect fortitude and drive required to meet the challenges of the 21st century. It is clear that producers are first and foremost business owners who must stay focused on developments in their industry both technologically and commercially. Food production in the 21st century requires enormous ingenuity, technological savvy and expertise. Staying competitive in today’s global economy requires new tools to keep up with growing world food demands while protecting the environment, managing costs and risk.
And, as we all know, agriculture is a risky business – which I believe is why I am here with you tonight.
Commodity Derivatives Help Manage Production Risk
For more than a century, American farmers have relied on U.S. derivatives markets to manage risk. These markets allow farmers, ranchers, and producers to hedge production costs and delivery prices so that consumers can always find plenty of food on grocery store shelves. They are one reason why American consumers enjoy stable prices, not only in the supermarket, but in all manner of consumer finance from auto loans to household purchases.
Derivatives markets influence the price and availability of heating in American homes, the energy used in factories, the interest rates borrowers pay on home mortgages, and the returns workers earn on their retirement savings.
Commodity derivatives markets provide a critical source of information about future harvest prices. A grain elevator uses the futures market as the basis for the price it offers local farmers at harvest. In return, farmers look to exchange prices to determine for themselves whether they are getting fair value for their production. USDA uses that same information to make price projections, determine volatility measures, and make payouts on crop insurance.
More than 90% of Fortune 500 companies use derivatives to manage commercial or market risk in their worldwide business operations. These markets allow the risks of variable production costs, such as the price of raw materials, energy, foreign currency, and interest rates, to be transferred from those who cannot afford them to those who can.
In short, derivatives serve the needs of American society to help moderate price, supply and other commercial risks to free up capital for economic growth, job creation and prosperity. While often derided in the tabloid press as “risky,” derivatives – when used properly – are tools for efficient risk transfer and mitigation. It has been estimated that the use of commercial derivatives added 1.1% to the size of the U.S. economy between 2003 and 2012.
US Commodity Futures Are a Global Product
Today, American derivatives markets are the world’s largest, most developed, and most influential. They are relatively unmatched in their depth and breadth, providing deep pools of trading liquidity, low transaction cost and friction and participation by a diverse array of global counterparties. They are also some of the world’s fastest growing and technologically innovative.
U.S. derivatives markets are also unmatched in efficient and undistorted price discovery. The value of many of the world’s most important agricultural, mineral, and energy commodities is reliably established in U.S. futures markets. And those prices are set in U.S. dollars. Dollar pricing of the world’s commodities provides an enormous and unparalleled advantage to American producers in global commerce. The advantage being that, with dollar pricing, both producers and consumers do not need a currency hedge on top of their commodities hedges.
We cannot take for granted having the world’s leading futures markets. There have been serious new entrants, like China, the world’s largest consumer of oil and fuel and a major global purchaser of iron ore for its world leading steel production. China is opening its domestic futures markets to international participation. It is also seeking to develop Chinese commodity futures markets as viable regional price benchmarks for key industrial commodities. Slower growing economies, like Europe’s, also seek to increase their competitiveness against U.S. Dollar pricing of global commodities.
These moves challenge us to ensure that America’s well-regulated derivatives markets remain open, orderly and highly liquid. We must do everything we can to ensure that they continue to provide domestic and international participants with the world’s most accurate price discovery, lowest friction execution and the deepest trading liquidity. To borrow this forum’s theme – America’s futures markets are grown locally and used globally. Let’s keep it that way.
Independent and Effective Market Regulation
American derivatives markets are also the world’s best regulated. The United States is the only major country in the Organization for Economic Co-operation and Development to have a regulatory agency specifically dedicated to derivatives market regulation: the CFTC. There is a connection between having the world’s most competitive derivatives markets and effective Federal regulation. For over forty years, the CFTC has been recognized for its principles-based regulatory framework and econometrically-driven analysis. The CFTC is respected around the world for its depth of expertise and breadth of capability.
The combination of regulatory expertise and competency is one of the reasons why U.S. derivatives markets continue to serve the global need to hedge price and supply risk safely and efficiently. It is why well-regulated U.S. derivatives markets,by allowing low-cost and effective hedging, are of great benefit to American producers and consumers and to the rest of the world.
As some of you might know, the Commission was established as an independent agency in 1974, assuming responsibilities that had previously belonged to the Department of Agriculture since the 1920s with regulatory authority over the commodity futures markets. These markets have existed since the 1860s, beginning with agricultural commodities such as wheat, corn, and cotton. Over time, these commodity futures markets have grown to include those for energy and metals commodities such as crude oil, heating oil, gasoline, copper, gold, and silver. The agency now also oversees trading platforms for financial products such as interest rates, stock indexes, and foreign currency. On the heels of the 2008 financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act ( Dodd Frank Act ) giving the agency oversight of the more than $400 trillion swaps market, which is about twelve times the size of the futures market.
Yet, the agency’s value proposition is less about the enormous size of the markets it regulates, but the effectiveness of its work and independence from political control. The framers of the U.S. market regulatory structure wisely made the CFTC an independent agency, not under the direct control of the executive branch, but subject to thoughtful oversight by Congress. The effect is to shield it from the political tempests of the times, to regulate in the best interest of markets and not in furtherance of a broader political agenda.
Having served under both the Obama and Trump Administrations, I have witnessed a consistent abstention from interference in the CFTC’s regulatory mission. And that is right. It is a credit to U.S. political institutions. Society may choose to address such concerns as climate change, poverty or gender discrimination, but they are properly addressed through legislative and executive initiative. The job of regulators is to oversee trading markets that fairly value those concerns, not promote or institute them.
I believe that insulation from political control and singular, dedicated regulation are among the key reasons why U.S. markets remain the world’s preeminent. And interestingly, despite being the most venerable, U.S. futures markets are today among the fastest growing markets in the world. Their continued ability to attract global capital and investment reflects their universally-recognized integrity and independence from particular government social, monetary or political policies.
Renewed Focus on Market Evolution
Upon becoming Chairman, I made some institutional changes designed to refocus the agency on better understanding the current evolution of markets. In 2017, we set up the Market Intelligence Branch as part of the CFTC’s Division of Market Oversight. The work of the new branch is important. It is to understand, analyze and communicate current and emerging derivatives market dynamics, developments and trends – such as the impact of new technologies and trading methodologies. The Market Intelligence Branch is set up to increase the Commission’s knowledge of evolving market structures and practices in order to inform sound policymaking at the Commission.
Market Intelligence staff provide a brief summary of market news twice daily, and every Friday they provide a report of key market developments to the Commissioners and senior staff. They also brief other U.S. financial regulators, like the SEC, the Federal Reserve and the Treasury. In these briefings they cover the full range of derivatives markets: financial markets, energy markets, and, of course agricultural markets. Staff discuss the spectrum of issues affecting markets, from weather to global trade. In addition, about once a month, Market Intelligence and other CFTC staff present their findings on a major research topic. In the agriculture space these briefings have covered such matters as the impact of high frequency trading on futures markets and the effect of new block trading in grains markets.
In April of 2017, we also launched the CFTC’s first annual agricultural futures conference in Kansas City. The CFTC, along with Kansas State University, conducted a first-of-its-kind conference called, “Protecting America’s Agricultural Markets: An Agricultural Commodity Futures Conference.” I am proud to say that USDA Under Secretary Bill Northey was the keynote at our conference last year. Panelists discussed current macro-economic trends and issues affecting our markets, like market speculation, high frequency trading, trade data transparency, novel hedging practices and market manipulation. Participants looked at problems in convergence between cash and futures prices and volatile storage rates and heard about advances in distributed ledger technology, algorithmic trading and other emerging digital technologies, as well as current regulatory activities in protecting participants from manipulation, fraud and other unlawful activities.
Our common purpose was to hear from end users who use our markets to hedge risk and to consider and address issues of emerging market structure and trading practices to ensure that these markets remain the world’s most robust, dynamic and liquid for decades to come.
We will hold our second Ag futures conference on April 11-12, 2019. The program is excellent. I hope to see many of you there.
Renewed Commitment to Free Markets
As we focus our regulatory energies to better understand the changing dynamics of our commodity derivatives markets, we cannot deny that much is changing, and changing rapidly. New emerging digital technologies are pulling our farmers and ranchers into a virtual future, often beyond comprehension, with a powerful, gravitational pull. They are entering this virtual world with worries about trade, commerce, costs, and competition. And, as regulators, we needed to listen, and continue to listen. The greater the pace of change, the greater must be our capacity to keep pace, understand and harness it.
Yet, amidst all this change, I want to reassert for you tonight an enduring and true value. That is, the value proposition of free market capitalism. The proposition that broad and sustained prosperity generally occurs wherever in the world there are open and competitive markets, free of political interference, combined with free enterprise, personal choice, voluntary exchange and legal protection of person and property.
This value proposition is a source of human expression, aspiration and creativity. Freedom of choice is a social good in its own right, a moral and economic imperative. Life, liberty and the pursuit of happiness are about the freedom of the individual – not just moral or political freedom – but economic freedom as well, freedom to live in a self-directed manner and conduct commerce as one may determine.
Under free market capitalism, well-regulated and well-ordered trading activity is considered a forum of human self-expression and economic advancement. Freedom to act in the marketplace is a part of freedom itself. Billions of consumers, following their own self-interests and individual needs, make the decisions that direct the future, not have it directed for them.
For an emerging generation fascinated by crowd sourcing, free capital markets are the ultimate in crowd sourced decision making. Free markets should be the natural choice of today’s youth, who today and always, aspire to bright and self-actualized futures – something that is no more freely and openly chosen than under free market capitalism.
Conclusion: A Future of Human Potential
I personally hope that we can renew faith in free markets for ourselves and our children. We must not be afraid or be intimidated. We must renew our confidence in the value of our free market model. In so doing, we best encourage and reward the initiative, productivity, drive and dreams of everyone on this planet…not just for soybean growers in White Cloud, Kansas, dairy farmers in Melrose, Minnesota or cotton producers in Bardwell, Texas, but also for commodity traders in Chicago, swap dealers in New York and London and pension managers in Tokyo. We must do so for the sakes of the tomorrow’s citizens here at home and abroad, in developed economies and developing ones, in places that lack infrastructure, or nations with growing needs like the Congo or facing economic crisis like Venezuela.
We must confidently encourage the world to continue to follow this model of free market capitalism – a model that is unmatched in alleviating global poverty and unlocking human potential. We welcome others to join us in a future of untethered aspiration. A future where creativity and economic expression is a social good all by itself – and a good for us all.
With the proper balance of sound policy, regulatory oversight and private sector innovation, new technologies and global trading will allow our markets to evolve in responsible ways, and continue to grow the economy and increase prosperity.
Thank you again for the opportunity to talk with you this evening.
 Farm Flavor, New Jersey Agriculture Overview, December 10, 2013, at: https://www.farmflavor.com/new-jersey/new-jersey-family-farms/new-jersey-agriculture-overview/
 E.g., USDA, Informational Memorandum: PM-17-012, 2017 Crop Year (CY) Common Crop Insurance Policy and Area Risk Protection Insurance Projected Prices and Volatility Factors; Malting Barley Endorsement Projected Price Component and Volatility Factor; and Hybrid Seed Price Endorsement -Hybrid Seed Corn Prices (Mar. 1, 2017), available athttps://www.rma.usda.gov/bulletins/pm/2017/17-012.pdf.
 See International Swaps and Derivatives Association, 2009 ISDA Derivatives Usage Survey, ISDA Research Notes, No. 2 (Spring 2009), at 1-5, available at https://www.isda.org/a/SSiDE/isda-research-notes2.pdf.
 The Milken Institute found the following economic benefits to the U.S. economy from derivatives: “[b]anks’ use of derivatives, by permitting greater extension of credit to the private sector, increased U.S. quarterly real GDP by about $2.7 billion each quarter from Q1 2003 to Q3 2012; [d]erivatives use by non-financial firms increased U.S. quarterly real GDP by about $1 billion during the same period by improving their ability to undertake capital investments; [c]ombined, derivatives expanded U.S. real GDP by about $3.7 billion each quarter; [t]he total increase in economic activity was 1.1 percent ($149.5 billion) between 2003 and 2012; [b]y the end of 2012, employment had been boosted by 530,400 (0.6 percent) and industrial production 2.1 percent.” See Apanard Prabha et al., Deriving the Economic Impact of Derivatives, Milken Institute, at 1 (Mar. 2014), available at http://assets1b.milkeninstitute.org/assets/Publication/ResearchReport/PDF/Derivatives-Report.pdf.
 In the first quarter of 2018, the Shanghai International Energy Exchange launched a yuan-denominated crude oil contract allowing non-Chinese market participants to trade directly for the first time in the Chinese commodity markets. Shortly following this new contract, China opened yuan-denominated iron ore and bunker fuel oil contracts to international traders. There is also talk of China allowing international market participants to trade Chinese futures contracts in rubber, copper and even soybeans.
 Francesco Guarascio & Dmitry Zhdannikov, Reuters, EU Brings Industry Together to Tackle Dollar Dominance in Energy Trade, February 13, 2019, at: https://www.reuters.com/article/us-eu-oil-usa/eu-brings-industry-together-to-tackle-dollar-dominance-in-energy-trade-idUSKCN1Q21WB
February 21, 2019
Federal Court Imposes $15.7 Million Civil Penalty and Lifetime Trading Ban against Precious Metals Dealer and his Company in CFTC Anti-Fraud Action
In 2015, the CFTC Charged California Resident Hannes Tulving, Jr. and His Firm with Misappropriation and Fraudulent Solicitation in a Precious Metals Scheme that Defrauded at Least 381 Customers Nationwide
Washington, DC — The Commodity Futures Trading Commission (CFTC) announced today that Judge Robert J. Conrad Jr. of the U.S. District Court for the Western District of North Carolina entered a Supplemental Consent Order (Supplemental Order) against Defendants Hannes Tulving, Jr. (Tulving) of Newport Beach, California, and his company The Tulving Company, Inc., finding that they fraudulently solicited customers in connection with precious metals transactions, misappropriated customer funds, and concealed their fraud with false statements that the customer accounts were profitable.
The Supplemental Order, issued November 29, 2018, requires the Defendants to pay, jointly and severally, a civil monetary penalty of $15,761,432. The Supplemental Order follows the Court’s January 5, 2016 Consent Order of Permanent Injunction (Consent Order), which imposed permanent trading and registration bans against the Defendants, and prohibited them from committing further violations of the Commodity Exchange Act and CFTC Regulations, as charged.
Criminal Judgments Entered against Defendants
The Supplemental Order also follows the Court’s May 18, 2016, criminal judgments against both Defendants in a related criminal proceeding after they each pleaded guilty to one count of wire fraud and aiding and abetting in violation of 18 U.S.C. §1343 and 2. (See U.S.A. v. Tulving et al, No. 3:15-cr-00115-MOC (W.D.N.C. 2016.) The Court sentenced Tulving to 30 months in prison and ordered that Tulving and Tulving Company shall be jointly and severally liable for payment of restitution in the amount of $15,761,432.63 to specified victims.
Both the Consent and Supplemental Orders arise from a CFTC enforcement action filed on September 11, 2015, charging the Defendants with fraudulently offering contracts of sale of commodities in interstate commerce, namely, contracts for the sale of gold, silver, platinum, and palladium bullion and coin (precious metals), and misappropriating customer funds for improper and unauthorized uses, including for the Defendants’ own financial benefit (see CFTC Complaint and Press Release 7228-15, September 11, 2015).
The Consent Order found that from in or about August 2013 through in or about January 2014, Defendants represented to members of the public that Tulving Company was a large, stable, and highly reputable precious metals firm that delivered precious metals to customers. As a result, at least 381 persons from locations throughout the United States submitted orders with Tulving Company for the purchase of more than $150 million in precious metals; however, Defendants fraudulently failed to purchase precious metals with at least $15 million of the customers’ funds. Defendants knew that their representations to some of the customers regarding the purchase of precious metals were false because they did not purchase precious metals on behalf of some customers and, in fact, misappropriated a portion of customer funds by, among other things, using customer funds to fulfill other customers’ orders, paying debts of the company, and also returning the money to previous customers who did not receive their coins, all in furtherance of keeping the business going.
The Court further found that Tulving acted as the sole controlling person and agent of Tulving Company. He was the sole shareholder and president of Tulving Company, and he was the sole person responsible for making business decisions on behalf of Tulving Company and controlled the operations of the Company.
The CFTC cautions that Orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.
CFTC Division of Enforcement staff members responsible for this case are Luke B. Marsh, Richard Foelber, Dmitriy Vilensky, and Paul G. Hayeck.
* * * *
CFTC’s Precious Metals Customer Fraud Advisory
The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Precious Metals Fraud Advisory, which alerts customers to precious metals fraud and lists simple ways to spot precious metals scams.
Also, before investing or trading with a firm, check the firm’s registration status and disciplinary history, if registered, with the National Futures Association. A company’s registration status can be found at: www.nfa.futures.org/basicnet.
Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.
February 19, 2019
CFTC’s Division of Market Oversight Announces Mel Gunewardena as Deputy Director of the Market Intelligence Branch and the Agency’s Chief Market Intelligence Officer
Washington, DC — The Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) announced today that Mel Gunewardena has been named Deputy Director of the Market Intelligence Branch (MIB) and CFTC’s Chief Market Intelligence Officer.
“Mel’s market experience will be a superb addition to the agency,” said CFTC Chairman J. Christopher Giancarlo. “Since its creation in 2017, the Market Intelligence Branch has used a data-driven approach to provide insights into the derivatives sector for the staff and leadership of the CFTC, as well as other financial regulators. Under Mel’s leadership, I expect that MIB will continue to produce meaningful intelligence and data about our markets.”
DMO Director Amir Zaidi said, “I am pleased that Mel has accepted this important role. His extensive experience in domestic and international financial markets is a major asset to the CFTC as we continue to build our market intelligence capabilities and keep pace with the rapidly evolving derivatives markets.”
Prior to joining the CFTC, Gunewardena was a Managing Director at Goldman Sachs, Deutsche Bank, and State Street and a former Co-Managing Partner of G Capital Fund Management LLC. Gunewardena has held numerous senior global roles in global markets trading, finance, over-the-counter, and derivatives clearing and has significant international experience having worked in Hong Kong and London, in addition to New York and Boston.
Gunewardena has also led various local emerging markets business initiatives in foreign exchange, derivatives, futures, and fixed income securities in Latin American markets, namely Brazil and Mexico; Asian markets, including Taiwan, South Korea, Indonesia, and Malaysia; and in Eastern Europe. In the industry, Gunewardena was a former board member of CLS Bank Holdings, CLS Services Limited, and Markit Partners. He brings extensive experience in global markets across trading practice, risk management, compliance, and clearing services to the CFTC’s work.
MIB, a branch in CFTC’s DMO, is tasked with analyzing data and information from multiple sources to evaluate current derivatives market conditions and identifying emerging market dynamics, developments, and trends. MIB also leads critical studies in these markets and provides advice on policy, risk management, and oversight matters to the CFTC, as well as shares information with various stakeholders such as Congress and the general public.
February 19, 2019
Commissioners Submit Comment on Prudential Regulators’ Proposed Rulemaking
Washington, DC — Commissioners of the U.S. Commodity Futures Trading Commission (CFTC) submitted a comment on the notice of proposed rulemaking issued by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation to implement a new approach for calculating the exposure amount of derivatives contracts under the agencies’ regulatory capital rules. Commissioners Brian Quintenz, Rostin Behnam, and Dan Berkovitz signed the comment, and were joined by Chairman J. Christopher Giancarlo.
“I would like to thank Commissioner Brian Quintenz for his leadership on this letter, and commend the Commissioners for their collaboration,” said Chairman Giancarlo. “It expresses the continuing concern of the Commissioners beginning with the prior Chairman that the supplementary leverage ratio has a negative impact on the clearing mandate.”
In their letter, the Commissioners explained that the calculation of the supplementary leverage ratio (SLR) in the prudential regulators’ proposed rulemaking fails to acknowledge the risk-reducing impact of client initial margin that the clearing member client banking organizations hold on behalf of clients. “The adoption of SA-CCR without offset will maintain or increase the clearing members’ SLRs by more than 30 basis points on average will continue to disincentivize clearing members from providing clearing services, and thereby limit access to clearing in contravention of G20 mandates and Dodd-Frank,” they said in the letter.
“Capital standards and clearing of standardized derivatives are two fundamental components of financial regulatory reform under the Dodd-Frank Act. When implemented appropriately, bank capital standards for uncleared and cleared swaps should not discourage central clearing,” the letter continues. “However, market data, academic research, and feedback from a diverse landscape of financial and end user firms indicate that one of the implemented capital standards – namely, the SLRs – is working counterproductively, limiting access to derivatives risk management strategies and discouraging the central clearing of standardized swap products.
“Under the CFTC’s regulations, when margin is segregated, it remains the property of the client. The clearing member may only use client funds to meet that client’s obligations. In the event of a client default, the clearing member may use the client’s margin to cover losses resulting from the client’s positions. The clearing member cannot use segregated client margin to leverage itself under any circumstance.
“Segregated margin is, by definition, risk-reducing,” the Commissioners write. “Failing to reduce a clearing member’s exposure by the segregated client margin it holds results in an inflated measure of the clearing member’s exposure for a cleared trade.”
Commissioner Dawn Stump recused herself from commenting on the proposed rulemaking.
February 15, 2019
CFTC Chairman Giancarlo Seeks Nominations for Agricultural Advisory Committee Membership
Washington, DC — Commodity Futures Trading Commission (CFTC or Commission) Chairman J. Christopher Giancarlo, sponsor of the Agricultural Advisory Committee (AAC), announced today the CFTC is seeking nominations for membership and public input on the AAC’s priorities. The deadline for submissions is March 1, 2019.
“I’d like to thank Commissioner Behnam for his sponsorship of the Agricultural Advisory Committee this past year. I am excited to assume the sponsorship of this important committee and to welcome new and returning members to serve,” said Chairman Giancarlo. “Agricultural commodity prices play a critical role in decision-making and resource allocation across the supply chain, enhancing the overall competitiveness of the US agricultural sector. As the agricultural derivatives marketplace continues to evolve and innovate, we must ensure that the critical functions of price discovery and risk management endure. In reconstituting the Committee and developing its agenda, I look forward to hearing from a broad range of agricultural producers, processors and end users, as well as other regulators and stakeholders, to chart the AAC’s course.”
In a Federal Register notice published today, Chairman Giancarlo invites organizations and members of the public to nominate individuals for membership on the AAC. Self-nominations are also acceptable; government employees may also serve on the AAC in an official capacity.
CFTC’s Advisory Committees were created to seek input and make recommendations to the Commission on a variety of regulatory and market issues that affect the integrity and competitiveness of U.S. markets. The committees facilitate communication among the Commission and U.S. markets, trading firms, market participants, advocates and commercial end users.
Specifically, the AAC provides the Commission with input to assess issues affecting agricultural producers, processors, lenders and others interested in or affected by the agricultural commodity derivatives markets.
February 14, 2019
CFTC Charges Principal of a Purported Commodity Trading Firm with Social Media Based Fraudulent Scheme
Washington, DC — The Commodity Futures Trading Commission (CFTC) today announced that a federal court in a CFTC enforcement action entered a preliminary injunction prohibiting defendant Kelvin O. Ramirez (Ramirez), of Houston, Texas from engaging in fraud, misappropriation of customer funds, and regulatory violations in connection with an off-exchange foreign currency (forex) scheme. The CFTC’s complaint charges that Ramirez defrauded more than 140 clients by falsely claiming he had millions of dollars in assets under management when he did not and there is no evidence of him trading. Instead, as alleged, he absconded with his clients’ money.
James McDonald, CFTC’s Director of Enforcement, said “This case shows the CFTC’s continued commitment to rooting out fraud in our markets, whether it flows through traditional avenues or new ones, like the social-media based scheme alleged here. As social media becomes more prevalent, we caution customers to perform appropriate due diligence regarding any investment solicitations they receive over those platforms.”
The preliminary injunction order, issued on January 29, also continued a freeze of Ramirez’s assets and preservation of records ordered by the court on January 15.
Specifically, the CFTC Complaint, filed on January 14, in the U.S. District Court for the Southern District of Texas, alleges that from as early as 2015 to the present, Ramirez defrauded more than 140 people by fraudulently soliciting them to (1) invest in commodity pools that purportedly trade in forex, (2) trade forex through accounts managed by Ramirez, and (3) subscribe to his forex trading education and signals service, then misappropriating the funds provided to him for these purposes. Ramirez allegedly lured his clients primarily through social media — including Instagram, WhatsApp, and similar platforms. Among other alleged misrepresentations, Ramirez’s solicitations touted his hundreds of thousands of dollars in weekly forex trading profits; a lavish lifestyle funded through his profits; his growing multi-million dollar personal bank balance; and a managed forex trading pool with millions of dollars in assets under management. Ramirez’s solicitations allegedly promised his clients return of their principal plus extravagant profits paid periodically during the investment term with virtually no warning of the risk associated with trading. As alleged, all of these representations were false, and Ramirez essentially stole his clients’ money.
Also as alleged in the Complaint, in operating his fraudulent business, Ramirez was required but failed to register as a Commodity Pool Operator and Commodity Trading Advisor and committed other related regulatory violations.
In its continuing litigation against Ramirez, the CFTC seeks restitution to defrauded clients, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction against future violations of federal commodities laws, as charged.
The CFTC thanks and acknowledges the assistance of the St. Vincent and the Grenadines Financial Services Authority.
CFTC Division of Enforcement staff members responsible for this case are Daniel Jordan, Diana Dietrich, Michael Loconte, Erica Bodin and Rick Glaser.
* * * * * * *
CFTC’s Foreign Currency (Forex) Fraud Advisory
The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Foreign Currency Trading (Forex) Fraud Advisory, which states that the CFTC has witnessed a sharp rise in Forex trading scams in recent years and helps customers identify this potential fraud.
SPEECHES & TESTIMONY
Giancarlo: Bipartisanship, Goodwill and Common Sense Guided CFTC Through Government Shutdown
January 28, 2019
Washington, DC – U.S. Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo issued the following statement regarding the CFTC’s return to operations:
“Following the Friday evening announcement of the continuing resolution to reopen the government, the CFTC resumed operations. Today, we enthusiastically welcomed back hundreds of employees to our offices in Washington, Kansas City, Chicago and New York. We are grateful for the professional manner in which they handled the uncertainty of the shutdown.
“While the lapse in appropriations meant that much of the CFTC’s work was required by law to cease, the CFTC continued to perform essential market-critical functions throughout the shutdown. The agency was well prepared, utilizing its Lapse in Appropriations action plan adopted a year ago. A small team of agency staff continued to monitor derivatives markets and ensured that essential enforcement activities were carried out. Personnel performing these excepted functions remained in communication throughout with key market participants and self-regulatory organizations. They deserve our thanks and gratitude.
“The particular nature and length of this shutdown required the CFTC to address many challenging and unprecedented issues. This included assessing which agency activities became increasingly essential over time and recalling furloughed staff to perform these functions. Much of the analysis and response was handled by CFTC Chief of Staff Mike Gill, General Counsel Dan Davis and Executive Director Tony Thompson. They addressed complex questions in an intelligent and balanced fashion.
“Undoubtedly, the situation was a source of uncertainty, anxiety and even hardship for many CFTC employees and their families. The entire Commission and its senior staff were concerned throughout for their colleagues’ welfare. The situation was a reminder of the outstanding talent and capability of the CFTC’s workforce as well as their public service, for which we are grateful.
“Yet, what made the CFTC’s handling of the shutdown most effective was the goodwill and cooperation brought to bear by all five of its Commissioners. Over five weeks, the Commissioners gathered together to hear reports from senior agency personnel about underlying market activity and discuss the handling of essential agency functions. I am indebted to Commissioners Brian Quintenz, Rostin Behnam, Dawn Stump and Dan Berkovitz for their engagement and support that enabled the CFTC to operate with bipartisan common sense during the past thirty-five days.
“In the days to come, we will update the public and market participants of the status of resumption of various agency activities, including publication of market data. Today, I simply want to express gratitude for the grace and goodwill of our entire staff. Welcome back!”
February 13, 2019
CFTC Requests Public Comment on a Rule Amendment Certification Filing by ICE Futures U.S.
Washington, DC — The Commodity Futures Trading Commission (CFTC) is requesting public comment on a rule amendment certification filing by ICE Futures U.S., Inc. (IFUS). The amendment to IFUS Rule 4.26 would allow for the implementation of Passive Order Protection (POP) Functionality. As described in the certification, POP Functionality is intended to reduce latency advantages between traders engaged in arbitrage strategies against related markets. The POP Functionality would be implemented in the Gold Daily and Silver Daily futures markets. Comments must be submitted on or before March 15, 2019.
CFTC’s Division of Market Oversight has determined to stay IFUS Submission No. 19-119 (February 1, 2019) pursuant to Section 5c(c)(2) of the Commodity Exchange Act (CEA) and CFTC Regulations 40.6(c) and 40.7(a)(2). This determination was made because the submission presents novel or complex issues that require additional time to analyze and may be inconsistent with the CEA or CFTC regulations. The CFTC has 90 days or until May 14, 2019 to review the submission.
February 12, 2019
CFTC Divisions Announce Examination Priorities
Washington, DC — The Commodity Futures Trading Commission (CFTC) today announced 2019 Examination Priorities for registrants of the Division of Market Oversight (DMO), Division of Swap Dealer & Intermediary Oversight (DSIO), and Division of Clearing & Risk (DCR). This marks the first time that the agency has published Examination Priorities for its divisions.
“I commend DMO, DSIO and DCR leadership and staff for their work to bring additional transparency into the CFTC agenda in order to ensure that registered market participants devote adequate compliance resources consistent with our regulatory priorities,” said CFTC Chairman J. Christopher Giancarlo. “This first-ever publication of division examination priorities is in line with Project KISS and other agency initiatives to improve the relationship between the agency and the entities it regulates, while promoting a culture of compliance at our registrants.”
DMO’s Compliance Branch currently conducts examinations of designated contract markets (DCMs) to monitor their compliance with the Commodity Exchange Act and CFTC regulations through Rule Enforcement Reviews (RERs). In 2019, the Compliance Branch’s RERs will focus on specific elements of DCMs’ traditional self-regulatory programs, as well as emerging areas of self-regulation, where regulatory requirements and best practices may still be developing.
DMO’s Compliance Branch’s 2019 Examination Priorities include:
- cryptocurrency surveillance practices;
- surveillance for disruptive trading;
- trade surveillance practices (selected elements);
- block trade surveillance practices;
- market surveillance practices (selected elements);
- real-time market monitoring practices;
- practices around market maker and trading incentive programs; and
- DCMs’ relationships with and services received from regulatory service providers.
In addition to conducting examinations of DCMs, DMO’s Compliance Branch’s priorities for 2019 also include regulatory consultations with a number of swaps execution facility (SEFs) to provide effective oversight while the CFTC finalizes new SEF rules and the Compliance Branch develops its examination program for SEFs. (See DMO’s 2019 Examination Priorities and under Related Links.)
DSIO’s Examinations Branch is primarily responsible for overseeing derivative markets intermediaries, including futures commission merchants (FCMs), swap dealers (SDs), major swap participants (MSPs) commodity pool operators, commodity trading advisors, introducing brokers and retail foreign exchange dealers.
The core focus of DSIO Exams is the protection of customer funds. Examinations Branch resources are primarily focused on the oversight of approximately 65 FCMs, which are the only registrants permitted by regulation to hold listed derivative customers’ funds. The team also performs limited oversight responsibilities for approximately 100 SDs.
DSIO’s Compliance Branch’s 2019 Examination Priorities include:
- withdrawal of residual interest from customer accounts;
- accepted forms of non-cash margin;
- compliance with segregation requirements;
- FCM use of customer depositories;
- FCM customer account documentation; and
- SD/MSP relationships with third-party vendors.
DSIO Exams will continue to conduct its series of routine functions to constantly monitor the activities of CFTC registrants including, but not limited to, reviewing notices, risk management programs, financial statement filings, risk exposure reports, risk assessment reports, and chief compliance officer annual reports.
DCR examines derivative clearing organizations (DCOs) including those that have been designated as systemically important by the Financial Stability Oversight Council. Examinations of systemically important DCOs are performed in consultation with the Board of Governors of the Federal Reserve.
The scope and methodology for each examination is risk-based and individually tailored to the unique characteristics of the DCO and the products it clears. The primary goal of the examination process is to identify areas of weakness or non-compliance in activities that are critical to a safe and efficient clearing process. This includes examining financial resources, risk management, system safeguards and cyber-security policies, practices, and procedures to assess the maturity, capabilities, and overall resilience of the DCO.
February 7, 2019
In CFTC Action, Court Orders Precious Metals Trader to Pay Penalty and Imposes Trading Ban for Spoofing and Deceptive or Manipulative Scheme
Washington, DC — The Commodity Futures Trading Commission (CFTC) announced today that Judge Vanessa Bryant of the U.S. District Court for the District of Connecticut issued a Final Judgment and Consent Order on February 5, 2019, against Andre Flotron, a former precious metals trader for UBS AG, requiring him to pay a $100,000 civil monetary penalty for spoofing and engaging in a deceptive or manipulative scheme through his spoofing in violation of the Commodity Exchange Act (CEA) and CFTC Regulations. The Order also imposes a one-year trading and registration ban.
James McDonald, CFTC Director of Enforcement commented: “This case reflects our continued commitment to preserving the integrity of our markets — like the precious metals markets at issue here — and to rooting out unlawful practices like spoofing. As this case shows, we will continue to work vigorously to hold individuals accountable, and not just the companies that employ them, for misconduct in our markets.”
The Order, arising from a CFTC complaint filed on January 26, 2018 (see CFTC Complaint and Press Release 7685-18), finds that from at least August 2008 through at least November 2013, while employed at UBS, Flotron placed large orders in the precious metals futures markets with the intent to cancel the orders before execution (spoof orders). The Order finds that in placing the spoof orders, Flotron intended to send market participants a signal of greater supply or demand to create the misimpression that the price would move up or down and trick market participants to transact on smaller, genuine orders that he placed on the opposite side of the market. The Order concludes that Flotron’s conduct constituted spoofing and a deceptive or manipulative scheme in violation of the CEA and CFTC Regulations.
This case was brought in connection with the CFTC Division of Enforcement’s Spoofing Task Force, and the staff members responsible are Alben Weinstein, David Oakland, Sam Wasserman, Patryk J. Chudy, Lenel Hickson, Jr., and Manal M. Sultan.
February 5, 2019
CFTC Extends Public Comment Periods to March 15 for Proposed Rule for SEFs and the Trade Execution Requirement and the Request for Comment on “Post-Trade Name Give-Up”
Washington, DC — The Commodity Futures Trading Commission (CFTC) announced today that it is extending to March 15 the comment period for the proposed rule to amend the Regulations on Swap Execution Facilities (SEF) and the Trade Execution Requirement. The agency is also extending to March 15 the request for comment regarding the Practice of “Post-Trade Name Give-Up” on SEFs. The original comment period for the proposed rule was to expire on February 13 and the original comment period for the request for comment had expired on January 29.
Notice of the extensions will be published in the Federal Register shortly. All comments will be posted on the CFTC’s website.