Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House. Our podcast from Intercontinental Exchange on Markets leadership and vision and global business, the dream drivers that have made the NYSE and indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ICE's Exchanges and clearing houses around the world. And now welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
Thanks to my colleagues Amanda Hindlian and Jess Tatham for hosting the last couple episodes in my absence while I was on a brief vacation. It was our little annual golf sojourn upstate with two of my best friends, you see? And part of that was the classic grilled dinner of steak baked potato and corn on the cob. And as we begin this episode, it's corn that I want to talk to you about. An article by Amanda Little in Bloomberg yesterday caught my eye Headline read, "GMO Corn Won't Save Us From Climate Change," Amanda's headline read. It tells this largely hopeful story about how the iconic green cornfields of the American Midwest are about to shrink, not an acreage but in stature.
So right after I left The White House in 1998, I went to work for a company called Monsanto, it formerly had an NYSE ticker symbol, MON. It was later acquired in 2018 by the German company Bayer. And as part of the Monsanto legacy, it's a new genetically modified corn that stands on fatter stalks and grows to a third less height than conventional corn. They call it smart corn because it can better withstand the 100 mile per hour wind, the derechos that create billions of dollars of crop damage, all while delivering the farmer the same amount of fruit on its shorter stalks. The miracles of science. Similar miracles are foot for growing wheat and soybeans and using other forms of genetic engineering.
Now having solved the wind issue, now, if we could only move to developing plants that can endure shifting seasons, temperature swings, and invasive insects, that's what Amanda's story asserts. But as she concludes, "Humans will be stuck in an endless cycle of increasingly frantic adaptations if we don't focus on the source of the problem and its ultimate solutions, decarbonizing our economy and preserving the delicate balance of the ecosystems we depend on," she wrote. So in the weeks, months, years, and decades ahead, there's a ton of risk for farmers, ranchers, manufacturers, commercial end users and investors that have to be managed here, hedged, as we call it here at ICE. And we're going to be getting into all of that and a lot more on this week's episode with our special guest, Rostin Behnam, Chairman of the Commodity Futures Trading Commission. Chair Behnam is overseeing a robust regulatory agenda to help the economy grow by providing critical risk management, price discovery, market integrity to commercial companies worldwide. Our conversation with Russ Behnam, it's coming up right after this.
Speaker 3:
Connecting the opportunity is just part of the hustle.
Speaker 4:
Opportunity is using data to create a competitive advantage.
Speaker 5:
It is raising capital to help companies change the world.
Speaker 6:
It's making complicated financial concepts seem simple.
Speaker 7:
Opportunity is making the dream of home ownership a reality.
Speaker 8:
Writing new rules and redefining the game.
Speaker 9:
And driving the world forward to a greener energy future.
Speaker 10:
Opportunity is setting a goal.
Speaker 11:
And chart a course to get there.
Speaker 12:
Sometimes the only thing standing between you and opportunity, is someone who can make the connection.
Speaker 13:
At ICE we connect people to opportunity.
Josh King:
After serving as a commissioner of the CFTC since 2017, Rostin Behnam was sworn in as the commission's 15th chairman on January 4th, 2022 after being unanimously con confirmed by the US Senate. And previously Russ was senior counsel to Senator Debbie Stabenow of Michigan, who though, she announced her retirement at the end of her current term, chairs the Senate Committee on Agriculture, Nutrition, and Forestry. Russ began his career here in New York City as a proprietary equities trader after graduating from Georgetown, then headed back to law school at Syracuse where he got his first exposure to the CFTC's Division of Enforcement, then working for New Jersey's Attorney General in its Bureau of Securities. Chairman Behnam, welcome back to your old stomping grounds here in New York. It's great to have you here Inside the ICE House.
Rostin Behnam:
Josh, it's great to be here. Thanks for having me.
Josh King:
So I was busy on my commute this morning during your hit on Squawk Box on CNBC. So I'm curious what Andrew and Joe and Becky asked you about, what was the flavor of the conversation?
Rostin Behnam:
Well, Joe wasn't there today, so we had Becky and Andrew. It was good conversation. And maybe not surprisingly, we wanted to talk about crypto. So we talked about crypto for probably about 10 minutes. There's been some activity on the Hill in the past couple of weeks, so they wanted to talk a little bit about that and where that might develop and where that may lead. And then I think there's the difficult question which I face, I think regulators face and policy policymakers are facing now is this friction between regulating this new ecosystem or not regulating it and dealing with the challenge of an unregulated market, which creates risks for customers and investors, but also creating a regulatory framework around a market that quite a few people don't necessarily see the value in. Not my opinion per se. I'm focused on being the chair of the CFTC and protecting customers, but it's that difference that I think creates a little bit of hesitation in Washington right now about whether or not to move forward with new policy, new law, and ultimately, a new regulatory regime.
Josh King:
You ever get tired of talking about it? I did see the follow-up interview, which was former SEC Chairman Jay Clayton, who basically said, like it or not, crypto is going to become part of our financial ecosystem in every corner. But whenever you sit down with an interviewer, that's always where the question starts and where they spend most of their time.
Rostin Behnam:
It Is, and it's funny for me to reflect even you mentioned I've been at the commission since 2017. I've been chair since 2021 and I was sworn in as a commissioner in September of 2017, and within three months, there were listed futures contracts on Bitcoin. And since then it's been almost a snowball effect of how the agency intersects with the crypto space, both from a registration standpoint, but again, to your point, how we engage with the press, the media and Congress, does it get tiring? It's a part of the job. You fall into these positions in a moment of time and things happen, A war, a pandemic, obviously a new technology and you got to roll with it. You have to think about how to deal with it from a regulatory perspective. And ultimately, I'm a public servant, so I have to engage and answer questions.
Josh King:
But again, your prime constituents are those farmers outgrowing these corn crops out, whether they're Monsanto seeds or someone else. And you're talking about listed futures contracts on Bitcoin. A couple of them came from a company seeded out of ICE called Bakkt an idea in the head of Jeff Sprecher and Kelly Loeffler. Interestingly, we've just delisted the futures contracts for Bitcoin from Bakkt this week. We thought there'd be a market, there wasn't. What do you make of that?
Rostin Behnam:
The futures market is evolved. And to your point about Bakkt was a part of the commission when that organization was started and they were trying to engage with the CFTC, it was early days, and there were a lot of questions about custody and a lot of questions about, quite frankly, the marketplace and what risks it posed to customers. Obviously as a democratic commissioner in that administration, I engaged had a lot of conversations with Bakkt and ICE and whether or not it took off at the time, there's been a lot of new participants coming into the space and I think, maybe not a recognition of the benefit of regulated markets and the benefit of cleared markets. And as you know well markets will ebb and flow and there'll be interest and consumer preferences and demand will shift. In some respects we've seen on the future side, on the listed future side, pretty tight correlations with the open interest and the volume in the futures markets as it relates to the underlying cash market and the price of most notably Bitcoin and Ethereum.
So we'll see where it goes. The market seems to want some sort of regulatory framework. You can imagine institutional demand would probably increase if there was a clear regulatory framework. But for me, we think about the retail participation, I think about our enforcement track record over a decade certainly preceding me. And I think it's pretty clear evidence that something needs to get done because we think about regulation in the US and what's the point, and what's our purpose and what's our mission? This word is often thrown around in Washington, but it's important. And when we continue to see this fraud, this manipulation in the market, I think it's important that we step in and put the country.
Josh King:
Talking about a large financial institution in New York City. So many of the formative moments of your life have happened within a 20-mile circumference of where you and I are sitting right now. I read a political piece from last year, the Russ Behnam Road show. You went back to northern New Jersey where you grew up to hang out with my old White House friend, Josh Gottheimer now the representative from the 5th District up there. How did this region shape you as a kid?
Rostin Behnam:
My parents and my entire family they're healthcare professionals. My folks are retired at this point. So finance and markets were not a part of my DNA growing up. And as you point out in northern New Jersey, maybe 15 miles from here in Lower Manhattan, but when you grow up in the tri-state area, whether it's New Jersey, Connecticut, or the suburbs of New York City, you can't be more than two degrees of separation from finance, someone's mom, someone's dad, someone's uncle, someone's aunt, someone's cousin, brother, sister, you name it. And in a very positive way, it consumed how you thought about the economy and maybe a future job. And I remember vividly, even in elementary school and high school, you take day trips, you take the train across the Hudson, take the path and maybe even get to see a financial institution and learn a little bit about what Wall Street is and what banking is and what trading is.
So I think the contrast between my family life and having parents in the healthcare profession and then seeing this new world that was exciting, that was volatile. And I say that in a positive way and thinking back, I was born in the late '70s and finance went through a lot of ups and downs in the '80s, obviously with some interesting times with the savings and loan crisis, and then the October crash in this building in 1987, and then a very exuberant tech economy in the '90s and leaving college as you pointed out, Georgetown in 2000 at the crest of the tech bubble right before it burst. And then working right down here on Broad Street just a few blocks away and starting to trade and seeing how markets react. So very rich environment, rich culture, very diverse culture here in the tri-state area, but something that certainly has shaped my way of thinking and obviously led me to where I am today.
Josh King:
I dug up an old speech that you made about five years ago at the United Nations thinking about how in 2008 talking about family life, your parents held your sister's wedding reception at the UN's delegate's dining room. Did your parents always want to expose you and your sister to the cultural and political institutions that shape our world? Were they bummed when you didn't go into the medical profession?
Rostin Behnam:
I'm the youngest of three, so I feel like by the time I had hit high school and college and started seeking out a professional path, they were well settled in their own lives and comfortable with the success of their older son and daughter, and they gave me a little bit of more leash and bandwidth to do what I wanted. So they're happy with where I am, but I definitely get a sense I did not have as much of a steer from my parents as my older brother and sister did.
Josh King:
You've mentioned coming up in the financial realm here in New York City and the volatility that goes along with that. I read some of your reflections on some of the key moments of that period. You've spoken about how and the move from eighths to decimalization of markets under Arthur Levitt when he was chair of the SEC gave rise really to algorithmic trading, how markets absorbed the tectonic monetary policy decisions in real life like the Fed's rate cut in 2001. And then this event that happened later that year.
Speaker 15:
We'll, single stroke and pause for two minutes.
(signing).
Our heroes will now open the marketplace.
Speaker 16:
Everybody should step to a plate right now and show the strength of the American economy.
Speaker 17:
The show of unity at the NASDAQ market set.
Speaker 18:
This city is the capital of capital.
Speaker 19:
Just getting the markets open is a victory.
Josh King:
That's a selection of sites and sounds from CNBC on September 17th, 2001, obviously six days after September 11th. And you've written about how that moment affected you in such a profound way when markets could show the resiliency and the American economy could show its ability to fight back.
Rostin Behnam:
Yeah, I mean it gives me shivers just listening to that, but I traded from September, I graduated college in May of 2000, had to take some licensing certifications, which folks were familiar with, who listened to the show. And then started trading in September. And we should talk about a few of those inflection points. You talked about technology, and I remember markets were frothy. Technology was really driving both the New York Stock Exchange listed stocks and the NASDAQ stocks. And this idea of moving to decimals away from fractions was, I remember the traders who had been on desks doing quite well for many years, were concerned about-
Josh King:
A lot of spread in innate, isn't it?
Rostin Behnam:
There's a lot of spread there. Their P&L and how decimalization would affect their P&L, but where I am now and where we see markets and how we're trading in nanoseconds and also at fractions of a penny, it's just a remarkable arc to think about that moment where I was fortunate in some respects to be dropped in with fresh eyes and saying, I'm going to start from decimalization. So I didn't have the experience of fractions that the colleagues and my mentors and my supervisors had, but to see where we are now in the policy that I get to be a part of in terms of shaping and how that arc has evolved.
You mentioned the macroeconomic again, the tech bubble and then Chairman Greenspan making some aggressive moves and vividly, vividly remember looking at my trading screens and January I think of '01 when, so there was a surprise as we just got past an FOMC meeting last week, rate cut and how markets digested that information and priced risk and priced that news. And then ultimately, as you shared earlier, of course, the devastation of nine 11.
And I was at the time, I lived in the city my first year out of college, and then I was back in New Jersey for my second year. So I was actually commuting from Hoboken and I was in the path when the first plane hit the North Tower and then I was across the street when the second plane hit. And just being in this area, obviously in that time and the first responders and how they reacted and obviously the devastation. And then coming back to the office a week later, which it's a remarkable thing to think of now, especially given what we've been through with the pandemic. This building, this facility because of technology was able to seamlessly keep markets open while everyone was home because there was a pandemic. But 20 years ago we had to shut down the markets for four days, three days, four days, and being home and then coming back on Monday morning as you pointed out on the 17th, and having markets open at 9:30 and having that moment of silence was moving, but also starting to see the markets price, that risk and that uncertainty across the transportation sector, across defense, across security, and seeing how this world that was an unknown was going to deal with these new events and what was to come over the next couple of months and ultimately the next couple of years.
Josh King:
I mean in a relatively short period of time, you had experienced so much in the financial markets, and yet you divert into New Jersey, go back to work for the AG there in the Department of Securities, and eventually make your way down to Capitol Hill. What was that transition like? I mean, I'm assuming beyond just taking a big pay cut and going into public service.
Rostin Behnam:
After 9/11, certainly I'm sure a lot of people had this, experience just a moment of reflection. I was 23, 24 and I knew I wanted to go to graduate school, so for better or for worse, just felt like the right time. Again, a inflection point in my career. I ended up leaving the firm shortly after 9/11, I think it was October, November, going to law school up in Syracuse as you mentioned, and then heading back down after three years with a couple stints in Lower Manhattan clerking for a judge in the Southern district and also interning at the CFTC just a couple blocks away. And it was great. I was down in Newark, I was serving in the Bureau of Securities as an investigator, and it was my first public service, did it for just over two years. And it was just applying the law to regulated markets, which I knew fairly well, I think better than most, at least within the office.
And it was a different dimension and a different way of thinking about markets and just developing a skillset known or unknown, but going through that career arc and just cutting my teeth on a new skillset. And then ultimately, I worked at a private law firm here in the city after the AG's office for about two to three years and representing public companies, representing managed funds. And that was an intersection between markets and the law and seeing how to deal with compliance and what it took for a company to deal with a regulatory structure and how to comply and the costs associated with it. But the benefits as well, depending on the size of the firm and what they were able to accomplish. And at that point, as you pointed out, heading down to Washington in 2011 to work on Capitol Hill, which was an interesting time a few years after the financial crisis, but less than a year after the Dodd-Frank Reform bill was signed in July of '10.
Josh King:
I mean, talking about political institutions, you're down there in 2011. So Debbie Stabenow and I was already in office for about 10 years. Here she is, just recently on WDIV in Detroit earlier this year. I just want to take a listen.
Debbie Stabenow:
I think it's a good time to pass the torch to the next generation. It's a big decision and impacts a lot of people. It's a relief. I feel very confident that this is the right thing for me and for my family.
Reporter:
The news that Senator Debbie Stabenow is not running in 2024 has opened the political floodgates here in Michigan. Her legacy is a longtime public servant spanning almost 50 years from State House to Congress to senate, a trailblazer for women in Michigan politics and tireless champion for agriculture, the Great Lakes, manufacturing and mental health, make sure one of the most influential lawmakers of a generation.
Debbie Stabenow:
I'm just moving ahead to plan how these next two years, how we get a five-year farm bill done.
Josh King:
What was it like working for her? What's her legacy going to be?
Rostin Behnam:
Well, it's hard to put into words, and I think that was done really well. Something I always think about for those almost seven years I worked for Senator Stabenow is she in fact has a 50-year career in public service. And it in fact goes back to the '70s at the county level. And she tells these great stories as a young woman trying to make elected office in the '70s. And you can imagine with all that we're going through now as a society and a culture and dealing with different social issues, it's pretty remarkable to think about where she started 50 years ago and how she's fought and how she's just endured and how she's reached the apex of public service and whether it's at the local level, then obviously the Michigan House and the Michigan Senate and then the US House and then the US Senate for what will be 24 years.
And just being a fearless advocate for Michigan and just a great public servant is just, I couldn't be more grateful. She's shaped my life. She's shaped the way I think about things from a policy perspective, from a perspective as a US citizen and what we all owe this country. And so much of my success at the CFTC and what I've been able to accomplish going back to 2017 as a commissioner, building coalitions, engaging with constituents, listening and making policy that's in the best interest of your constituency. Obviously very different constituencies, and I am not an elected official. I will be the first to say that, but in many respects, policymaking requires a lot of unique skills that she has refined and mastered over many decades.
Josh King:
And also perhaps the wisdom to understand when, as she says, "It's time to pass the torch." But as she says, it takes a lot to run for the Senate, especially given the way the presidential matchup is going to look like in 2024, presumably with Michigan a key battleground. You got Elissa Slotkin and Hill Harper lining up to succeed her on the Democratic side and our own John Tuttle mentioned as a Republican candidate for the seat. You've been described, Russ, as a moderate. Is there room for moderates in our current political discourse?
Rostin Behnam:
Well, I try to bridge gaps the best I can. I try to listen and I try to focus on my job as a regulator. I'm not a politician. I've learned from the best, but I apply the law to the facts and whether or not someone wants to view that as a moderate or an extreme on either end of the political spectrum is their own view. But I try to stay true to what my responsibility is and what the mission of the CFTC is, and I would hope, and I would think that's what every tax paying us citizen would want out of its market regulators.
Josh King:
What were the puts and takes of in 2017 accepting an appointment as a democratic staffer working for Senator Stabenow, accepting an appointment by President Trump to be a commissioner on the CFTC? Did you have to wrestle with the decision? Why do you think you were picked?
Rostin Behnam:
Regardless of my feelings about the president or the administration at the time, commissions are independent, so they're technically separate from the executive branch and The White House by and large commissions, I'd say are about a century old. They're an outgrowth of the New Deal era and finding these commissions that are subject matter experts in energy and obviously financial markets in trade and commerce, and it is so important, and I feel that now with my two Republican commissioners, to have a balance and to have that friction of thought and ideas to force the best outcome. And you talk about political ideology and moderates or one on the other side or the other, but that is really the benefit of having a commission. They're quasi judicial, they're quasi executive and they're quasi legislative in their own right. We write policy, we adjudicate policy, we are a civil enforcement agency, and then I as chair have to lead the agency, a thousand member agency across four different cities, four different regions. And so we're our own little political branch in of itself. And having that balance, having that balance at the top, two political parties, five viewpoints, five ideas forcing through natural selection the best outcome. And I think that's what really is the benefit of a commission. But ultimately that's what, to your question, didn't give me pause or hesitation when I had the privilege of being appointed in 2017.
Josh King:
In my relatively brief tenure here at ICE five, six years, we've had Christian Carlo, another former guest on this show, also Heath Tarbert, serve as chairman with you in an acting capacity for a year before you got confirmed by the Senate. Given what looks at least on the roster as a femoral tenure of those who are in the top spot, do you feel a sense of urgency to get your regulatory agenda through at this point?
Rostin Behnam:
I laid out a pretty clear plan, and I had a pretty good sense of what I wanted to do when I stepped into the role over two years ago. And I've had the unique experience of being around the agency for the better part of a decade. You mentioned I started working for Senator Stabenow in 2011. This was the peak of the post do Frank implementation at the agency level. So it was at that moment, I started to learn about the agency, both its structure, its organization, and then obviously it's policy. I've been around all the commissioners and the chairs going back over a decade. I had the privilege of actually vetting many of them as they came into their seats. So with all of that policy change shifting over four or five chairs, I have a sense of where the agency's been pre-financial crisis, what it went through after the financial crisis in terms of creating a new market regulatory scheme.
I've had a sense of how markets have evolved and grown over the past 10 years. So I was very acutely aware of what my agenda was. I get a sense of timing and how difficult it is to get rules implemented, right? We have to go through a public process, which is required by law to solicit feedback, to have a proposal, a final rule, to get votes among my commissioners. So I feel pretty comfortable where we are. We've accomplished a lot thus far, and we have a fair bit amount coming up at the balance of this calendar year and into next year.
Josh King:
Our upbringings are somewhat similar. And I confess, I struggle sometimes relating to people like Alabama Senator Tommy Tuberville when he holds up Senate confirmation of our military leaders. But in your own confirmation hearing, Senator Tuberville asked you a completely legitimate question. I want to take a listen.
Tommy Tuberville:
To speak for rural America, you got to know rural America. And our country's agriculture industry is the envy of the world, and we need to keep it that way. Your predecessor, Dr. Tarbert, went above and beyond to engage with ag community and folks outside Washington, DC and Wall Street. So he set the gold standard. So you got big shoes to fill, and I hope you're able to do that.
What have you done in the time that you've been on CFTC in the last few years to get yourself enabled into the rural communities?
Josh King:
Russ, how do you look beyond Washington DC and Wall Street to effectively do your job?
Rostin Behnam:
We're going to go back to my time in the Senate in my understanding of the commission, but you talked about GMO corn, bioengineered agricultural products. I know that issue very well because in addition to managing the CFTC and financial services portfolio for Senator Stabenow, I handled biotech issues and pesticide issues, crop protection issues. So I spent, again, six, seven years. We went out to Michigan every year. I traveled through Iowa, through Missouri, and I did a farm bill in 2014.
And to Senator Tuberville's question, if the issue is what is my engagement with rural America and the ag economy? I don't think you would find a chairman that's more aligned and engaged with rural America and the ag economy than I have. And that is a benefit of having worked on the Ag Committee for close to seven years. So I spend every summer taking trips out to different states, getting my boots dirty here and doing different trips across different areas and getting a sense of what rural America is dealing with and the challenges they're facing, whether it's trade, whether it's weather, whether it's inflation, and making sure that we're doing what we need to do at the CFTC to ensure that our markets remain resilient, but above all else, a price discovery and risk management marketplace.
Josh King:
The difference perhaps in some of your earlier roles and what you're doing now with a thousand people under you, as you say, is one of management and leadership. When I talk to Jay Clayton or Christian Carlo on the show and talk to you, you always are very quick to defer and congratulate the staff for their work who are there before you, and they're going to be there after you. There's also an interesting makeup of today's commission itself, in addition to the chair, four other commissioners, Kristin Johnson, Christy Romero, Summer Mersinger, and Caroline Pham, all came into office within weeks of each other. How do you get your arms around both the management challenge of a thousand people under you and also the collegial challenge of four women who are basically coming into the job at the very same time?
Rostin Behnam:
Yeah, it's difficult, but you surround yourself with good people, with great leaders, and I have a great leadership team both in my office and then in terms of the divisions in the offices, and you trust them. And I think any CEO or any leader would say that's a key component of success of an organization or themselves. And I, again, have been fortunate to be at the commission for four years, almost four years before becoming chair and being able to identify the individuals that I want to be on my leadership team and trusting them to operate their divisions and their offices in a way that would best reflect my vision for the agency and its success.
And I uniquely, I think at least in the past few years, took the stance to keep some in-house folks, some career folks. We kept some folks on from Chairman Tarbert, and again, that was just observations I had made over the year about my relationship with them on a personal level, but also what they had been able to accomplish as professionals.
The commission came in altogether in April of 2022, and that's certainly unique to have four commissioners come in at once. For those who don't know, we're a five member commission and we have staggered terms. So every year, one commissioner's term expires. So in theory, the process should see a commissioner leave and a new single commissioner come on board every year. It doesn't quite happen like that these days. You tend to have, at least at the commission level and not the chair paired confirmations where you'll have a Republican and a Democrat come in together. We had four come in at once, two Republicans and two Democrats.
And it certainly puts a bit of pressure on the staff because there's onboarding, you're onboarding an executive at the agency, so there's a learning curve that has to happen. There's a situational awareness of your office of hiring, of getting up to speed of current issues and future issues. So one of the things that I take great pride in, and I try my best to be consistent at is engagement, to build relationships, to build trust. It's not easy. It takes time, it takes effort. It's tiring, especially with all that's going on in the world, in markets at home. But that's the job. I still pinch myself every day that I have this job. I don't take it for granted. And if that's the hand I'm dealt, then I'm going to play it the best I can.
Josh King:
So as we head into the break report card time, in the keynote that you gave at the ABA Derivatives and Futures Law Committee in February, you laid out a goal of considering and voting on at least 30 to 35 of the anticipated proposals in addition to all the rules and orders proposed last year by the end of this year. What's your midyear grade for yourself?
Rostin Behnam:
Yeah, I'd say we're an A minus, we've missed a couple marks, but that should be expected. Batting a thousand is near impossible in this job with all what's going on. But if you look at what we've accomplished since late January, even as of last week, we finalized one rule and proposed three more, and we had a big meeting in June as well. So I do think by the end of this calendar year, we'll be at least in a proposal or a final phase for nearly all of those matters. So we're moving along. A lot can happen or staying focused, keeping our head down, and just doing the job.
Josh King:
After the break, more with Russ Behnam, the 15th Chairman of the Commodity Futures Trading Commission. That's all coming up right after this.
Speaker 23:
Shopify Editions is back. With over 100 product updates and enhancements all in one place, explore our latest solutions for every aspect of commerce from starting and scaling a business.
Speaker 24:
So you can sell everywhere easier.
Speaker 23:
To flexible components for enterprise needs.
Speaker 25:
Businesses can choose which technologies they need to create the customer experience they want
Speaker 23:
And developer tooling to customize any commerce experience.
Speaker 26:
We know how important it is to offer the right mix of power, flexibility, and customization across our services.
Speaker 23:
No matter what you're building, you can build for the longterm with Shopify. Visit shopify.com/editions
Josh King:
Back now with Russ Behnam, the 15th chairman of the Commodity Futures Trading Commission. Before the break, we were talking about the mid-year grade the chair gave himself and his fellow commissioners for their work thus far in 2023. And now I want to drill into some of the overall themes that have emerged.
You talked about them, Russ, in your February speech. First, enhancing risk management and resilience across intermediaries, exchanges and derivatives clearing organizations. Now, Russ, in the context of FTX, our own, Chris Edmonds testified last year before The House Ag Hearing on the FTX Proposal and Trends in New Clearinghouse Models. I want to take a quick listen to what Chris had to say.
Chris Edmonds:
The markets look for certainty at the end of the day. Users of the markets look for certainty at the end of the day. And so having potentially two standards that may develop over time creates uncertainty in the market. And I think if you look at some of the volatility around the crypto world as it sits today, it's a lack of certainty of what happens in different jurisdictions and how folks review that. So for me, it's about how do you divide the world of regulation to make sure that those who are going to be in the game understand the rules of the game at all times.
Josh King:
Are the rules of the game, Russ, in clearing as clear as they ought to be? And how close did we come to upsetting those rules of the passage of the FTX proposal?
Rostin Behnam:
I think the rules are quite clear. We have a number of clearing houses that work within the CFTC regime, some large, some small, some systemic, some not. But I feel very confident that the current rule set is clear, can be complied with. Not without a challenge, but it can be complied with without sort of disruption. And it's resilient. It works. And I often think about what we've been through in the past couple years. I think Chris has said this on a few occasions, markets have functioned well. The clearing houses and the listed futures market, and even the swaps market absorbed extreme amounts of shock and volatility going back to the pandemic and in March, April, 2020. And then from a commodities perspective, thinking about Russia and Ukraine and the impact that had on commodity markets across the spectrum.
In terms of FTX, there's certainly a lot of discussion about how we dealt with that and whether or not we were close. And I could tell you as the chair of the CCFTC, we were not close despite what you might've heard from other people. But we had an applicant, they purchased an entity that had a license with the CFTC. They submitted an application to amend the way the clearing system worked, and we did what we are required to do. We engaged, we listened, we asked questions. Because of the unique nature of the application and the attention it got, I was very deliberate in the way we approached it. And what I mean by that is we had public engagement more so than we do typically. We did out a consultation document, a request for information. We had a round table which Chris participated in and others participated in, including Sam Bankman-Fried just to get as much information and essentially build a record for the decision that we would inevitably had to have made if FTX didn't fail in November of 2022.
But like I said, the application was submitted in December of '21. I had had conversations with FTX for a number of months going back to August of 21, which is when they purchased that entity LedgerX. And over the course of those months, starting in February or March, there was always this conversation and narrative of we're hearing it's inevitable, we're hearing it's going to get approved. And every month, me and my staff, mostly my division director for clearing and risk would say, "No, we're not close. No, we're not close." But every month it was just, "We're here, we're getting close. We're here, this is going to happen. We hear this is an inevitable," but you said it earlier, the chairs of the CFTC have good reason to have a lot of faith, a lot of confidence and speak highly of the career staff at the agency.
These are some of the most disciplined and credible experts in the derivatives marketplace, especially on the clearing side. And we scrutinize that application as we would any other, and we did what we needed to do to apply the law to the facts, to be open-minded about the proposal. I know some probably didn't want us to be open-minded, but that's actually in the law is to support responsible innovation. We just had to figure out what was and what is responsible innovation. And ultimately, we never came to a decision, nearly 12 months later after the application was submitted and FTX failed. So despite what some rumors may be or what others have said and what you've heard, we weren't close. We were continuing to do the work and we were treating it as fairly and equitably as we could as it relates to other applicants and applications.
Josh King:
Another thing you talked about in that speech was enhancing customer protections. You said, "On the demand side, improvements in technology have been a key driver with more data and functionality available via apps on smartphones, on the supply side, exchanges are marketing to individual traders and offering them new products." I've heard you talk in some depth about where you sit and what you think your role is with the rise of more retail participation in the markets with very sophisticated instruments that they are working with. What's the danger of so-called micro contracts that have a small fraction of the notional size of more traditional contracts that the professional hedgers are working with?
Rostin Behnam:
A few things. One is, from my perspective, it's the retail. I mean, those contracts are by and large constructed for retail participants. That might be a little bit making some assumptions, but obviously the cost point is much lower for the micro contracts than a fully paid for futures contract on a number of commodities. And then I think the correlations between the micro, and I think the traditional would probably be a question we would look at. I would assume the exchanges feel confident about that. But when you start to see the proliferation of these micro contracts, you're going to have a lot of retail participation, which I am not one to get, and I've said this recently, get in the way of how an investor allocates capital, invests capital. But ultimately, I have a responsibility to ensure that every investor, particularly in a leveraged market where you have significant volatility and significant risk of loss, is as well-informed as possible.
And I think as you see the growth of these micro contracts, you're just inviting in a very different pool of investors who, to your point, have access to markets in a much different way than they have traditionally. And this even goes back a few years, let alone 20 years ago when I was on a trading desk or 30 years ago when the pits downstairs were filled with traders throwing tickets around and trading in person. So this dynamic of barriers to access, the dynamic of consumer preference and the way consumers are demanding more products, new products, and different exposure, I think forces, regulators and policy makers to think about our law and our policy in a very different way. Because these regulatory structures were built with an understanding of I think very discreet and distinct purposes of markets. And in a derivatives perspective, traditional commodities often physically settled, not necessarily cash settled with institutions creating segments or barriers between the end user and the exchange and the trade execution.
And a lot of that, and to your point about FTX, what was FTX? They were proposing a non intermediated model, and they were very clear that they didn't think having a broker in between an end user and an exchange or settlement made sense. And you could think philosophically that you're just the broker's a point of friction, it's a positive point of friction, it creates a point of friction that provides safety, customer protections and risk management. And that's what we've learned over decades, and that's what served our markets very well. But as we have market disruption, as we have technology advancing, you have to assume that these points of friction as a matter of efficiency and cost reduction will be changed and will be considered in different ways. Whether or not I'm around, who knows, but I've said this again, the FTX proposal wasn't the first of its kind, and it won't be the last in our markets or in traditional securities markets.
Josh King:
You've mentioned earlier in our conversation mortgages, when Jay Clayton sat in your seat, he loved to talk about the protections that he was putting in place to help Mr. and Mrs. 401(k). I just want to turn for a minute to interest rates and bond markets. Fed has raised interest rates to help tamp down inflation. This has sent mortgage rates soaring to their highest level since 2002. Talk to me about the impact that higher interest rates have and are having on the future's markets.
Rostin Behnam:
We're seeing, obviously I think volatility in markets that you wouldn't otherwise see. Prices are moving on futures for treasuries and different rates products, risk profiles for credit spreads are changing because of what higher rates will do for companies of different quality. I would say on the ag side and the energy side, and in the metal side, the physical commodities, we haven't seen much of a impact. You naturally see those commodities move in a direction that's driven by supply and demand, but ultimately, as the price of energy complex moves that actually impacts rates and how policymakers may shift rates up or down, given the importance of energy costs to the larger inflation and basket of goods question.
My focus as I think about this changing macroeconomic environment, and this in many respects goes back to 2020 when we had the pandemic and then how the Fed reacted by dropping rates to effectively zero, pausing there for a number of months before returning to a more traditional cycle and raising rates over the past year, markets will be volatile. We have to ensure that there's correlation between cash and futures, and we want to preserve that liquidity in the markets so you don't see dislocations. Dislocations can create havoc in markets. They create uncertainty. You have very clear finite trades that many traders participate in, cash basis trade. And if that breaks up, it actually creates a lot of knock on effects throughout the economy and throughout financial markets and repo and others. And that just goes to the funding of the economy. So there's all of these unique data points that we have to focus on at the CFTC, but we're one data point. So we work closely with our fellow regulators, with treasury, with the Fed and others to ensure that we're being clear about what we're observing in our markets, that we're being clear that our markets are running effectively and price discovery is being driven by supply and demand and not any other anomalous trading activity.
Josh King:
As we begin to wrap up, Russ, let's get back to that stock of corn that I talked about in the intro. Back in 2019 Carol Davenport did a story on you in the New York Times under the headline, Climate Change Poses Major Risks to Financial Markets, Regulator Warns. And you said back in that story, "If climate change causes more volatile, frequent and extreme weather events, you're going to have a scenario where these large providers of financial products, mortgages, home insurance, pensions, cannot shift risk away from their portfolios. It's abundantly clear that climate change poses financial risk to the stability of the financial system," I think you told her. So how has that been borne out?
Rostin Behnam:
Well, just thinking about this summer and even in the past few years, record heat record drought in some respects. We've had really aggressive hurricane seasons in the southwest and the Southeast. We've had forest fires in the West and Canada, and these events happen often in isolation. But as they happen more frequently and you aggregate the costs of these events, it begins to add up and you start to hear about stories or anecdotes of insurance products not being accessible or available to individuals, homeowners, business owners in areas near water, whether it's Florida, California, subject to forest fires.
And we're at this point where it's an issue of first impression in the sense of, wow, that's a novel idea that you can't get homeowners insurance or you can't get flood insurance. These are the things we take for granted where we feel like we have access to financial products to protect our homes, to protect our families, but if we continue to run into a scenario or set of scenarios where we have record extreme weather events, I think we have to become more accustomed to these risk management issues. And that ultimately will, I think, grow in part and start to impact and affect the financial markets. Because you have these extreme events, you're going to price risk in a very different way. You're going to have more volatile markets. And as these isolated events get aggregated, if they were to happen together or concurrently, then that's when I think you might start to see knocks and impacts on the financial system.
Josh King:
A couple of years ago before he rejoined the administration as his climate are. John Kerry was on this show after ringing the bell, the New York Stock Exchange as chairman of the Climate Finance Partners Advisory Board, which was partnering on the crane share's global carbon ETF. Here's part of what he said on the show.
John Kerry:
And increasingly people are turning to a trading mechanism to try to price carbon and reduce the price of carbon. And this is, by the way, an idea that originated at the American Enterprise Institute. And we simply put into effect. And tragically because politicians actually passed something and put it into place and it solved the problem of acid rain, but now people have made it the third rail of American politics. So it's a no-no, I can't talk about it. But the bottom line is that George Shultz, Jim Bakker, other Republicans believe you have to price carbon.
Now, there are different ways to do it, but that's the basis of this fund. That's the basis of the Caribbean Fund, carbon on the stock exchange.
Josh King:
At your public hearing a couple of weeks ago, Russ, you said the voluntary carbon markets are at a critical point in their development. The CFTC has an important policy responsibility to promote product innovation, price discovery, and liquidity for high quality carbon credits, emphasis on high quality. I want to get to that. What role can and should the CFTC and the financialization of the voluntary carbon markets, as you say, play in the long-term answer to creating better environment to grow corn that stock, instead of having to rely on increasing genetic modifications?
Rostin Behnam:
Pricing assets allows investors and capital allocators to make more informed decisions. And as we're dealing with climate change and greenhouse gas emissions that are capturing heat, we need to create incentives and disincentives for capital allocators. And without a price on the asset, in this case carbon, we're not going to have a clear economic indication of how to allocate capital. I think that's the underlying thesis, and I agree with it. And the voluntary carbon markets, to get to the question more directly is an emerging market. It is just about $2 billion, I think, in total, but it is expected to grow exponentially over the next few decades because of commitments from corporates and sovereigns and even individuals to be net-zero and understanding the reality that we're going to need to rely on fossil fuels for the foreseeable future. So how do we use this emerging market to help offset that carbon footprint and reduce our emissions and hit those net-zero targets?
As you know well, ICE as well as CME have listed futures contracts on carbon offsets that reference underlying cash markets or registries. And as you also know, the CFTC, I say this often, has a vested interest in the health of the underlying cash market. We're a derivatives regulator, but in order for there to be a healthy futures, swaps market, and options market, you need to have reference points, an underlying reference market, a cash market that's healthy. And in this case, we want to ensure that the listed futures on ICE and CME are referencing healthy, credible markets that have integrity. So we use this limited authority for fraud and manipulation in cash markets that we've used regularly over many, many decades.
And the goal of this meeting, which we had at the CFTC two weeks ago, was to bring a broad diverse constituency of market participants, public interest, academics, et cetera, to give us a sense of what we could do to have an impact, to help produce, and to help scale a market that has integrity, and ultimately, to help protect our own markets, to make sure that the contracts that are listed on our registered exchanges have integrity and have transparency, and are properly pricing risk in the carbon offset market.
So over the next 12 months, we're going to continue to engage with the public, and my goal is to have an advisory or guidance out in the next couple of months in a proposal phase, solicit public feedback, and then hopefully get something done next spring or summer that will at least raise the bar. It's an unregulated cash market. It's critically important to the effort around climate change. And I think we need to play, the CFTC needs to play with the commission approval, and we're engaging with the commissioners and getting their feedback for sure. Whatever role we can play to help address this crisis.
Josh King:
Winding up in our conversation, we've talked about the CFTC as a policymaker, as a regulator. Let's finish up a little bit with just some conversation about it as an enforcer. We touched on FTX earlier, but as it relates to the broader crypto ecosystem, you testified in June before the House Committee on Agriculture on the future of digital assets providing clarity for digital asset spot markets. One of your inquisitors of that hearing, Representative Marie Gluesenkamp Perez of Washington's 3rd District, relayed this story from one of her constituents. Let's take a listen.
Marie Gluesenkamp Perez:
In the first 10 months of 2022, the FBI reported that Oregonians were swindled out of about 13.6 million in cryptocurrency scams. And in February, a federal grand jury in Oregon indicted four Russian nationals founders of a purportedly decentralized cryptocurrency investment platform for their roles in a global Ponzi and pyramid scheme that raised approximately 340 million from victim investors. The impact of all this malicious activity on everyday Americans is heartbreaking to hear. And I have a local Fox 12 news story that showed a Portland man in his sixties fell into depression and anxiety after losing over $200,000 of his hard-earned life savings in a crypto scam.
Josh King:
You've said that leaving billions of dollars of customer funds and investments in largely unregulated entities is a recipe for disaster. So between you and Gary Gensler at the SEC, what's the fix?
Rostin Behnam:
Well, the fix is hopefully getting legislation out of Congress that would fill the gap around commodity tokens. And I've made this argument many times. If you look at what we've seen over the past half decade, judicial decisions and how the markets have evolved, I've argued close to 70% of the digital asset market among a very few select tokens are commodities, which then places them in this regulatory vacuum or this unregulated space. It's certainly a job and a responsibility for both agencies to work together. We've done it before. We've done it in the past, we'll continue to do in the future. But this is a moment where you have a new asset class that's emerged, that's retail oriented, that is speculative in nature, and that is distinguishable from traditional commodities which are wholesale and used mostly for risk management or commercial purposes. And these assets fall within a traditional definition of what a commodity is in the Commodity Exchange Act.
So I'm encouraged by the questions from members of Congress, by the hearings, by the markups. One or two of them happened last week, and the momentum that's happening, and I think clear recognition that if we don't do something collectively, we're going to continue to have these crises. We're going to continue to have customer losses. And regardless of whether or not you agree or disagree with the technology, I think we have to use the regulatory infrastructure we have that's been viable, that's worked well, that's made American financial markets the best in the world. We have to apply that same thesis and that same infrastructure to this new technology.
Josh King:
We've been on this long journey together. We started at proprietary trading around 2000, and we ended up where we are in 2023. We've had Christian Carlos sit in that seat. We've had Jay Clayton sit in that seat. Chris talks about how much he enjoys going into the garage with his boys and strumming guitar and playing in a band. And Jay has moved on to work with Apollo and back to Sullivan and Cromwell. You don't get a lot as you dive deep into Russ Behnam looking at the bio and your Twitter feed, it says CFTC Chair, husband plus father, runner. I'm curious, where do you go from here and how do you expand the things that you want to do after your tenure at the CFTC is over?
Rostin Behnam:
I had a great run on the West Side Highway this morning before the sun came up, before we did Squawk, and that was nice to be back home.
Josh King:
It's beautiful run, isn't it?
Rostin Behnam:
It was perfect.
Josh King:
Gorgeous temperature today.
Rostin Behnam:
It was. I have three girls, seven, four, and two, so-
Josh King:
You got a lot of work to do there.
Rostin Behnam:
That keeps me busy at home. And my wife and I, we're a partnership and we're just moving the ship forward at this. We got to raise the girls. We got to keep everything steady. We both work outside the house, obviously, and have demanding jobs, and I take it day by day. I pinch myself, like I said earlier, the job's amazing. Blessed to have it. Thankful to President Biden.
And as much as, and you asked this question, does it get frustrating to get these questions about crypto all the time? Again, it's a moment in time and I'm taking it in stride, I think, and trying to do the best I can, focusing on this very diverse constituency from farmers and ranchers to large financial institutions, to new players who have never dealt with regulated markets, and I just try to bring that 20 plus year experience in markets and compliance and law and policy and do the best I can so that our markets remain the safest and the best in the world.
Josh King:
Safest and the best in the world. Thanks so much, Russ, for joining us Inside the ICE House.
Rostin Behnam:
Thanks, Josh.
Josh King:
That's our conversation for this week. Our guest was Russ Behnam, the 15th chairman of the Commodity Futures Trading Commission. If you'd like what you heard, please rate us on iTunes so other folks know where to find us. If you've got a comment or question you'd like one of our experts to tackle on a future show or suggestion for other guests like Russ Behnam, email us at [email protected] or tweet us @ICEHousePodcast. Our show is produced by Pete Ash with engineering and editing from Ian Wolf. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein. All of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of length or clarity.
