The US Commodity Futures Trading Commission (CFTC) has, thus far, exhibited far more enthusiasm for Distributed Ledge Technology (“DLT”) than the Securities and Exchange Commission (“SEC”). On balance the CFTC has come across as open, if not downright enthused by the possibilities associated with DLT. The chairman of the CFTC, J. Christopher Giancarlo, discussed DLT and the potential for its application for automating regulations for derivative markets during a speaking engagement at the D.C. Fintech Week Conference held at Georgetown University in early November, and the positive nature of his remarks kept in tone with previous statements.
According to Giancarlo, DLT-powered Quantitative Regulation would assist with increasing efficiency and cost-reduction in market oversight. Quantitative Regulation, powered by DLT, could be used to highlight market segments where “high risks or unrecognized counterparty vulnerabilities are rising.” In addition, Quantitative Regulation would help standardize and provide critical market information to those in the market, including regulators.
Giancarlo said, “We can also envision the day where rulebooks are digitized, compliance is increasingly automated or built into business operations through smart contracts, and regulatory reporting is satisfied through real-time DLT networks. The machines here at the CFTC would have the ability to communicate regulatory requirements and consume and analyze the data that comes in through such systems.”
Regulators across the globe are working to apply regulations to rapidly changing new technologies and FinTech innovations, and Giancarlo confirmed that the CFTC has “the ability to keep pace with those who attempt to defraud, distort, or manipulate,” a major focus of regulatory efforts. Giancarlo indicated that the CFTC is evaluating an active form regulation that can “respond to real-time challenges posed by new technologies.” When speaking to those regulatory challenges, Giancarlo specifically mentioned both decentralized markets and disintermediated traditional actors. Giancarlo did say hint that the CFTC is already working on establishing systems that will automate market regulations.
When describing the new systems based on DLT and machine learning, Giancarlo emphasized that they would be able to both digitize rules and regulations and also be able to consume, process, and analyze data in real-time. This would increase the ability of the CFTC to analyze data as it is being reported, as well as evaluate the impact of specific provisions and assess potential modifications.
Giancarlo said, “Rather than rely on static rules and regulations that were put in place without knowing exactly the consequences or result they would drive in the market, we may be able to measure data, real-world outcomes, and success in satisfying regulatory objectives.”
The upshot is that DLT, if given the proper time to develop, could mean the end of settlement banks, centralized exchanges, expensive enforcement agencies and court proceedings, and could diminish the need for much of the ancillary work surrounding the capital markets as we know them today. This all results in the democratization of capital (both the raising of and access to). This is the reason The Rodman Law Group zealously advocates for the technology and the industry, in the end the everyday individual will benefit from this. The cost of doing business and of living life will go down and pre-retail investing will no longer be regulated to the 1%.