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Below is the transcript of a CNBC exclusive interview with Christopher Giancarlo, Chairman, U.S. CFTC. The interview was first broadcast on CNBC's Street Signs Asia on 14 September 2018.
All references must be sourced to a "CNBC Interview'.
Interviewed by CNBC's Amanda Drury
Amanda Drury(Mandy): We're sitting here in a CNBC exclusive with that Chris Giancarlo the chairman of the U.S. CFTC which is the top derivatives market regulator. It's a real pleasure to have you with us especially in light of this 10 year anniversary Chris.
Christopher Giancarlo(Chris): Great to be here Mandy.
Mandy: So ten years on, where do you see the systemic risks lying?
Chris: Well, a very different place from where we were 10 years ago, as you say. Those were frightening times. 10 years ago to this very month, this very week. At that point before I was a regulator, I was actually running a firm that was the largest trading platform for over-the-counter credit default swaps, which was at the center of the crisis. At the cold face of it, we were there as the credit spreads and the Lehman Brothers were gasping out and giving the signal to the market that Lehman brothers were in serious trouble. And the response to that was, as many are talking about now, 10 years, a very challenging a very very very difficult one. Difficult decisions were made but they were decisions that in hindsight, worked. The global financial system is far stronger, far more resilient today than it was then. But still we need to look at the response constantly and say, have we calibrated right? Do we have the right issues? And part of the reason I'm here in Singapore, is to speak to our regulatory colleagues here and elsewhere in Asia, in Tokyo and with Australia, about have we got it right, and what are some things we can improve upon. And one of the things we are concerned about is the fragmentation of markets, some of which is a result of some of the reforms we've done. So can we re-address that and get that right.
Mandy: How do you readdress the fragmentation? How do you make it more coherent?
Chris: So there are some elements the fragmentations that are actually caused by some of the regulatory response. In fact, in some cases, some of the exporting of U.S. making has something to do with some of that fragmentation. So we at the CFTC have announced that we're going to reconsider that and take a look at that. I've been sharing that with some of our overseas counterparts and I must say we are receiving a warm welcome to some of that rethinking here in Asia.
Mandy: Dodd Frank was a reaction to the GFC and then Dodd Frank was also accused of in some quarters, overreach and then then there was the partial rollback of Dodd Frank. And some people said oh no we're being left open to vulnerabilities. Where do you find the right balance?
Chris: Well so, I'm a supporter of the core reforms that were addressed in Pittsburgh in 2009. I'm a supporter to Dodd Frank and how they were addressed to Title 7 of Dodd Frank, which the title that deals with swaps. But I have been critical of some of the work done by my agency previously, in implementing those reforms specifically two areas. One, as you noted in the cross-border application rules. I think they went too far. And I think we can recalibrate them in a way that won't fracture Asian markets. And the other is in the area where how swaps are executed. You know, governments should never be in the business of platform engineering. The market needs to determine how best to execute a transaction and not a regulator.
Mandy: But you've said that the U.S. should be a Rule Maker and not a rule taker. Who is that aimed at and what exactly does it mean when you say not too hands on the steering wheel here folks.
Chris: So Mandy, you've clearly been looking into these issues that's been a key issue for us. We have the largest derivative markets in the world and yet markets that are newer, some of them in Europe. As they're formulating some of their regulations, some in response to Brexit, they themselves are getting in the game of exporting their regulation. And that's why we all need to pare back from that step. And when I say U.S. is a rule maker, we are not going to accept rulemaking coming out of Brussels that's gonna apply to U.S. markets.
Mandy: And do you feel that, in your conversations with the various regulatory jurisdictions around the world on this two week fly around the world. Do you feel that you're getting the cooperation that you want?
Chris: I do. I think we're making our position well-known, in terms of our U.S. domestic markets. That will be the sovereign rule maker there. But in terms of overseas markets, that we will pare back for where we have overreached our regulation and allow those markets to return to one market, one regulator, one set of rules.
Mandy: Talking about rules, how do you regulate the blockchain and crypto currency, or commodity market, whatever you want to call it. You've actually been dubbed Crypto Dad and an ally of the industry because you'd be willing to hold out an olive branch to the innovators and the companies that are involved in crypto currencies and say, well let's work together on this. You know, we're not just going to give you the roles we're going to collaborate.
Chris: Exactly Mandy, you know I grew up during the internet revolution and watched how, a very enlightened approach by the U.S. government of, first, do no harm. The old doctors' saying was applied to the development of the Internet, and the Internet flourished tremendously over a 20 year period because the federal government did not step in too heavily. And I'm advocating the same approach to crypto currencies and all things having to do with this new digital revolution of markets, and of currency, and of asset classes, the tokenization of asset classes.
Mandy: What are they? In terms of an asset classes, are they currencies? Are they commodities? Is it something completely different? Are they a Ponzi scheme?
Chris: I think they're something entirely new. I mean I think they don't fit any of the old labels. It's a digital asset. It's a tokenization of value. And I think we need to be very well-informed but I think we need to move cautiously as regulators not to inhibit innovation. At the same time, we need to be vigilant against fraud and manipulation because some of the fraud and manipulation that we often see in foreign exchange or in precious metals are now being applied to their currencies by some of the same fraudsters that operate those other asset classes. So when it comes to foreign manipulation, we need to be strong when it comes to policymaking, I think we need to be slow and deliberate and well-informed.
Mandy: But here's a question. Are you perhaps too slow and too cautious? Because regulators have been blamed for, A) underestimating the potential and maybe even the systemic risk posed by the crypto market. And number two it's not ring fencing it fast enough, so we do have these frauds eventually.
Chris: So some would say we're too slow. Others have said we've been too fast. So we at the CFTC saw the very first regulated offerings of Bitcoin futures. We now have two Bitcoin futures trading in our supervised markets. No other regime in the world has allowed this to go forward, but in the area of our CFTC regulation we have two very effective bitcoin futures products now trading actively on the Chicago Mercantile Exchange and Chicago Board Options Exchange. So in some ways, we've actually been very forward leaning in this area.
Mandy: Very quickly, the whistle blower program, you've given it a shot in the arm by doing some very big whistle blower awards recently, which I guess motivates people to come forward but at the same time the process is very slow. How can you speed it up?
Chris: Well, we have done more whistleblower awards in the first 18 months of my tenure as chairman of the agency, than has been done in the life of this program at the agency. So I'm actually very proud of our forward leading in this area and I believe it's one very effective tool in the enforcement toolbox. We will continue to use it very effectively at the CFTC.
Mandy: Wonderful to talk to you. Thank you very much for joining us. So we've been speaking with Chris Giancarlo the chairman of the USAC FTC.
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