So the pendulum swings.
In recent days and weeks, financial industry participants have welcomed a softer tone on regulation from the Trump Administration. For some in the industry, the heavy lead regulatory blanket that has weighed down the industry appears to be lifting. Could we be opening the doors to a new era of financial innovation?
In the midst of the Dodd-Frank Act rules rollout, mandated by Congress and ushered in by the CFTC and SEC among others, we’ve seen little progress in terms of innovation within the financial services sector with the exception of reporting, compliance and audit solutions. Yes, tech firms are pushing ahead with new functionality, even new technologies, but much of their time has been spent on the consideration and inclusion of how to incorporate regulations into everything they do. While that makes sense on a basic level to anyone, it has risen to a level many call absurd.
FIA president and CEO Walt Lukken has been pushing for “smarter” regulation that helps address risk and wrongdoing with a balance of cost and practicality. See [[http://jlne.ws/2m9y6oA|Three ideas for Trump and FIA Boca Optimism]] And yesterday, FIA went on the offensive with a new comment letter, opposing the CFTC’s position limits reproposal calling it “an overboard solution in search of a hypothetical problem.” (See letter below).
Meanwhile, savvy industry veteran Thomas Thompson, who has served the Chicago Board of Trade, Eurex and most recently with the start-up agricultural SEF called Seed CX, argued in his new letter to the CFTC for “lighter” regulation. Having gone through the SEF application process for Seed, Thompson found that following the Part 37 rules and “putting it all in place was not only costly in dollar terms but also distracted management attention from relevant commercial issues and for the most part extinguished the appetite for invention.” (See below)
And so, acting CFTC Chairman Chris Giancarlo faces perhaps his toughest task at the commission – turning the CFTC’s culture and focus from prescriptive rule making back to more principles-based oversight. The reason is abundantly clear. The regulatory pendulum, not only in futures but across many industries, swung so far that it has choked off true innovation and perhaps competition as well.
Did banks and others deserve the biggest regulatory 2×4 smash in modern regulatory times? Yes. Did the futures industry get thrown in with all of it and subjected to more regulation than it deserved? Probably.
There is no doubt that Dodd-Frank and the G-20 principles on financial reform helped restore safety and stability to the global markets. But it is time to create an environment that fosters competition and innovation without such huge regulatory barriers to entry.
How we allow for a correctable variation versus a static system of rule will always be a debatable issue. But if we do not allow for new innovative ideas like Seed to even begin, or play whack-a-mole on position limits or create more compliance cost while limiting growth, the industry will continue to flounder. Markets will not do what they are intended to do. Let’s find that balance.