CFTC Chair Highlights DLT’s Potential in Improving “Quantitative Regulation”

Developments in the FinTech sector may be leveraged for the improvement of derivatives markets regulation, said Commodity Futures Trading Commission (CFTC) chairman J. Christopher Giancarlo.

During the D.C. Fintech Week Conference held November 7 at Georgetown University, Giancarlo explained how distributed ledger technology (DLT) could potentially be applied in the automation of what he termed as “quantitative regulation.”

As Giancarlo posited, automating such regulatory processes could potentially boost the efficiency of regulators in overseeing markets while minimizing costs, stating that:

“As we think about the application of [financial] technologies to trading markets, it is no leap of the imagination to consider how automation could help reduce cost and bring efficiencies to trade matching, processing, and clearing and settlement. Indeed, when paired with systems inspired by DLT that standardize and distribute data to market actors – and even regulators – we begin to see a world where the majority of standard tasks are managed by machines.”

Giancarlo went on, adding that:

“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.”

Such a transition would allow CFTC to analyze data in real-time more expeditiously, thereby enabling the regulator to gauge the impact of implemented rules, which can then be amended to ensure optimum results, Giancarlo surmised, noting that:

“The two regulatory objectives you’re trying to solve for with a speed limit are safety and the efficient flow of traffic. If you actually had a dynamic speed limit that measured road and weather conditions (imagine a digital display), you might be able to slow the speed limit down if it’s raining in order to better satisfy the safety objective or increase the speed limit on a sunny weekday afternoon when traffic is light to achieve a safe, but more efficient, flow of traffic.