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Opening Statements

Thompson Issues Opening Statement at Full Committee FTX Hearing

"Changing Market Roles: The FTX Proposal and Trends in New Clearinghouse Models"

Remarks as prepared for delivery:

Thank you, Mr. Chairman.

I want to acknowledge your efforts to work collaboratively with me on this hearing. I especially appreciate that today’s table is a bipartisan witness table. It will be a better hearing because of our work together. Thank you.

In 1974, when the CFTC was first established, electronic trading was so novel that Congress directed the Commodity Futures Trading Commission in statute to "determine the feasibility of trading by computer." 

Today, of course, the idea computers would not have taken over markets seems almost laughable. Our markets exist almost entirely in computers. There are virtually no open-outcry pits left anywhere in the world.

But this transition did not happen overnight. Certainly, many people are responsible for the transition to electronic markets. However, we must give credit to both CME and ICE for their pioneering work in the 1990s and 2000s to bring the futures markets into the digital age.

The benefits of this technology have been enormous. Today, computers and capital work together to deepen liquidity, narrow spreads, reduce transaction times, and create new hedging opportunities. Electronic trading provides greater access and availability to all market participants.

But in the eyes of some, it also has some drawbacks. Certainly, the men and women put out of work might have mixed feelings. And to this day, a few market participants continue to believe that electronic markets are more volatile and less reliable than human-intermediated markets.

Since moving markets “to the screen,” the technology underpinning our markets has not stood still. Just last year, CME Group announced it was undertaking the next step in electronic markets by migrating to the cloud.

Like the move to electronic trading, their proposal could be both beneficial and disruptive to the markets. Cloud-based infrastructure could be another revolution in leveling the playing field for market access and reducing costs for participants while also upending how existing participants interact with exchanges.

Today, we will hear about another proposed market innovation: a recent proposal from FTX to expand their current non-intermediated clearinghouse to offer margined products. This proposal has generated excitement, concern, hope, and confusion across the derivatives and crypto industries. As I have said in the past, I believe this proposal is worthy of balanced consideration.

I know the Commission is working diligently to consider it. A few weeks ago, Chairman Behnam sat before us in this very room and explained his process. Specifically, he committed to us that the Commission will consider the proposal publicly, according to the core principles for a Derivatives Clearing Organization. Chairman Benham also committed to a comment period, which closed yesterday, and to hold a public roundtable, which will take place at the end of this month.

I don’t believe this Committee should duplicate that work. We have empowered the Commission, ensured stakeholders and the public have a seat at the table, and now we must trust the process. Where the Commission fails to consider the proposal appropriately, deviates from the law, or unnecessarily limits debate, we should not hesitate to weigh in. But that has not happened. 

For me, the more interesting part of today's testimony will be a broader conversation about changing market structure and the ever-evolving impact of technology on markets. Sometimes at a crawl, sometimes in leaps and bounds, technological innovation is revolutionizing the world around us.

I hope we can discuss how technology can continue to empower market participants by reducing costs, improving access, and protecting our financial markets by increasing transparency and reducing systemic risk.

We have the largest, most liquid, most dynamic derivatives markets in the world because the potential for innovation is baked into our regulatory structure. In the end, it is the market participants, and ultimately the American people, who benefit from the quality of these markets. Protecting and promoting the health of our markets is what should drive each of our regulatory decisions.

I want to welcome our witnesses and thank all of them for their diligence in preparing today. I look forward to your testimony.

With that, I yield back.