CFTC Chair Warns Of 'Unknowns' As Ukraine Crisis Continues

Law360 (March 16, 2022, 3:40 PM EDT) -- The head of the Commodity Futures Trading Commission said Wednesday that the agency is operating on "heightened alert" amid the Ukraine crisis, noting that Russia's invasion of the country has caused "extreme volatility" across global markets and that unknown challenges lie ahead. 

Speaking at a futures industry event, CFTC Chairman Rostin Behnam said markets are "reacting and operating well" given the challenging situation in Ukraine, but that he is calling up all of the agency's resources to tackle ongoing volatility, ensure commodities markets continue operating smoothly and reduce the collateral effects of sanctions on Russia.

"The ongoing tragedy in Ukraine has resulted in extreme volatility and, at the same time, record trading volume on global markets," Behnam said in the prepared remarks. "At my direction, CFTC staff are using every tool the agency has to ensure that commodity markets continue to fairly and transparently serve the intended price discovery and risk management function."

But, he added, "There remain unknowns, especially in the derivatives space, as we hit upcoming delivery marks or if we have any number of supply constraints that could affect different products and asset classes."

CFTC surveillance staff is "surgically focused" on their analysis of any manipulative, inappropriate or disruptive trading, while commission staff actively monitors compliance by exchanges, self-regulatory organizations and intermediaries for trade processing, execution and clearing issues, Behnam said.

The CFTC is also working closely with the U.S. Department of the Treasury and other domestic and global regulators to help manage market participants' exposures to sanctions levied against Russia, Behnam said. 

"CFTC staff are in routine contact with exchanges as sanctions and related volatility may alter affected index, currency and physical commodity settlements," he said.

The comments came as part of a broader speech during which Behnam characterized the Ukraine situation as the latest in a string of unique challenges, including the COVID-19 pandemic, that are putting the resiliency of financial markets to the test.

"The last several years, and now the last several weeks and days, have sent vibrations throughout the world and our markets," he said. "We are facing the confluence of so many unique externalities that have whipsawing effects on markets."

In addition, Behnam pointed to the evolving effects that digital assets, fintech innovations, the "gamification" of investing platforms and the broader "massive influx of retail participants" are having on financial markets, saying they are revealing structural market concerns and potential compliance gaps.

"What we are seeing now appears to be rooted in a lack of risk management or the absence of a structured compliance function," he said. "It may be that we need to assert our authority and regulatory oversight, tempered by the need to be clear in the boundaries of our authority, but firm enough to incite a culture of compliance."

Behnam tipped his hat to President Joe Biden for his recent executive order on the "responsible development of digital assets," calling it a "significant step toward ensuring greater cooperation and coordination" between government agencies and regulators.

"I have long advocated that more needed to be done to effectively capture the breadth and potential market impact of fintech for safe and transparent public consumption," he said.

--Editing by Alanna Weissman.

For a reprint of this article, please contact reprints@law360.com.

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