CFTC’s Massad: Liquidity Affected by Factors Beyond Regulation

Derivatives regulation was not much discussed during the 2016 Presidential campaign, a fact CFTC Chairman Timothy Massad noted at the opening of his remarks at the Global Financial Leadership Conference. A shame, he added, tongue in cheek, “It might have been a welcome break from issues that were sometimes discussed.”


Massad took some time to discuss with financial leaders in attendance some of the work his agency has completed or pushed forward in his 30 months on the job, and looked ahead to 2017.

One key question for the future in derivatives markets is that of liquidity, and what it means to different kinds of traders.

“It’s important to remember liquidity is shaped by many factors beyond regulation,” he says. “Those include market structure, technological change and general economic conditions. It can be very very hard to separate the effects of these various factors. ”

He highligted automated trading as one factor important to this discussion.

“Some would say a lot of activity in our markets today doesn’t facilitate a transfer of risk, for example, many high frequency traders want to be flat at the end of the day. Others would say prices have come down, trading is more efficient and the nature of liquidity is simply different,”

A few other areas he highlighted:

  • Cyber attacks: Massad said there is “nothing more concerning in threats to financial stability,” and that we should expect a continued focus on cyber threats. Not more rules, he added, but a continuation of action the agency has been taking such as sharing information on threats among different agencies.
  • Blockchain:  Massad said the CFTC is looking at rules at how records must be kept, recognizing that these rules are outdated. They will become moreso if smart contracts become reality.
  • Strengthening clearinghoues: “No where is it more important to look at the consequences of reform than central clearing,” said Massad. He announced that the CFTC will be releasing results of supervisory stress tests this week that assess the impact of stressful market scenarios across clearinghouses and clearing members.
  • International coordination on regulation: Massad reminded attendees of the importance to harmonizing rules among jurisdictions. “I don’t think you can have modern regulation of global markets without extensive international cooperation and coordination,” said Massad.


Evan Peterson is director of corporate marketing at CME Group and managing editor of OpenMarkets.

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