Speaking at the Cato Institute think tank, one of the members of the Commodity Futures Trading Commission (CFTC) Caroline D. Pham suggested that the U.S. agency overseeing derivative markets should start a small test program for regulating cryptocurrencies.
She proposed this program to help create digital asset markets that follow the rules and allow tokenization, highlighting the importance of heightened regulatory supervision.
“I’m recommending a time-limited CFTC pilot program to support the development of compliant digital asset markets and tokenization.”
Caroline D. Pham, Commissioner of the Commodity Futures Trading Commission.
Following a roundtable discussion to collect suggestions, Pham also suggested that the agency should establish a temporary program. This program would include various elements from previous pilot programs, such as rules for registration, qualifications, financial resources, risk management, product terms, and other necessary regulations, including transparency and reporting.
According to Pham, policymakers in other countries demonstrate a significant consensus regarding the importance of promoting responsible economic growth. Pham contrasted this robust approach with what she perceives as a tendency in the United States to become complacent, especially within the blockchain and digital assets realm.
“A ‘wait and see’ approach in the US towards the potential opportunities of blockchain technology and digital assets falls short of the proactive measures needed in this rapidly evolving industry,” said Pham.
Pham believes that cryptocurrency regulations lack clear rules and strong protections. This is why she keeps pushing for the CFTC to be tougher on crypto, similar to how Gary Gensler’s SEC has been proactive in regulating the industry.
During a Bloomberg interview in July, Gensler aggressively characterized the crypto industry as “a field rife with fraud, rife with hucksters.” He also advocated for an increase in regulatory enforcement, emphasizing the need for “more cops on the beat.”
According to Pham, historical experience has shown that pilot programs have been beneficial for regulators. For example, the CFTC initiated a three-year pilot program in 1995, aimed at evaluating innovative trading methods and products.
During the program, regulators established trading regulations and outlined criteria for registration, reporting, and risk disclosure.
Following this successful trial, another one was conducted in April 1998. This fresh pilot program considered the possibility of permitting the buying and selling of agricultural trade options for certain commodities. Like its predecessor, this program also tested a set of new requirements for entities seeking greater flexibility in their day-to-day operations.
Then in June 2010, Pham noted that the CFTC implemented a new series of regulations in response to the “Flash Crash” that occurred on May 6, 2010. The objective was to assess the performance of “circuit breakers” for trading specific stocks on exchanges and FINRA.
During this period, U.S.-based exchanges played a valuable role by leveraging their own expertise to suggest alterations to the rules requiring trading halts. These halts would be activated if the price of a particular stock surged by 10 percent or more within a five-minute timeframe.
The 2010 pilot program proved to be so successful that the CFTC promptly formalized the regulations. Pham asserted that both market participants and regulators were justified in their confidence that these new requirements were necessary and would be effective in practice.
“I am optimistic that this approach will ensure the integrity of our markets…foster liquidity and competition, address potential conflicts and risks and prevent fraud, abusive practices and manipulation,” said Pham.
However, Pham emphasized that the CFTC should be the one to propose and establish the new industry rules, not crypto exchanges and firms. Interestingly, her proposal doesn’t specify how much influence market players will have.
It raises questions about whether their opinions will truly matter or if the CFTC, as the ultimate decision-maker, can impose its desired rules without considering the input of exchanges and firms. Pham didn’t provide answers to these questions, but she did stress the importance of creating a “compliant” digital assets market.
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