The U.S. Commodity Futures Trading Commission is “grateful” for the technology innovation in financial markets, but guardrails are needed to ensure fairness and investor protection, Commissioner Summer Mersinger indicated Thursday morning at the Options Industry Conference in Nashville.
Mersinger likened her own career and the current industry landscape to “Welcome to the Future” by Brad Paisley. The country song’s lyrics describe the changes that the narrator has seen in his lifetime, including the advances in technology and inter-cultural relationships.
“The future is here,” Mersinger said. “We’re seeing new participants and new market structures. We need to balance the benefits and the risks. This is what we’re thinking about every day at the CFTC.”
Mersinger highlighted two areas the CFTC is focusing on with regard to the market’s evolution, or perhaps even revolution: the increase in retail trading, and the emergence of vertically integrated business models.
Mersinger said that while increased retail trading volumes over the past few years have benefited the market, there needs to be a strong and sustained emphasis on education.
“Are we providing the right customer education?” Mersinger asked. “Customers who are new to the market need to properly understand how products work.”
To ensure customer protections, as well as market safety and integrity, the CFTC focuses on clear and transparent rules, along with targeted enforcement efforts, Mersinger said. The industry needs to provide education.
“We have asked the industry to educate, and we as a regulator also need to do that,” she said. “The more we can work together, the more we can be a team to provide education.”
With regard to vertical integration, Mersinger said that intermediaries offering trading, settlement, custody, lending, and other services – as opposed to specializing – isn’t necessarily a bad thing, but it needs regulatory review.
“This is something new for the CFTC, and in the futures market generally,” she said. “It’s a new setup to market structure that we didn’t envision.”
“I’m worried that our rules were not set up to manage that type of vertical integration,” Mersinger said, adding that it would be helpful to have an industry forum to discuss the issue. “We need to look at regulations, and make sure what’s in place allows us to fulfill our mission under the Commodities Exchange Act.”
Added Mersinger: “We will do what we can to promote innovation, but in a responsible manner.”
